What does the future of UK payments regulation look like?

Payments have changed drastically in the last 10 years with Faster Payments, the UKs 24/7 real-time account-to-account (A2A) payment system, processing nearly 3 billion payments in 2020. Faster Payments has been a great success, but it is not without fault, nor has it escaped the interventionist hands of Her Majesty’s Treasury (HMT), for the better, may we add. Last week HMT published the government’s response to a Call for Evidence entitled the Payments Landscape Review confirming its future vision for payments, with the following priorities:

·     strengthening consumer protections;

·     unlocking the future of Open Banking enabled payments;

·     enhancing cross-border payments; and

·     future-proofing the regulatory & legislative framework that governs payments.

Strengthening consumer protections

Payment systems need to be stable, reliable and efficient to ensure predictable outcomes for businesses and consumers. The government response opined, however, that insufficient protections are in place for consumers using Faster Payments. The Payment Services Regulations 2017 (PSRs2017) only protect consumers in respect of unauthorised or wrongly executed payments. The government hence asserted its desire to see regulators and industry participants such as the Open Banking Implementing Entity (OBIE), Pay.UK and the Payment Systems Regulator (PSR) to articulate comprehensive rules on equal footing with the major card networks, specifically to answer the questions:

·     What happens when a payment goes wrong?; and

·     Who is liable?

Unlocking Open Banking payments

Open Banking A2A payments operate on Faster Payments rails, so their success is dependent on the resilience of the underlying payment network leveraged by FinTechs. Already the system is creaking under the strain of undefined error codes, resulting in a sub-optimal user experiences and slow adoption rates. The government wants to resolve these issues and ensure and to continue promoting the work of the Competition and Markets Authority (CMA) and others around reverse refund payments, variable recurring payments and enhancing the quality of API data firms receive.

Payment Initiation Service Providers (PISPs) should expect to see more consumer protection rules and for Account Servicing Payment Service Providers (ASPSPs aka banks) to continue being forced to innovate technologically and improve their APIs. Hopefully, the future proposed framework could stop some PISPs having to create clunky regulatory structures using-wallets just to process merchant refunds in a way that is commercially compelling.

Enhancing cross-border payments

The government plans to enhance cross-border payments so people and businesses can make and receive cross-border payments seamlessly, quickly and cheaply. Particular emphasis was placed on effectively implementing the G20 roadmap as well as the Financial Stability Board’s (FSB) targets set for improving cross-border payments. Incidentally, the FSB just published a progress update on its targets on 13 October 2021.

Future proofing

The government proposes transferring responsibility for firm-facing requirements in areas of retained EU financial services law to the regulators; including retained EU payment services law. In practise, this will make the FCA more of a rule-maker than a taker from statute, albeit within an overall policy framework set by the government. The hope here is that the FCA and other operationally independent regulators are experts and will be able to make any relevant changes swiftly without requiring changes to the law from non-expert ministers.

Looking further afield, the government touted the potential benefits of stablecoins and a Central Bank Digital Currency (CBDC) and reaffirmed its commitment to ensuring consistent outcomes in these new areas and due consideration is given as to establishing a competitive regulatory framework that does not stifle innovation or competition.