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

FCA outlines good and poor practices in cryptoasset financial promotion

On 7 August 2024, the Financial Conduct Authority (FCA) published a document setting out the findings of its assessment of firms' compliance with financial promotion rules for qualifying cryptoassets.

For a sample of firms, the FCA reviewed its onboarding process and approach to the cooling-off period, personalised risk warnings, client categorisation, appropriateness, record-keeping and due diligence. The report discusses the firms' performance and gives examples of good and poor practice for each category.

It warns that firms should not rely on comparing themselves with their peers to determine what is acceptable practice, and urges all firms to read the examples of good and poor practice.

PSR response to consultation on expanding variable recurring payments

On 15 August 2024, the Payment Systems Regulator (PSR) published a response to its consultation paper (CP23/12) on expanding variable recurring payments (VRPs), that is, payments between accounts in different names.

CP23/12 set out initial proposals on how to expand VRPs into new use cases, through a phase one roll-out that would initially enable VRPs for payments to regulated financial services, regulated utilities sectors, and local and central government.

In the response, the PSR explains how it plans to develop the proposals, with a view to publishing updated proposals in autumn 2024 which will cover the following issues:

• The PSR continues to believe that a multilateral agreement (MLA) could be an efficient way of managing relationships between sending firms and payment initiation service providers, but acknowledges concerns about who could operate the MLA. It will work closely with the VRP implementation group to look at what specific rules and provisions a potential MLA should include, and who might be best placed to operate it.
• The PSR considers that a sufficiently large number of payment accounts supporting VRPs is crucial to the success of phase one, and remains concerned that offering financial incentives to motivate sending firms to offer access to VRP application programming interfaces (APIs) could hinder wider adoption. The regulator will continue to consider whether mandated participation is necessary, and how to identify firms it might mandate, with more details to follow.
• Following a mixed response on how best to price APIs for VRPs, the PSR will evaluate the suitability of alternative access prices or approaches, and consider the potential effectiveness of interventions that do not establish a VRP API access price, such as price transparency or reporting requirements.

Consultation on reducing maximum reimbursement level for APP fraud

On 4 September 2024, the PSR published a consultation paper (CP24/11) on reducing the maximum reimbursement level for the Faster Payments authorised push payment (APP) fraud reimbursement requirement. The consultation closed on 18 September 2024.

The PSR proposes that the maximum reimbursement level is set at the Financial Services Compensation Scheme (FSCS) reimbursement limit, currently £85,000, for each Faster Payments APP scam claim. This is a significant change from the previously proposed limit of £415,000.

The change stems from feedback about the risks and impact of a high maximum level of reimbursement, in particular prudential concerns for some smaller firms in the market. The PSR notes that, under the proposed £85,000 limit, 99.8% of all APP scam cases would still fall below the limit, and around 90% of total APP scams value would be reimbursed. The limit would track any revisions to the FSCS limit.

By the end of September 2024, the PSR intends to publish a policy statement setting out its decision on this point. The go-live date for the mandatory reimbursement requirements remains 7 October 2024.

The Bank of England, as the operator of CHAPS, has decided that it will follow the PSR's lead in terms of the maximum level of reimbursement for CHAPS.

FCA follow-up report on payment account access and closures

On 4 September 2024, the FCA published a report setting out its findings from follow-up work on UK payment account access and closures, including the following:

• Basic bank account (BBA) customer journeys varied, leading to differences in apparent rejection rates. Firms were poor at making customers aware of BBAs.
• Data on account access was limited or unclear.
• The FCA did not see evidence of political beliefs or other views lawfully expressed being used as a rationale for account denial, suspension or termination.
• "Reputational risk" is used in varying ways by different firms to deny or close accounts.

The FCA also received feedback from stakeholders (including consumer groups and charities) that some firms' approach to implementing financial crime controls can create difficulties for consumers. In addition, some customers in vulnerable circumstances are experiencing worse outcomes regarding account access.

Alongside the report, the FCA has published a research report on exploring financial exclusion and a press release.

Property (Digital Assets etc) Bill published

On 12 September 2024, the Property (Digital Assets etc) Bill was published, alongside explanatory notes and further information.

The bill will establish in statute the common law position that certain digital assets can constitute property, making provision about the types of things that are capable of being objects of personal property rights, including a thing that is digital or electronic in nature, despite being neither a thing in possession nor a thing in action.

Publication followed the government issuing a written statement in response to the Law Commission's work in this area, which made clear that the government would be taking forward the bill as recommended by the Law Commission. The government response also accepted the Law Commission's recommendation to set up an expert group on the control of digital assets. Certain other Law Commission recommendations, such as making statutory amendments to the Financial Collateral Arrangements Regulations, are being reviewed by HM Treasury, with an update expected in due course.

The Law Commission maintains a status page on the digital assets project on its website.

LSB announces stronger protections for SMEs using personal guarantees

On 12 September 2024, the Lending Standards Board (LSB) published an updated version of its Standards of Lending Practice for business customers.

As explained in a press release, the updated business standards strengthen provisions for SMEs using personal guarantees. The changes aim to help ensure lenders are clear with guarantors about what they are signing up to, and help avoid situations where a guarantor is surprised to find out they are personally liable for lending to a business.

The key changes to the business standards and accompanying guidance on personal guarantees include:

• Updates to the requirements for lenders on advising potential guarantors of the need to seek independent legal advice.
• Enhanced guidance for lenders on providing information to a guarantor about how the personal guarantee will work and their obligations under it.
• A new requirement for lenders to give guarantors annual reminders that a personal guarantee remains in place. This will ensure lenders can maintain up-to-date records on who is liable for a guarantee and will help guarantors keep track of any liability. These reminders will serve as prompts for guarantors to speak to a lender if they are no longer associated with a business in receipt of lending, or if they believe the lending is no longer outstanding.

The updates to existing provisions in the business standards and accompanying guidance take immediate effect. The new requirements on annual reminders regarding guarantees will apply from 8 September 2025.