Implications of Brexit for payments

Is any new EU legislation expected to come into force and effect before the end of the transition period?

Certain of the RTS on SCA will come into effect before the end of the proposed transition period. Given their importance, it is likely that the UK government will seek to incorporate the standards into UK domestic law.

In addition to the EU’s anti-money laundering measures (such as the 4th and 5th Anti-Money Laundering Directives), there are four key pieces of existing EU payments legislation that would need to be incorporated more fully into UK domestic legislation if the UK leaves the EU on 29 March 2019 without a transition period in place:

• the Second Payment Services Directive (PSD2);
• the Second E-money Directive;
• the Cross-border Payments Regulations; and
• the Interchange Fee Regulations.

It is currently proposed that this ‘on-shoring’ of EU legislation will be achieved through the publication of statutory instruments under the European Union (Withdrawal) Act 2018.

In the event of a transition period post-Brexit, it is expected that these SIs would be “paused” by a further Bill (the "Withdrawal Agreement and Implementation Bill").

Is a new regulator needed, or do additional powers to be given to an existing regulator?

The UK government plans to delegate powers to the Bank of England, the Prudential Regulation Authority, the Financial Conduct Authority and the Payment Systems Regulator to make the required changes to on-shored Binding Technical Standards and regulatory rulebooks to ensure that there is a complete and robust legal framework for financial regulation in the UK in the event of a failure to agree a transition period.

The UK government and FCA propose to consult upon a temporary permissions regime that would allow incoming EEA APIs and EMIs to continue providing services in the UK for a time-limited period after the UK has left the EU, even if there is no implementation period.

Firms wishing to continue carrying out business in the UK in the longer term will also be able to use this period to obtain full authorisation (or recognition) from UK regulators without disruption to their business.

The FCA has stated that it will set out separate details in due course for EU entities that currently access or do business in the UK through means other than an EU passport.

Is there an existing "equivalence" or "recognition" regime for recognising Third Country regulatory regimes?

The UK is currently part of the geographical scope of the SEPA schemes due to its EU membership.

If the UK remains in the EEA post-Brexit or the UK implements requirements equivalent to the criteria for participation in the SEPA schemes, UK PSPs are likely to be able to continue their participation in the schemes post-Brexit.

In the latter scenario, it is likely that the European Payments Council would need to assess and confirm any functional equivalence of the UK’s legal framework with EU law and consult with the Commission in order to make any final determination in respect of the UK’s SEPA membership.

If the UK's SEPA membership is preserved after the transition period, this will mean that UK PSPs can continue to interact with counterparts in other SEPA countries on current terms.

Does current UK government policy mean that (subject to the terms of a future trade agreement between the UK and the EU) material changes to regulation or enforcement are likely post-Brexit?

Within the payments sector, it is expected that the UK will largely follow the EU regulatory regime.

What should businesses be doing now to prepare for Brexit?

If your firm is a retailer, you should determine:

• the location of your headquarters and your payment processing centre;
• the location of your consumers – are they mainly inside the UK or mainly outside the UK?; and
• the location of your acquirer.

The answers to these questions will determine the impact of Brexit and may bring into question the location of your headquarters and your payment processing arrangements.

Any PSP that relies on passporting rights to passport its services from the EU27 into the UK will need to consider whether any of its activities are regulated for the purposes of the Financial Services and Markets Act 2000, whether it will need to be authorised by the FCA in order to continue to provide those services post-Brexit, and whether it may need to set up a branch or a subsidiary in the UK in order to apply for the necessary FCA permission.