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UK payments industry to have regulator but licensing regime idea scrapped


A new regulator will be appointed to oversee competitiveness in the UK payments industry, the Government has confirmed.

The new Payment Systems Regulator will be established by the Financial Conduct Authority (FCA) and operate under it, albeit as a separate body. The power to establish the new regulator is included within amendments added to the Financial Services (Banking Reform) Bill (83-page / 596KB PDF), which is currently progressing through Parliament.

The operator of payment systems, those providing the payment systems infrastructure and any provider of payment services will be subject to the new regulatory regime. Under the proposed reforms, the Treasury would have the power to designate payment systems for regulation. Plans to create a licensing regime for companies involved in payment systems have been scrapped.

"Instead of the Payment Systems Regulator having statutory powers to enforce the licence conditions listed in the consultation, regulation will work in a slightly different way," the Treasury said in a response to the consultation (26-page / 271KB PDF) it ran earlier this year on opening up UK payments. "Once a system is designated, this will bring the payment scheme company and the system participants (e.g. members, card issuers and merchant acquirers, and the system infrastructure providers) within the scope of the Regulator’s powers."

"Coming into scope will not necessarily entail regulatory action or new obligations on those brought within scope. Designation will mean that the Payment Systems Regulator is then in a position to potentially exercise certain powers in respect of those persons, if there is a case for regulatory action," it added.

Under the new legislation, the Payment Systems Regulator would be obliged to "promote effective competition" in the UK payments market and "the markets for services provided by payment systems" in the interests of end users.

In addition, the new regulator would be required to "promote the development of, and innovation in, payment systems in the interests of those who use, or are likely to use, services provided by payment systems, with a view to improving the quality, efficiency and economy of payment systems".

The Payment Systems Regulator would have broad power to direct companies involved in a regulated payment system to take, or ban, "specified action in relation to the system" and "set standards to be met in relation to the system".

Operators of regulated payment systems could also be required to adhere to establish rules for the operation of the system and may also be required to permit individual payment service providers access to the system, both at the behest of the regulator.

The Payment Systems Regulator would also, with the approval of the Treasury, be able to order payment systems operators to "dispose of all or part" of the interest that they hold in that system where it has determined that "there is likely to be a restriction or distortion of competition" in the payment systems market on in a market for services provided by payment systems.

Companies that fail to adhere to the new regulatory framework could be issued with fines by the new regulator, and in extreme cases could face a court injunction barring them from "dealing with any assets which it is satisfied the participant or person is reasonably likely to deal with" when their non-compliance with the new framework is determined.

The Bank of England would have overarching powers to prevent the new Payment Systems Regulator taking specific action affecting the payment systems market where it believes "exercise of the power in the manner proposed may threaten the stability of the UK financial system, have serious consequences for business or other interests in the United Kingdom, or have an adverse effect on the Bank's ability to act in its capacity as a monetary authority".

The Bank of England could only take this action if it can be justified as being "necessary" to avoid one of the listed implications. The FCA and the Prudential Regulation Authority would have similar oversight powers.

"At the moment, a number of large banks ‘own the system’ and dominate the industry at every level," the Treasury said in a statement. "For example, smaller firms have to pay the big banks to access key services and the incumbents have the power to block access or charge unfair fees to smaller competitors."

"The Government wants the new regulator to help remove the barriers for new entrants, increasing competition, incentivising all market participants to improve services and reducing fees for consumers," it said.

The Payment Systems Regulator's powers are expected to be introduced under law late next year and the body is expected to be "fully operational by spring 2015", the Treasury said.

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