Consumer credit and payments | Regulatory Outlook June 2022

FCA's decision not to amend PARs Linked Services List 

As we looked at in last month's Regulatory Outlook, on 19 May 2022, the Financial Conduct Authority (FCA) updated its webpage on its Linked Services List.

The FCA has now updated the webpage to provide more information on stakeholder feedback to its review and next steps for firms. Points of interest include:
  

• The FCA received responses from five key stakeholders, who were generally supportive of the terms and definitions on the list. Some stakeholders suggested the FCA could consider adding further services, and that services like cancelling a cheque have become outdated and should be removed. In response to this feedback, the FCA explained that it does not consider it appropriate to add or remove any of these services at this time, and notes that cheques remain an established payment method that can incur significant fees compared to other account services.
• The FCA confirms that payment services providers (PSPs) do not need to take any action by way of next steps. Under the Payment Accounts Regulations, PSPs which offer payment accounts to consumers must use the terminology in the list in certain information and documentation, where applicable. 
• The FCA explains that, following Brexit, it is no longer bound to use the standardised terminology set out in the revised technical standards adopted by the European Commission in the published list.
• The FCA will review the list next within four years (by April 2026).

HM Treasury publishes consultation on administration regime for digital settlement asset firms

On 31 May 2022, HM Treasury published a consultation seeking views on adapting the Financial Market Infrastructure Special Administration Regime (FMI SAR) to become the primary legal framework through which to address the failure of systemic digital settlement asset (DSA) firms. 

DSAs include stablecoin as well as wider forms of digital assets used for payments/settlement. The term “systemic DSA firm” refers to systemic DSA payment systems and/or an operator of such a system or a DSA service provider of systemic importance. In the case of stablecoin, this might include the issuer of a stablecoin, a wallet, or a third-party service provider.

The consultation notes that both the FMI SAR and the Payment and E-Money Special Administration Regime (PESAR) are capable of being applied to systemic DSA firms, but the government considers the FMI SAR to be the most appropriate regime. This is primarily because it believes the Bank of England, rather than the FCA, should be the lead regulator in such administrations. 

The government therefore intends to legislate to the effect that the appropriate regime for systemic non-bank DSA firms will generally be the FMI SAR, which will take precedence over PESAR for systemic DSA firms that could fall in scope of both regimes.

Responses to the consultation are due by 2 August 2022.

PSR consults on requiring more PSPs to implement Confirmation of Payee

On 24 May 2022, the Payment Systems Regulator (PSR) published a consultation paper (CP22/2) on requirements for further participation in the Confirmation of Payee (CoP) service, which outlines the regulator's proposal to give a specific direction requiring around 400 payment service providers (PSPs) to implement a system to offer CoP to their customers (both as payers and payees). Comments can be made on the proposals until 8 July 2022. If the PSR decides to proceed with the proposed direction, it plans do to so around 8-10 weeks after the deadline.

This follows on from Specific Direction 10 (SD10), which required the six largest banking groups to send and respond to CoP requests. Since SD10, a number of PSPs have joined the service voluntarily – there are now a total of 33 PSPs offering CoP. However, the PSR is keen to see more firms providing CoP protection; it is concerned that PSPs have been slow to implement CoP, while there are still many consumers who are not protected from authorised push payment (APP) fraud and misdirected payments.

Because of the number of PSPs involved, the PSR proposes a direction that splits PSPs into two groups:

1. The first group will be prioritised based on the complexity and size of the firm where the adoption of CoP could have the biggest impact in preventing APP fraud. This group consists of almost 50 PSPs (listed in Annex 1) who would need to have implemented CoP by 30 June 2023. This group would see an increase of CoP coverage from 92% of transactions made via Faster Payments to 99%.
2. The second group includes all other firms which use either unique sort codes, or which are building societies using a Secondary Reference Data reference type. This group, which consists of over 350 PSPs, would need to have implemented CoP by 30 June 2024.

Chapter 4 of CP22/2 outlines a number of CoP-related areas the PSR may consult on in the future.

The PSR’s work on card fees: next steps

On 7 June 2022, the PSR published a piece talking about next steps for the regulator's work on card fees. 

Later this month, the PSR intends to consult on draft terms of reference for two market reviews of card fees – one will look at scheme and processing fees, and one at cross-border interchange fees, focusing on the impact of card fee increases on UK merchants and consumers. 

These documents will set out the purpose and proposed scope of the market reviews, and will be open to feedback.

UK moves to regulate cloud providers to financial services sector

HM Treasury has published a policy paper entitled "Critical third parties to the finance sector: policy statement" (8 June 2022), which responds to the concerns among UK financial regulators about so-called "cloud concentration" risk. The paper proposes the introduction of a new regulatory regime applicable to designated cloud providers, bringing material services they provide to the finance sector under the direct supervision of the Prudential Regulatory Authority (PRA) and the FCA. Read our Insight for further details. 

Alternative payment methods offer value for the UK retail sector

New financial services products can help retailers and shoppers choose how goods and services are paid for online and in-store, including buy now, pay later and open banking. Our Insight provides details of the pros and cons of these two common alternative payment methods.