From August 2019, certain existing FCA rules and guidance will extend to payment service providers and e-money issuers in a signal that the FCA wants a consistent approach to consumer protection.
By Rob Moulton, Brett Carr, and Frida Montenius
The FCA has published a Policy Statement extending certain rules and guidance to the payment services and e-money sectors, following a Consultation Paper published in August 2018. The extensions concern the FCA’s Principles for Businesses (Principles) and the Banking Conduct of Business Sourcebook (BCOBS), along with new guidance concerning the communication and marketing of currency transfer services. The FCA has made these changes, aimed at payment institutions (PIs), electronic money institutions (EMIs), and registered account information service providers (RAISPs), with a hope to protect consumers by providing a clear and consistent set of rules that firms must abide by.
The motivation behind the extensions is to standardise the current regulatory approach in order to better align customer expectations of firm behaviour and customer treatment, with the aim of protecting the interests of consumers. The FCA has noted that some firms have been guilty of bad practices, and the extension of rules is a step to foster an environment that prevents consumer harm. With consistent standards that apply equally to all firms — notably including a fast-evolving, ever-changing payments landscape — the new extensions are intended to enhance competition by allowing consumers to make more informed choices while ensuring that consumers are adequately protected by clamping down on misleading communications and other harmful practices.
Principles for Businesses
The Principles are fundamental tenets that govern how regulated firms are expected to operate, in particular in relation to their interactions with customers. While many firms already operate within these Principles notionally, codifying the application of the Principles solidifies the FCA’s desire to police malpractice in the increasingly important payment services and e-money sectors.
Applying the Principles to PIs, EMIs, and RAISPs (and connected activities) will support consistent supervision across the sector. The creation of a collective set of standards for payment services and e-money firms makes the obligations for those firms abundantly clear.
The FCA notes that all Principles (except Principle 4 – Financial Prudence) should be applied industry-wide in an appropriate and proportionate manner to firm size, and compliance should be in line with Payment Services Regulations 2017 and Electronic Money Regulations 2011, with adequate systems and controls in place as well as effective record keeping.
It is important to note that the FCA typically relies upon a breach of a Principle, or Principles, in deciding whether to take supervisory or enforcement action against a firm. It is not common for the FCA to feel it necessary to rely on the specific rule breach before taking action.
Communication Rules for Payment Services and E-Money Firms
Notably, the extension of BCOBS 2 (covering the content of communications and mandating communications to be fair, clear, and not misleading) will support the fair treatment of customers and apply a consistent standard of communication throughout the market, with the aim to cut down on misleading advertising practices. In a media-driven age, advertisements are commonplace and often have significant viewership amongst prospective consumers, making the need for fairness in this arena paramount. The FCA’s rule extension follows a trend by the Advertising Standards Authority to adjudicate against firms that release misleading advertisements, including comparisons based on exchange rates of fees, or not taking into account the total cost to the consumer.
New Guidance for Currency Transfer Services
In relation to the provision of currency transfer services, the FCA notes that providers at times mislead consumers by promoting unachievable exchange rates or making unsubstantiated claims about the cost of the service. These harms are sometimes more visible than at other times, and the addition of a disclaimer, for example, does not preclude an exchange rate from being misleading. In this way, the FCA’s new guidance aims to help consumers make more informed choices about the services they use.
The FCA has extended its rules in order to clamp down on potentially misleading communications, which may confuse more than they inform. The rule extensions will enshrine industry bodies’ commitment to develop good practice in communications, and will encourage providers to be careful about the claims they make of their services, and to do so in a meaningful, fair, and balanced way that is not untrue.
The FCA notes that cost comparisons should include charges payable for the currency conversion or any connected payment service or e-money issuance, and any relevant margins between the offered exchange rate and in the independently published interbank spot rate. This rule is intended to increase transparency in the field and ensure consumers have as much information as possible to determine which service suits their needs.
The FCA hopes these rule extensions will increase fairness in a way that protects consumers in a sometimes obfuscated payments services and e-money industry, by increasing transparency and enforcing consistent standards on firms.
The extensions will affect the provision of payment services and e-money by credit institutions and the conduct of PIs, EMIs, and RAISPs starting from 1 August 2019, which the FCA believes gives firms ample time to comply, if they are not compliant already. Though this time frame coincides with the UK’s withdrawal from the European Union, the FCA believes it is proportionate.
This post was prepared with the assistance of Luke Vaz in the London office of Latham & Watkins
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