Payments View – Winter 2024

An early Christmas present for avid readers of Payments View. We’ve had an important few weeks for the payments sector so this festive edition should be particularly interesting, with the government setting out its stall on how it thinks the industry should be regulated and where it sees potential for growth and innovation. This edition of Payments View covers:

• A vision for the UK payment industry
• Substantive update to FCA perimeter report
• New Payments Architecture consultation
• PSR Dear CEO letter to tech firms
• Updates for crypto / crypto-adjacent firms
• Consumer Duty board report findings and FCA plans

As always, don’t hesitate to reach out to us if you would like to discuss any of the developments in this edition.

Upcoming Events

• A reminder that consultation paper CP24/20 (setting out the proposed, significant changes to the UK safeguarding regime) closes on 17 December 2024. If you are contributing views on this we would be very happy to discuss.
• In January we are running a seminar with the FCA’s Authorisations team on the new BNPL regime. If you would like to attend or are interested in hearing more, please let us know.
• Also early next year, we’ll be hosting an event with the PSR where they’ll be talking to us regarding the PSR’s approach to monitoring and enforcing the APP scam reimbursement rules under SD20 – again please do let us know if you’d be interested in joining.

A vision for the UK payment industry

The main story of this edition is the Chancellor’s first Mansion House speech announcing a wide-ranging package of measures around financial services reform – full detail on which is set out in our Insights article here.

Of specific interest to payments firms was the National Payments Vision’s (remarkably untrailed) publication following consultation with industry since the Garner Review. There is a lot of focus on innovation, combating fraud, Open Banking, and a shakeup of the Regulators (with the FCA winning out on many fronts and questions now raised over the future of Pay.UK).

The Vision itself is for “a trusted, world-leading payments ecosystem delivered on next generation technology, where consumers and businesses have a choice of payment methods to meet their needs” – catchy.

Key points from the Vision include:

• Short term actions to strengthen foundations (focusing on Open Banking and fraud).
• Early actions to deliver on the ‘three pillars’ (being: innovation, competition, security).
• Delivery of Payments Forward Plan (led by a cross-regulator and industry Payments Vision Delivery Committee). The Committee itself has a number of deliverables over 2025, namely that by the end of Q2 they will have set out an approach for the development and delivery of the UK’s retail infrastructure and the required governance and funding model to achieve it, including proposals for the reform of Pay.UK. Also by no later than the end of 2025, they will publish a sequenced plan of broader future initiatives (the Payments Forward Plan) and a recommended monitoring approach.
• A number of points on “regulatory congestion” – this seems to be quite a broad concern but also includes focus on ‘resetting’ some of the burden that regulators place on individual firms.
• A confirmed review of the APP reimbursement rules after 12 months.
• As trailed by the Garner Review, Strong Customer Authentication will be reformed to give firms much more flexibility in complying with the regulatory requirements.

The FCA, PSR and BOE have published a very short joint response to the Vision with Pay.UK (no doubt due to the questions raised over its future remit) setting out a bit more of their stall. As part of the wider Vision and Mansion House speech, the FCA has also published a very interesting Call for Input on dramatically changing consumer redress alongside the FOS as well as a related (and shortly closing) ‘research competition’. This has been swiftly followed by public warnings from the head of the FCA against a regulatory ‘race to the bottom’ in pursuit of growth so they’re unlikely to be singing from Rachel’s hymn sheet any time soon.

Substantive update to FCA perimeter report

The FCA has published an updated ‘perimeter report’ (which was last published in April and covered by that edition of Payments View). The report sets out the FCA’s view of what they do and don’t regulate and describes specific action they look to take in response.

The changes since the start of the year are substantial, including for payments firms. Of the updated areas that might be of interest to readers, significant detail is given on the FCA’s ‘international competitiveness and growth’ objective (particularly in light of the Vision and also picked up in their recent letter responding to the NPV); investment scams, ‘finfluencers’ and online harms; updates on Open Banking; and access to cash.

The FCA doesn’t provide a summary of changes but we have run a redline of the new text against last year’s Report so please do let us know if that would be helpful.

The NPA is dead, long live “potential enhancements to the Regulatory Framework in light of the changed circumstances”

Following the ‘challenges’ raised by industry, the Garner Review, and the NPV, the procurement project for the New Payments Architecture project has officially been cancelled. Alongside this, the PSR is now seeking feedback on an updated approach (with the deadline for comments set for 21 January 2025). This consultation is an opportunity for stakeholders to contribute to the discussion on how best to proceed with the development of uplifts to the UK payments infrastructure, ensuring it meets the future needs of the UK's payment systems. While chapters one to three are more procedural, chapter four puts forward the PSRs own suggestions and potential requirements on Pay.UK (if it’s still around), any central infrastructure provider and the PSR’s own regulatory approach which makes for interesting reading.

PSR Dear CEO letter to tech firms

The PSR has published a Dear CEO letter to tech firms explaining its proposals to publish data on the firms that are most commonly reported as enabling contact between fraudsters and victims.

In the letter, the PSR refers to its work on requiring mandatory reimbursement for victims of APP fraud, and adds that, in addition to this policy, it wants to take action to prevent fraud occurring in the first place. To achieve this, it needs to understand more about how fraudsters contact victims and earn their trust.

The PSR explains that in 2024 it required the 14 largest banking groups in the UK to provide data reported by victims on fraud committed in 2023. That data includes the frequency of fraudulent activity reported as being enabled via certain tech firms' platforms or services, as well as through other providers.

It plans to publish the data this week (w/c 9 December 2024) and alongside the Dear CEO letter it has sent each relevant firm data on its performance and how it ranks compared to other providers also identified in the data.

