The European Banking Authority published a consultation paper on draft Regulatory Technical Standards specifying the requirements of strong customer authentication and secure communication under the revised Payment Services Directive (known as PSD2). PSD2, which will apply from January 13, 2018, requires payment service providers to apply strong customer authentication measures where the payer: (i) accesses its payment account online; (ii) initiates an electronic payment transaction; and (iii) carries out any action through a remote channel which may imply a risk of payment fraud or other abuses.  

Read more.

The Financial Conduct Authority published a policy statement on changes to the FCA Handbook to implement the Payment Accounts Regulations 2015 (PAR). The policy statement summarizes feedback from its consultation on the implementation of the PAR in March of this year and contains the subsequent final changes to the FCA Handbook and the finalized non-Handbook guidance. 

Changes to the Handbook and Guidance touch on various issues. Minor amendments have been made to the Guidance to provide clarity on the definition of a “payment account” in the Handbook and the scope of the PAR provisions on packaged accounts has been clarified. Amendments have also been made in relation to the regulatory reporting requirements. For example, the total number of refusals of switching and basic bank account applications would now need to be reported (rather than the proportion of total applications refused). The reporting deadline has also been extended to two months (instead of one month) after the end of the reporting period.

Changes to the Handbook and Guidance will come into effect on September 18, 2016, which is the same day as the date on which the Payment Account Regulations provisions on packaged accounts, switching and basic bank accounts enter into force.

View the policy statement.

The Financial Conduct Authority published its final report outlining findings from its credit card market study. The FCA credit card market study was launched in November 2014. The purpose of the study was to analyze the credit card market and determine whether it is working in the interest of consumers and to develop remedies to improve the situation if needed. Interim findings were published in November 2015 with potential remedies mooted for certain issues such as the frequent withdrawal of firms’ promotional offers and the fees associated with a single month’s missed payment. The final report summarizes feedback received on the interim report and outlines the FCA’s package of remedies.

The Payment Systems Regulator published its final report on its market review into the supply of indirect access to payment systems. Banks, building societies and other payment service providers rely on payment systems to transfer money between accounts. The PSR commented that provision of access to payment systems is essential in enabling effective supervision of and innovation in payments. Indirect access to payment systems occurs when one payment service provider relies on another payment service provider to provide access. The PSRs final conclusions remain largely unchanged from its interim report.    

The PSR concluded that generally, competition in the supply of indirect access appears to be producing some good outcomes. For example, large indirect payment service providers (IPSPs) have a number of options to access payments systems, there is a reasonable level of overall satisfaction with the quality of the indirect access offering that IPSPs receive. 

Read more.

The UK Payment Systems Regulator published a consultation paper on the application of provisions in the Interchange Fee Regulation, which take effect in the UK from June 9, 2016. The Regulation sets a limit on interchange fees on debit and credit card transactions where both the issuer and acquirer are located in the European Economic Area and outlines a number of business rule provisions that require affected parties to amend their business practices. The consultation paper is Phase II of the PSR’s consultation on the Regulation; the previous Phase I paper outlined the PSR’s powers and procedures as the designated regulator for monitoring and compliance of the Regulation. The Regulation came into effect on December 9, 2015. This consultation concerns the PSR’s approach to the remaining provisions which will come into effect on June 9, 2016, focusing on three areas: (i) business rules; (ii) monitoring and enforcement of the business rules; and (iii) amendments to the Phase I Guidance. 

Responses to the consultation were due by July 8, 2016.

View the consultation paper. 

View further information on Phase I guidance.

The UK Payment Systems Regulator published a Policy Statement and final Guidance on the application of the Payment Accounts Regulations 2015 in respect of alternative arrangements for switching accounts. The final guidance sets out the approach under the PSR to designating alternative switching schemes and is relevant to operators of alternative switching schemes, payment service providers, consumers and regulators.
 

The UK Payment Systems Regulator announced that after consideration, it had decided that it would not be imposing any new access or governance requirements on card payment schemes. The PSR introduced governance requirements for interbank payment systems in 2015. The PSR has considered the information it has gathered as well as the improvements made in the area through EU legislation, in particular, the Payment Services Regulations 2009. The PSR will continue to assess whether any changes are necessary.

View the announcement.

