payment services

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The additional temporary guidance aims to strengthen the arrangements for safeguarding customers’ funds and firms’ prudential risk management in light of the impact of COVID-19.

By Stuart Davis, Brett Carr, and Anna Lewis-Martinez

On 9 July 2020, the FCA published its finalised guidance on safeguarding customers’ funds during the COVID-19 crisis. The finalised guidance applies to payment and e-money firms.

The FCA’s guidance for firms on safeguarding and managing prudential risk is already available in the FCA’s payment services approach document (Approach Document). However, in light of the exceptional circumstances of COVID-19 on firms’ business models, the FCA has provided additional temporary guidance to strengthen firms’ prudential risk management and arrangements for safeguarding customers’ funds in this period of economic stress.

Upgraded legislation creates an enhanced regulatory framework for the new age of payments, including e-money and digital payment tokens. 

By Farhana Sharmeen and Simon Hawkins

After much anticipation, and following consultations with the industry at large, the game-changing Payment Services Act 2019 (PSA) has finally become operational.

The PSA, which came into effect on 28 January, is the omnibus legislation dealing with payment services and systems, which adopts an activity-based licensing framework and risk-based regulatory structure. The new legislation has been designed in recognition of the different kinds of payment services that are currently available, and with a view to anticipating the types of payment services that are likely to develop in the future.

The Federal Reserve is finally stepping into the real-time payments arena.

By Todd Beauchamp, Loyal T. Horsley, and Deric Behar

On August 5, 2019, the Board of Governors of the US Federal Reserve System (the Fed) announced that it plans to roll out a real-time payment and settlement service by 2023 or 2024. The service, named FedNow, is being developed with the stated goal of modernizing the national payment system. Facing political and societal pressure to upgrade the national payment system, the Fed sought comment on the development of a faster payment service in late 2018. After receiving more than 350 comments, the Fed is now moving forward and seeking additional comment on the best way to design the system so that it maximizes inclusivity and utility for all stakeholders. The Fed envisions that FedNow will capitalize on its nationwide infrastructure to provide consumers, businesses, and banks the ability to safely make and receive immediate and fully settled payments 24 hours a day, seven days a week.

As several PSD2 deadlines approach, PSPs must comply with reporting and notification requirements, as well as with their GDPR obligations.

By Christian F. McDermott, Fiona M. Maclean, and Jagveen Tyndall

Though the majority of the provisions relating to the revised EU Payment Services Directive (PSD2) came into force in the UK on 13 January 2018, the regulatory technical standards (RTS) and strong customer authentication measures (SCA) will come into force on 14 September 2019. The FCA has issued a helpful reminder setting out some important deadlines that payment service providers (PSPs) must meet to be compliant.

Application Programme Interfaces

PSD2 allows third party providers (TPPs) to build payment service infrastructures upon the existing platforms of financial institutions; such institutions must provide TPPs with access to client account information via open application programme interfaces (APIs). Financial institutions seeking to enable such access can do so by either constructing dedicated interfaces built on these APIs or through adjusting existing customer interfaces. In both instances, such interfaces and their accompanying customer authentication measures must be in place by 14 September 2019.

UK regulators are addressing regulatory uncertainty through a number of regulatory initiatives due for implementation in 2019.

By Stuart Davis

Background

Following the FCA’s consultation paper that offers guidance on the regulatory status of cryptoassets published in January 2019, the regulator is now engaging with the industry and other stakeholders such as law firms to finalise its guidance.

The guidelines create new obligations for financial, payment, and electronic money institutions that will impact cloud outsourcing and deployment of FinTech.

By Fiona M. Maclean and Laura Holden

On 25 February 2019, the European Banking Authority (EBA) published a final report on its draft guidelines on outsourcing arrangements (Guidelines). The report followed the EBA’s publication of draft guidelines in June 2018 (Draft Guidelines) and the ensuing public consultation in September 2018 (Public Consultation).

The Guidelines replace the 2006 Committee of European Banking Supervisors (CEBS) Guidelines on Outsourcing (CEBS Guidelines) and replace and incorporate the EBA’s final recommendations on outsourcing to cloud service providers (Cloud Recommendations). Financial institutions will now only need to consult one set of guidelines for cloud and non-cloud outsourcing.

The PSR will not review the fees and rules set by Visa and Mastercard, but will look at the practice of bundling, and will examine effects on innovation in card-acquiring services.

By Brett Carr, Stuart Davis, and Christian McDermott

Following the publication of its Draft Terms of Reference in July 2018, the PSR has now listened to market feedback and has issued its Final Terms of Reference, marking the launch of its review into whether competition in the supply of card-acquiring services is working well for merchants and consumers.

Card-acquiring services allow merchants to accept payment for goods and services via debit, credit, charge, and prepaid cards. In order to benefit from card-acquiring services, merchants must enter contracts with so-called “merchant acquirers.”

The PSR is to consider whether there is effective competition in the market and makes clear that further reviews of the payments ecosystem could be triggered by its findings.

By Brett Carr, Stuart Davis, and Christian McDermott

The Payment Systems Regulator (PSR) has issued Draft Terms of Reference for a market review into the supply of card-acquiring services.

The PSR will use its powers under the Financial Services (Banking Reform) Act 2013 to carry out the market review in line with its statutory competition, innovation and service user objectives.

Effective competition in the payments market is a focus of the PSR, and this review follows shortly after dawn raids reported by the PSR in February 2018 as part of its first action under the Competition Act 1998.

The FCA has outlined its approach to implementing key standards under the revised Payment Services Directive.

By Christian McDermott, Stuart Davis, Brett Carr, and Charlotte Collins

The FCA has published a statement on its website relating to the European Banking Authority’s (EBA’s) Opinion and draft Guidelines of 13 June 2018 on the Regulatory Technical Standards on Strong Customer Authentication and Common and Secure Communication under PSD2 (the RTS).

Background

The drafting of the RTS, which will apply from 14 September 2019, proved to be one of the most controversial aspects of the revised Payment Services Directive (PSD2) (for background on the RTS, please see Latham’s related Client Alert).

Bank of England announces that, for the first time, a non-bank payment services provider has accessed the UK payments system directly.

By Andrew Moyle, Stuart Davis, Charlotte Collins, and Brett Carr

The Bank of England has announced that a regulated payment services provider (PSP) has become the first non-bank direct participant in the UK’s Faster Payments system. This was facilitated by the Bank of England extending settlement account access in its Real-Time Gross Settlement (RTGS) system to non-bank PSPs, which was announced in July 2017 (see Latham’s related blog post). This change enabled non-bank PSPs to access the UK payment schemes that settle in central bank money directly for the first time, rather than needing to “plug in” to these systems indirectly via settlement agent banks.