The PSR refers to the platforms and services that fraudsters use to contact victims and persuade them to make payments as "fraud enablers". It defines an "enabler" as an entity that a victim reported as either:

• A platform or service through which the fraudster made contact with the victim; or
• A website or platform where the victim saw an advertisement or profile that led to an APP scam.

The PSR intends to publish fraud enabler data every year. The proposals chime with the hard line on APP scams and the apparent lack of oversight from some tech firms that industry has been highlighting and which made an appearance in the Mansion House speech – the Chancellor did not propose any specific action herself during this speech but did indicate intervention early next year if changes were not made. This has been a long-standing point for industry and so will be interesting to see how it plays out.

Updates for crypto-adjacent firms

Not our usual programming but we wanted to highlight that the last few weeks have been significant for crypto publications in the UK – both for firms in and supporting the industry. We’ll leave the detailed analysis to our sister-publication of Crypto View – particularly on the updates regarding:

• Tulip Siddiq’s keynote speech at the 2024 Tokenisation Summit on “the "transformative potential of cryptoassets" and their ability to "disrupt" the status quo, "revolutionise financial markets," and "change our lives" – including updates on a pro-stablecoin stance, confirmation on the regulatory treatment of staking and a call for further regulatory certainty.
• A much less pro-crypto statement from the FCA on the FinProm rules and an update on their supervisory approach to the role of (particularly payments) firms providing services to unregistered cryptoasset firms. This statement makes clear that the FCA believes that firms supporting the industry should “carefully consider the [FCA’s concerns] as part of meeting their own obligations when providing support services to unregistered cryptoasset firms that are illegally promoting to UK consumers”.
• An update to the FCA’s crypto roadmap on upcoming publications as well as a rather interesting YouGov/FCA paper on its ‘crypto consumer research’ with a foreword from the FCA’s Director of Payments & Digital Assets.

From a European perspective, we also wanted to flag the letter recently published by the European Commission to the EBA and ESMA specifically picking up concerns regarding the possible dual regulation under MiCA and PSD2 in respect of ‘EMTs’ (a specific form of regulated cryptoasset under the regime incoming next year). Under the current interplay between the regimes, there is a possible overlap of obligations for payment firms offering even limited cryptoasset services (and vice versa) which industry has previously raised concerns over. It will be interesting to see what this last minute intervention from the Commission achieves and we’ll update on this point in future editions of Crypto View.

Consumer Duty board report findings and FCA plans

In the usual end of year spirit of reflection, the FCA have published two key updates for firms’ continued compliance with the Consumer Duty – a detailed review of board reports and their Consumer Duty priorities for 2024/25.

The former goes into significant detail on the FCA’s findings of their review of the first annual Consumer Duty board reports from 180 firms. Under the Duty, a firm must prepare a report for its governing body setting out the results of its monitoring of consumer outcomes and any actions required as a result of the monitoring. Our other sister-publication (it’s a rather large family at Simmons View HQ), Consumer Duty View breaks down the detail but the key points that stood out to us were on:

• A clear ‘outcomes focus’, the importance of good quality MI and clear processes for review and challenge in preparing the report were flagged as some of the ‘key aspects of good reports’; whereas
• The FCA highlighted that the lack of these points in particular (as well as firms having a comprehensive view across distribution chains and a lack of effective action) were indicative of poor reports.

Moving into the FCA’s priorities going forwards, these are split into four main areas (all of which will be of interest for firms):

• Embedding the Consumer Duty and raising standards – where they will place emphasis on assessing how firms are implementing and complying with the Consumer Duty, in particular by reviewing firms' Board reports (so the above will need to have been considered by firms) and complaints processes, by assessing firms' approach to the treatment of vulnerable customers, and by evaluating firms' customer support procedures.
• Enhancing understanding of the price and value outcome – where the FCA recognises the difficulties that firms face in conducting fair value assessments.
• Sector-specific priorities – including in relation to Payments Firms, the FCA will examine the clarity of FX pricing in payment services. Their focus will be on ensuring clear pricing understanding for consumers in money remittance services and account-to-account transactions, with work planned for 2025
• ‘Realising the benefits of the Consumer Duty’ – where, following a Call for Input regarding wider requirements on retail firms and the potential for simplifying them, the FCA plans to outline their next steps in H1 2025.

There is lot to digest here, particularly at the end of the year with many other regulatory projects in flight. Do let us know if it would be useful to discuss any of these points in more detail.

News Flash

• The All Party Parliamentary Group on Investment Fraud and Fairer Financial Services (the “APPG”) released an extremely one-sided Report as a result of a Call for Evidence into how the FCA is perceived. Of particular interest to payments firms is the specific subset of respondents to the Report who are victims of financial services misconduct from payment institutions or other non-investment scams (e.g. APP scams etc.). None of these testimonials are particularly positive and all raise points for firms to consider.
• The FCA has released finalised guidance for PSPs in respect of the consulted on ‘risk-based approach to payments’. This guidance comes in response to the Payment Services (Amendment) Regulations 2024, which extend the timeframe for PSPs to delay outbound payments due to fraud suspicions to up to four business days, as requested by HM Treasury. The guidance details the criteria for delaying payments, the use of the delay period, obligations of PSPs when delaying transactions, and how to handle suspicious inbound payments, following stakeholder feedback from a September consultation.
• One for your MLROs, the FCA has published its response to feedback on its April 2025 consultation paper regarding changes to its Financial Crime Guide – earlier in the month the Home Office published updated guidance on the failure to prevent offence.
• The FOS has published its latest complaints data, noting a marked rise in complaints about scams and current accounts.