US Commodity Futures Trading Commission Commissioner Christopher Giancarlo discussed distributed ledger technology, commonly known as DLT or blockchain and its potential to "revolutionize the world of finance." He noted some of the potential uses of blockchain technology, including increasing settlement efficiency and speed, linking recordkeeping networks, reducing transaction costs and increasing market access. Giancarlo also noted potential opportunities in payments, banking, securities settlement, title recording, cyber security and trade reporting and analysis. Citing the collapse of Lehman Brothers, Giancarlo emphasized that blockchain technology could provide regulators better visibility into trading portfolios between counterparties, allowing them to react sooner in the face of financial deterioration. Analogizing the development of blockchain to the inception of the internet, Commissioner Giancarlo called on US regulators to let the private sector lead and to avoid impeding innovation and investment as the technology develops. He advocated for a principles-based approach developed in coordination between US and foreign regulators. Finally, he noted that regulators should revisit existing rules and recordkeeping requirements to be sure that they do not inhibit innovation. With respect to the CFTC specifically, he said his agency will revisit Rule 1.31 - a recordkeeping rule that requires all books and records to be kept in their original form or native file format.

View Commissioner Giancarlo’s speech.

The UK Payment Systems Regulator published its final Guidance on the application of the EU Interchange Fee Regulation. The IFR, which is directly applicable across the EU, applies to payment card schemes, issuing and acquiring payment service providers, processing entities, other technical service providers and, in certain circumstances, merchants. The IFR applies to the following payment card schemes: MasterCard, Visa Europe, American Express, Diners Club International, JCB International and Union Pay International. The PSR's Guidance covers: (i) the classification of schemes for IFR purposes; (ii) interchange fee caps and the possible exemption from those caps for some three-party schemes; (iii) the PSR's powers and procedures, including penalties for non-compliance; and (iv) the business rules.
 

The UK Payments Systems Regulator published its final Guidance for designated representative bodies making so-called "super complaints" under the Financial Services (Banking Reform) Act 2013. The representatives can issue complaints to the Payments Systems Regulator when one or more features of a UK operated market (or a market that operates only in part in the UK) for services provided by payment systems are, or appear to be, significantly damaging the interests of payment service users. Super complaints are complaints made on behalf or as a result of issues affecting a large number of users. The list of designated representative bodies published by HM Treasury in February will become effective on April 1, 2016. The first designated representative bodies are: (i) the National Association of Citizens Advice Bureaux; (ii) the General Consumers’ Association; (iii) the Consumer Council for Northern Ireland; (iv) the National Federation of Self Employed and Small Businesses; and (v) Age UK.
 

The Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) Order 2016 was made. The Order amends legislation relating to the regulation of activities connected with lending, primarily the Financial Services Act and Markets Act (2000). The Order extends the scope of regulated activities for certain types of activities which previously did not qualify as a regulated activity, for the purpose of the FSMA, are now deemed a regulated activity. For example, it provides amendments to the regulated activity of operating electronic systems in relation to lending. The amend states that the activity is regulated whether the operation collects interest or not under the lending agreement, and where a person carrying on that activity, facilitating another person transferring their rights under an agreement to a third party, is a regulated activity. The Order also serves partly to implement the Mortgage Credit Directive Order. For example, the Order extends the scope of the regulated activities of arranging and advising on regulated mortgage contracts so that mortgages entered into before October 31, 2004 (which are regulated as consumer credit agreements before March 21, 2016) are included within the activities from that date. The Order came into force on March 17, 2016.

View the Order. 

The Payment Systems Regulator published a consultation paper on the application of the Payment Account Regulations 2015 to alternative arrangements for switching accounts, including draft guidance on its approach to designating alternative switching schemes and monitoring of the PSR's compliance under the PAR. The EU Payment Accounts Directive was transposed into UK law through the PARs. The Payment Accounts Directive outlines the mandatory regulatory standards for EU Member States for matters such as facilitating current account switching and ensuring access to bank accounts with basic features. Provisions in the PAR relating to the role of the PSR will come into effect on September 18, 2016. The PSR's proposed guidance explains how to apply for designation as an "alternative arrangement" for switching, how the PSR will assess applications for designation, and how the PSR will monitor and enforce compliance of alternative arrangements for switching. Comments on the proposals are required by April 12, 2016.

View the PSR consultation paper. 

View the PSR draft guidance.

HM Treasury published the Financial Services (Banking Reform) Act 2013 (Designated Representative Bodies) Order 2016 together with an explanatory memorandum. Under the Financial Services (Banking Reform) Act 2013, representatives designated by the Treasury can issue complaints to the Payments Systems Regulator (which was itself established under the Act) when one or more features of a UK operated market (or a market that operates only in part in the UK) for services provided by payment systems are, or appear to be, significantly damaging the interests of payment service users. The Order is the first to designate representatives that are able to issue complaints under the Act and aims to ensure that misconduct or market failure in the payment system sector is brought to the attention of the PSR and investigated. The Order designates five representatives: (i) the National Association of Citizens Advice Bureaux; (ii) the Consumers’ Association; (iii) the Consumer Council for Northern Ireland; (iv) the National Federation of Self Employed and Small Businesses; and (v) Age UK. The Order comes into force on April 1, 2016.
 
