By Andrew Moyle and Stuart Davis

Growth in applications for blockchain and tokenisation, combined with an increasing number of initial coin offerings (ICOs), mean that buyout firms should note developments in this sector.

Why Should PE Be Interested in Blockchain?

A shared blockchain ledger could drive a single interface between a PE fund and its investors, increasing transparency and efficiency, providing real-time updates for LPs on investments, and enhanced investment analytics.

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).

The consolidation of UK payment system operators marks another big step in delivering on the New Payments Architecture.

By Stuart Davis and Brett Carr

What happened?

Operational responsibility for the Bacs and Faster Payments systems, which process a combined £6.3 trillion worth of payments annually, has transferred to the New Payment System Operator (NPSO).

The successful consolidation of the operators (and planned consolidation of the Cheque and Credit Clearing Company in late 2018) has been a key focus for both the Payment Systems Regulator (PSR) and the Bank of England.

New EU anti-money laundering measures have been approved by European legislators.

By Stuart Davis and Charlotte Collins

The European Parliament and Council have finally signed off on the text of the fifth Anti-Money Laundering Directive (known as MLD5).

Overview

The new directive is of particular interest to the FinTech sector as, amongst other things, MLD5 includes measures to increase transparency around more recently developed instruments of payment — namely cryptocurrencies and prepaid cards. Both these instruments lend themselves to anonymity and raise concerns that they could be used to help fund terrorist activities.

MLD5 will lower the threshold for identifying the holders of anonymous prepaid cards from €250 to €150. It will also require know-your-customer (KYC) checks to be performed for remote payment transactions exceeding €50, or if a withdrawal of more than €50 is made.

By Christian McDermott

In recent years, PE firms have been paying to play in the payment processing sector. From Worldpay and Nets, to Bambora and Paysafe, payment processing companies have proven to be attractive investments for European PE. In our view, a wave of regulation in the FinTech sector will unleash further growth potential, and PE firms may be well-positioned to take advantage of this.

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The number of M&A transactions in the payment services industry has increased in Europe over the past five years, and we believe the sector will remain hot. A wave of regulation has been designed to stimulate competition and encourage new market entrants. Chief among this is EU Directive (EU) 2015/2366 on payment services in the internal market (known as “PSD2” since it replaces the existing EU payment services directive).

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.

Swiss regulator offers assistance in navigating the regulatory framework.

By Andrew Moyle, Stuart Davis and Charlotte Collins

The Swiss Financial Market Supervisory Authority (FINMA) has published a set of guidelines, setting out how it intends to apply its financial markets legislation in the context of initial coin offerings (ICOs).

Despite the growing trend for ICOs globally, FINMA is the first national regulator to provide such helpful clarity for ICO participants, who are typically left to work out for themselves whether and how their structure fits into existing regulatory frameworks. ICOs, in which investors receive blockchain-based coins or tokens in exchange for funds, were not envisaged when many existing frameworks were developed.

Driven by payments innovation and new regulation, 2018 is cited as the year for some of the most significant changes retail banking has seen.

By Stuart Davis and Brett Carr

At the Westminster Business Forum for Digital Payments, Adoption, Innovation and Policy Priorities, Graeme McLean (Head of Banking, Lending & Distribution at the FCA) appraised a panel and audience including legislators, innovators, and market infrastructure providers on the regulatory state of play heading into 2018.

With the revised Payment Services Directive (PSD2) set to apply from 13 January 2018 (see Latham’s Client Alert Understanding PSD2: Key Points to Know About the Upcoming Regime), the industry finds itself, according to McLean, just weeks away from an impending “diversification the retail banking sector has never seen before”.