Out-Law News 3 min. read

New regulator seeks to break down barriers on access to payment systems

Payment system operators will be required to make it easier for challenger banks to gain direct access to their payment systems, under a new UK regulatory regime. 

The Payment Systems Regulator (PSR) has published draft plans for the new regulatory framework that will apply to some payment systems (111-page / 702KB PDF) from next April. 

The PSR, which will regulate the market, has unveiled plans to require the operators of the Bacs, Cheque and Credit Clearing, CHAPS and Faster Payments payment systems to "have objective, risk-based, and publicly disclosed access requirements, which permit fair and open access". 

The PSR said that where direct access to payment systems is overly restrictive, it can "act as a barrier to entry and expansion for new and emerging PSPs (payment service providers)" and have a knock-on impact on innovation. 

The Bacs, Cheque and Credit Clearing, CHAPS and Faster Payments are among the payment systems that the Treasury has provisionally said it would designate for regulation by the PSR from 1 April 2015. 

The PSR said it would not impose its "access rule" on operators of the LINK, MasterCard and Visa payment systems as they are "already subject to access obligations" under the EU's Payment Services Directive. They will, though, be required to publically disclose their access requirements under the new UK regime, the PSR said. 

Banking law expert Tony Anderson of Pinsent Masons, the law firm behind Out-Law.com, said: "Against a proliferation of developing payment solutions, the establishment of an economic regulator is really a necessity. Making access to payment systems for smaller players is essential but establishing appropriate and fair obligations for system members, such as funding, will be tricky. It must be remembered that the large banks funded the development of the existing payment systems which is why they own them." 

In its consultation paper, the PSR said that it expected to see payment system operators and providers of payment services embrace a "no surprises" culture where they keep it "informed of anticipated developments before they are implemented". 

The PSR will be tasked with promoting effective competition and innovation in payment systems and ensuring that those systems are operated and developed in the interest of business and consumer users of those systems. 

It warned payment system operators and payment service providers that use them that they could face enforcement action if they are slow in implementing measures designed to achieve those objectives or if the solutions they propose either do not to accord with its own measures and criteria or "do not satisfactorily address" the concerns it has on issues such as freer access to payment systems. 

Enforcement action may also follow if the outcomes the PSR expects to see "are not being delivered". 

"We have a range of ‘regulatory tools’ and powers at our disposal if we consider that we need to take action," the PSR said. "We will determine in each case what action is the best suited to achieve the results we want, and what is most appropriate and proportionate in light of the specific circumstances." 

"The action we might take in these circumstances could include: using our concurrent competition powers; carrying out reviews of relevant markets or keeping those markets under review; launching own-initiative investigations where we have concerns, or in response to complaints; using our powers to gather further information; imposing general or specific directions and issuing guidance to ensure our outcomes are delivered and concerns are addressed; considering applications in relation to disputes; imposing sanctions for non-compliance with our regulatory requirements," it said. 

The PSR said it wants to see a new industry strategy developed which would look to boost collaboration in the payments market and reverse a slow-down in pace of innovation it said had hit the industry. A new industry forum will also be set up to "discuss, develop, determine and agree strategic priorities for the long-term development of payment systems in those areas where industry collaboration is necessary or desirable", it said. 

Before the PSR's new regulatory regime takes effect on 1 April next year the regulator said it will launch a market review "into the ownership of, and competition in, the provision of infrastructure" in the payments market. It said it UK payments infrastructure must "be able to support new developments and innovations at all levels, including both the system and service levels". 

"The review will evaluate what the expected outcomes might be for all service‑users from infrastructure–related developments, as well as under different possible infrastructure models and different ownership structures that may emerge," it said. 

Among the other measures that the PSR announced were plans to ensure that interbank and card operators "ensure appropriate representation of the interests of service‑users in their board-level decision-making processes", as well as proposals to address potential conflicts of interest arising in the market. 

"We propose to make a direction requiring interbank operators to ensure that any individual acting as a director of that operator must not simultaneously be a director of an actual or potential central infrastructure provider to that same payment system," the PSR said. 

The PSR consultation is open until 12 January 2015. It said it would consider responses and publish its final regulatory policies before the end of March 2015.

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