The new Payment Systems Regulator (PSR) today sets out how it proposes to regulate the £75 trillion payments industry when it becomes fully operational on 1 April 2015.
The proposals will further the PSR’s three objectives: to promote competition, to promote innovation, and to ensure that payment systems are developed and operated in the interests of service-users. The PSR’s proposals, alongside initiatives from the Financial Conduct Authority and Competition and Markets Authority, will help create a more competitive banking industry.
Open for consultation until 12 January 2015, the package of measures focuses on driving industry strategy and encouraging innovation; opening up the ownership, control and governance of payment systems; and providing fairer and more open direct access to payment systems as well as increasing transparency.
Payment systems enable people to spend and transfer money. They underpin the UK’s everyday financial activity.
Hannah Nixon, managing director of the PSR, said:
“Last year more than 21 billion financial transactions were made possible by payment systems. Everything from withdrawing money from a cash machine, paying a bill, making a payment by cheque, receiving your pension, and high value payments between the banks uses a payment system.
“It’s vital, therefore, for the UK to have world class payment systems. The systems we have today have been developed incrementally over time by the major banks. So while they are relatively resilient, they are often treated as back office functions. Competition is limited, decision making opaque, and this is stifling innovation. This has to change.
“I want to see an industry that is responsive to, and focused on, the needs of those using payment services. This will be an industry that encourages and enables competition and innovation, provides value for money, while maintaining reliability and security. In short: a UK payments industry that is world class. I am confident that our proposed package of measures will make this possible.”
Andrea Leadsom MP, Economic Secretary to the Treasury, said:
“A key part of the government’s long term economic plan is to open up competition in the banking sector so that it serves the needs of Britain’s businesses and customers. That’s why we set up the Payment Systems Regulator and I welcome today’s consultation on its regulatory framework.
“We want to ensure payment systems foster competition and innovation in the interests of customers. In particular, we want to ensure that where smaller firms want direct access to the payment systems, they can get it on a fair and transparent basis.
“I’m pleased the PSR’s consultation sets out, for the first time, the detailed measures it is proposing to achieve these important goals, as well as the strong powers it will consider using if these measures don’t prove sufficient.”
The core proposals are as follows:
Two market reviews will be launched by April 2015: one to assess the ownership and competitiveness of the current infrastructure and consider other possible infrastructure models and ownership structures; the other will look at how indirect access is provided. Work on both of these has already begun.
A more detailed summary of the proposals can be found in Notes to Editors. The full consultation paper can be found online.
Where firms fall short of its expectations, the PSR will have the power to carry out enforcement investigations, issue penalties and censures, and compel them to take remedial action. The PSR will also handle commercial disputes regarding access to payment systems or fees and charges relating to services provided by them. It also has the power to force a firm to sell its interests in an operator.
The PSR will regulate the largest and most important payment systems which, if they were to fail or be disrupted, would cause serious consequences to their users. HM Treasury is currently consulting which systems to include and has proposed the main interbank payment systems: Bacs, CHAPS, Faster Payments, LINK, Cheque and Credit Clearing, Northern Ireland Cheque Clearing, and the two largest card systems in the UK, MasterCard and Visa.
For each designated payment system, all the participants will fall under the PSR’s remit. Therefore, as well as the payment system operator, the PSR will also have oversight of payment services providers using that system (such as a high street bank), and the infrastructure providers to the payment system (such as VocaLink).
2. A summary of the PSR’s proposals:
|1. Industry strategy
(Supporting Paper 2)
We will take control of the strategy development and setting process to enable the UK to have world class payment systems – we will set up a new Payments Strategy Forum with broad representation of industry and service-users
We will launch a market review into the ownership and competitiveness of infrastructure provision commencing by April 2015
2. Ownership, governance and control of payment
(Supporting Paper 3)
We will open up governance and control of payment systems by involving additional players in more transparent decision making:
Operators will be required to report to us on compliance with our service‑user direction annually
|3. Direct access to payment systems
(Supporting Paper 4)
Operators (of Bacs, C&CC, CHAPS and FPS) must have objective, risk‑based, and publicly disclosed Access Requirements, which permit fair and open access
LINK, MasterCard and Visa, which are already subject to an access rule under Article 28 of the European Payment Services Directive, must publicly disclose their Access Requirements
All Operators must report to us on compliance with the relevant access rule applicable to them annually
|4. Indirect access to interbank systems
(Supporting Paper 4)
Sponsor Banks must publish information on the sponsor services they offer (including access criteria and processes)
Industry will develop a PSR-approved Code of Conduct
We will launch a market review into Indirect Access, commencing by April 2015
|5. Interchange fees
(Supporting Paper 5)
|We will engage with relevant authorities on the proposed EU Interchange Regulation. If implementation is delayed we will consider taking action in the UK|
|6. Regulatory tools
(Supporting Paper 6)
We will introduce Principles on our expectations of industry behaviour
Industry will work with us on a ‘no surprises’ basis, discussing significant developments with us in advance and on an ongoing basis
We will issue Powers and Processes Guidance setting out our enforcement and complaints procedures, Guidance on our statutory Objectives, Penalties Guidance and our Administrative Priority Framework
3. An event is being held on 9 December 2014 to provide further insight into our proposals and allow industry participants and other relevant stakeholders to discuss the consultation with us. The materials used at this event will be uploaded onto our website and be available to all stakeholders.
4. The PSR was incorporated on 1 April 2014 and becomes fully operational on 1 April 2015. It is operationally separate to the Financial Conduct Authority, with its own managing director and Board.
5. When operational, the PSR will be responsible for the regulation of designated payment systems and all participants in those payment systems (payment service providers, operators and infrastructure providers to the payment systems).
6. The PSR has three objectives: to promote effective competition in the markets for payment systems and the services they provide; to promote innovation in payment systems; and to ensure payment systems are operated and developed in the interests of service users.
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