UK Payments Landscape Review
By Kai Zhang
In July 2020, HM Treasury published a “Payments Landscape Review: Call for Evidence” for a strategic review of the UK payments sector. Following feedback from the industry, HM Treasury published its Response to the Call for Evidence in October 2021 which sets out a number of initiatives to ensure the payment sector stays at the “forefront” of technology and innovation.
The key initiatives include:
- Potential changes to ensure the right level of protection for consumers using Faster Payments when a payment goes wrong.
Faster Payments is the UK scheme for almost-instant payments. Most internet and telephone banking payments below £100,000 are processed through it. It is also the payment rail for the Open Banking payments.
Reimbursement and liability requirements (not unlike the chargeback regime under some card schemes) will be introduced to apply to all scheme participants. HM Treasury is working with the Payment System Regulator on next steps (within the same context, the PSR just published its consultation on tackling APP scams on 18 November 2021 which will be covered in a separate blog)
- Measures to unlock the potential of Open Banking payments.
Open Banking payments are essentially account-to-account direct payments. While there have been many innovations in the payment sector, HM Treasury notes that most tend to rely on cards.
With respect to infrastructure, Pay.UK (the operator of most of the UK payment systems) will be tasked to consider what changes are needed to improve support for non-card account-to-account payments.
HM Treasury, the FCA and the PSR are also considering potential changes to regulatory requirements for Open Banking to better support its development. These will likely go through the relevant consultation process in due course.
- Considerations to future proof the regulatory framework.
The UK government wants to ensure an agile and proportionate payments regulatory framework. This is part of the overall Future Regulatory Framework Review (which covers the entire UK financial services industry) under which the proposed approach is that the general framework (in this case, for payments) will be set in legislation whereas the detailed requirements and technical standards will be left to the regulator (here, the FCA) to design and implement. This would ensure that regulatory responses are more timely as no legislative process needs to be activated to make changes to the relevant rules.
HM Treasury will also consult on bringing systemically important firms in payment chains within the supervisory scope of the Bank of England. This suggests that firms having a systemically important position in the relevant payment chain may be made subject to Bank of England supervision, whether or not they would otherwise be subject to regulation. It is not currently clear what is the scope of this proposed regime.
In addition, the paper notes other initiatives in this regard including the proposed regulation for stablecoin and the exploration of a possible UK central bank digital currency.