Fintech, digital assets, payments and consumer credit | UK Regulatory Outlook April 2024

HM Treasury policy note on delaying payments processing and draft amending regulations

On 12 March 2024, HM Treasury published a near-final version of the Payment Services (Amendment) Regulations 2024, which aim to delay payments processing when there are reasonable grounds to suspect fraud or dishonesty. The publication is part of the government's work to tackle authorised push payment (APP) fraud.

The draft regulations amend provisions in the Payment Services Regulations 2017 which require  payment service providers (PSPs) to execute payment transactions within maximum time limits (regulation 86). The amendments give a payer’s PSP the ability to delay the execution of certain payment orders where, within a specified time, it establishes reasonable grounds to suspect the order has been executed subsequent to fraud or dishonesty perpetrated by a third party (which may include the payee). The delay should be used to enable the PSP to determine whether the order should be executed and must not exceed a specified time limit.

PSPs will be required to inform customers of any delays, the reasons for their decision, and what information or actions are needed to help the PSP decide whether to execute the order. However, this will not be required to the extent complying would be unlawful (for example, under anti-money laundering legislation).

HM Treasury intends to lay the regulations before parliament in summer 2024, and bring them into force at the same time as the new rules on mandatory reimbursement for APP fraud in October 2024.

HM Treasury policy note on amending payment services contract termination provisions and draft regulations

On 14 March 2024, HM Treasury published a near-final version of the Payment Services and Payment Accounts (Contract Terminations) (Amendment) Regulations 2024, which aim to amend the requirements relating to provider-initiated terminations of payment service contracts.

The draft regulations amend the PSRs to impose new requirements relating to payment service framework contracts concluded for an indefinite period which are terminated by a PSP. The minimum termination notice period will increase from two months to 90 days, and PSPs will be required to explain the reasons for the termination. The draft regulations also amend the Payment Accounts Regulations 2015 to bring the notice period and related requirement to give reasons into line with the new requirements in the PSRs.

The policy note sets out the rationale for the changes and explains the intended exceptions to the requirements, as well as wider scenarios the government has considered. These changes will not extend to framework contracts that are regulated running account credit facilities (such as credit cards).  Instead, section 98A of the Consumer Credit Act 1974 will continue to apply.

HM Treasury intends to lay the regulations before parliament in summer 2024, subject to parliamentary timing, and for them to commence as soon as practicable thereafter.

HM Treasury sets out approach to designation of critical third parties

On 21 March 2024, HM Treasury published a document setting out its approach to designating critical third parties (CTPs).

HM Treasury has power under the Financial Services and Markets Act 2023 (FSMA 2023) to designate a third-party service provider to the UK financial services sector as "critical". FSMA 2023 gives the financial regulators (the Bank of England, the PRA and the FCA) power to set and enforce rules for designated CTPs, as well as the ability to gather information and conduct investigations on designated CTPs.

HM Treasury expects to base designations of CTPs on recommendations from the financial regulators, but may also designate a CTP without a recommendation from the financial regulators. The document sets out an indicative process for designation and how a designation decision will be communicated.

As the regime aims to mitigate a systemic risk of over-reliance by the financial services sector on a few major providers, HM Treasury expects that CTPs will represent a small proportion of third-party service providers to the industry, with the list changing over time.

Delegated regulation amending list of high-risk third countries under MLD4

See Bribery, fraud and anti-money laundering section.

FCA publishes finalised guidance on financial promotions on social media

See Advertising and Marketing section, and our Insight.