View the Order.
 
View the Explanatory Memorandum.

The Financial Conduct Authority issued a Call for Input on its approach to the current payment services regime further to the revised Payment Services Directive (known as PSD2) which is to be transposed into national law by January 2018. PSD2 will affect the way payments services providers (such as banks, building societies and money transmission firms) are regulated. The FCA expects to revise certain sections of its Handbook in light of the revised directive and is seeking views on whether any issues exist that should be addressed when the updates are made. Responses to the Call for Input are due by March 23, 2016.
 
View the Call for Input.

The US Board of Governors of the Federal Reserve System released a report providing an update on its progress in implementing efforts to improve the US Payments System as set out in its 2015 Strategies for Improving the US Payments System. The report also outlines additional steps the Federal Reserve anticipates taking going forward. Two task forces comprised of more than 500 industry participants have been formed and they have created a list of 36 criteria that describe the attributes of an enhanced payment system. Work has been done with respect to standards, directories and business to business improvements to enhance payment system efficiency. The report also notes that joint efforts with industry participants recently culminated in a plan to implement the financial messaging standard ISO 20022 for US wire transfer systems and advanced plans to implement widespread same day Automated Clearing House settlement.

View the progress report.
 

The revised EU Payment Services Directive, known as PSD2, was published in the Official Journal of the European Union. The aims of PSD2, which focuses on electronic payments and payment services within the EU, include making payments between Member States as secure, easy and efficient as those made within a Member State, regulating new types of payment services and payment services providers which are currently unregulated and stimulating competition in the electronic payments market. Member States must transpose PSD2 into their national laws by January 13, 2018 and apply those laws from that date, subject to certain exceptions and transitional measures. PSD2 will appeal the current Payment Services Directive with effect from January 13, 2018.
 
View PSD2.

HM Treasury published the Payment Account Regulations together with an explanatory memorandum. The Regulations implement the Payment Accounts Directive which sets common standards for payment service providers across EU Member States. The three main policy objectives of the PAD are: (i) to improve transparency and comparability of payment account fees used on a daily basis for payment transactions (i.e. personal current accounts); (ii) to make it less burdensome for consumers to be able to move their current account from one payment service provider to another; and (iii) to ensure that EU residents have access to banking services and that a sufficient number of accounts that offer basic features are available. The new Regulations cover: (i) the obligations on payment service providers to enable consumers to make informed choices when choosing a payment account; (ii) non-discrimination in the provision of and access to payments accounts; and (iii) switching payments accounts and the facilitation of cross-border account opening for consumers. The Regulations will enter into force on September 18, 2016 except for those provisions related to the obligation of the Financial Conduct Authority to publish a list of the most representative services linked to a payment account and subject to a fee which will come into effect six months after the publication of that list.

View the Regulations.

The Payment Systems Regulator published its first annual report on access and governance of payment systems. The report sets out the progress of operators of designated payment systems in achieving more open and flexible direct access to payment systems and making the governance of payment system operators more inclusive and transparent. The report states that operators could do more to enable access for smaller banks and non-bank payment service providers and must ensure that the views of those that rely on payment systems are represented in the decision making of operators. The PSR also reports that progress has been made so far on clearer and fairer requirements for direct access, transparency of payment system operator decisions and better representation of payment systems' users' views.

View the report.

The European Banking Authority published a consultation paper on draft Regulatory Technical Standards on the framework for cooperation and exchange of information between national regulators for passporting under the revised Payment Services Directive (known as PSD2). The aims of PSD2, which focuses on electronic payments and payment services within the EU, include making payments between Member States as secure, easy and efficient as those made within a Member State, regulating new types of payment services and payment services providers which are currently unregulated and stimulating competition in the electronic payments market. The RTS aim to ensure that: (i) information about those entities that carry out business in EU Member States is exchanged between national regulators in a consistent way; (ii) there is clarity for payment institutions about their regulatory requirements; and (iii) the information that is to be shared between national regulators is specified. Comments are due by March 11, 2016.
 
View the consultation paper.

The European Banking Authority published a discussion paper on strong customer authentication and secure communication under the revised Payment Services Directive (known as PSD2), which is expected to enter into force in January 2016 and apply from January 2018. Under PSD2, the EBA must deliver Regulatory Technical Standards on strong customer authentication and secure communication by January 2017. The aims of these standards are to enhance consumer protection, promote innovation and improve the security of payment services across the EU. The draft RTS, once developed in conjunction with the European Central Bank, will set out: (i) the requirements for strong customer authentication; (ii) the exemptions from these requirements; (iii) measures that would protect security credentials of users; (iv) requirements for communications that are common and secure; and (v) security measures between the various types of providers in the payments sector. Comments are due by February 8, 2016.

View the consultation paper.

The UK Payment Systems Regulator issued a press release on the provisional determination of card schemes that are subject to domestic interchange fee caps in the UK under the EU Regulation on Interchange Fees for Card-Based Payment Transactions. The IFR introduces caps on interchange fees for debit and credit card transactions where the issuer and acquirer are both located in the EEA. The caps became applicable on December 9, 2015. The IFR  applies to the following payment card schemes: MasterCard, Visa Europe, American Express, Diners Club International, JCB International and Union Pay International. Following the responses to the PSR's information request published in November 2015 on the value of UK domestic debit and credit card transactions, and the possibility of American Express potentially qualifying for an exemption from the interchange fee caps on domestic transactions, the PSR's provisional conclusion is that the market share of American Express is above the 3% threshold and American Express and any payment service providers participating in the American Express Scheme must comply with the interchange fee caps for UK domestic transactions. The PSR will issue its final guidance as well as an announcement to specify the schemes that will be exempt from the domestic interchange fee caps for the period to 31 March 2016 at an unspecified later date.

View the press release.

The European Parliament announced that it adopted the revised Directive on Payment Services known as PSD2, which will repeal the current PSD. The aims of PSD2, which focuses on electronic payments and payment services within the EU, include making payments between Member States as secure, easy and efficient as those made within a Member State, regulating new types of payment services and payment services providers which are currently unregulated and stimulating competition in the electronic payments market. The Directive is expected to be formally adopted by the EU Council of Ministers and will then be published in the Official Journal of the European Union. Member States will then have two years to introduce PSD2 into national law.

View the text of the revised Directive.

View the press release.

The UK Payment Systems Regulator announced that it is conducting a survey aimed at payment service providers who access payment systems indirectly. The survey is intended to inform the PSR’s consideration of whether action is required in the context of its two market reviews, which are on: (i) the supply of indirect access to payment systems, launched in May 2015; and (ii) the ownership and competitiveness of infrastructure provision (the hardware, software, secure telecommunications network and operating environments that are used to manage and operate payment systems), first announced in November 2014. Responses to the survey are due by September 23, 2015.

View the survey form.

The UK Payment Systems Regulator published final guidance on its concurrent competition powers and on its approach to market reviews. The PSR has concurrent competition powers with the Competition and Markets Authority. The final guidance on the PSR’s powers and procedures under the Competition Act 1998, known as the CA98 Guidance, explains how the PSR will use its concurrent competition powers for participation in payment systems within the UK, in particular the enforcement processes it will follow and how they relate to its other powers and duties. The final guidance on the PSR’s powers and procedures for market reviews, market studies and market investigation, known as its Markets Guidance, explains the PSR’s powers to carry out market reviews, how the PSR will choose which powers to use, how the PSR will carry out market reviews and studies, including its approach to disclosure and use of information and how the PSR will make market investigation references.

View the CA98 Guidance.

View the Markets Guidance.

The UK Payment Systems Regulator published an update on the work it has done to ensure that access, direct or indirect, to payment systems is fairer and also identified next steps to be taken. The PSR has introduced new access and reporting rules for operators and has imposed a disclosure obligation on the four main sponsor banks providing indirect access. The PSR will continue to work with operators and sponsor banks to help them adapt to the new regulatory requirements and will publish the findings from its review of their compliance reports later in 2015. The PSR launched a market review into the supply of indirect access to market systems and aims to publish an interim report on the review by January 2016 and a final report by May 2016.

View the report.
 

The Payment Systems Regulator published the final terms of reference for its market review into the ownership and competitiveness of the UK payments system infrastructure. The review aims to ascertain whether current infrastructure services are effective for service users and able to support new developments and innovations. The review focuses in particular on interbank payment systems BACS, FPS and Link, and is based around the seven following questions: (i) whether there is effective competition in the provision of infrastructure services in interbank payments; (ii) whether current ownership arrangements of infrastructure providers affect competition; (iii) whether there are any barriers to effective competition; (iv) what the likelihood is of entry or expansion in respect of provision of infrastructure services; (v) whether there are any efficiencies resulting from the present ownership arrangements; (vi) how demand affects competition in the provision of infrastructure services; and (vii) what the benefits of greater levels of competition might be. The review will aim to address any concerns identified with a view to publishing new directions, recommendations or guidance if necessary, as well as encouraging further industry initiatives and self-regulation if needed. The PSR welcomes views on the key questions outlined in the terms of reference and aims to publish its final report in the second quarter of 2016.

View the terms of reference.