Bank of England Opens Up Access to Payment Schemes for FinTech Firms

by Latham & Watkins LLP
Contact

The Bank of England (BoE) announced on 19 July 2017 that it is extending direct access to its real-time gross settlement (RTGS) service to non-bank payment service providers (i.e., e-money institutions and payment service providers that do not have regulatory permissions to carry out the “core” banking activity of taking deposits), subject to appropriate safeguards.

For the first time, non-banks will be able to apply for a settlement account with the BoE, providing direct access to the UK’s sterling payment systems that settle in sterling central bank money, including Faster Payments, Bacs, CHAPS, LINK, Visa, and, once live, the new digital cheque imaging system.

This change to the BoE’s settlement account policy is part of a broader strategy to widen access to the UK’s payment systems, to help smooth the path for new entrants such as FinTech payment firms to compete on a more level playing field with incumbent banks. This is an important development for non-banks as, at present, non-bank payment service providers can only “plug in” to these essential BoE payment systems indirectly via settlement agent banks, limiting access and therefore the ability of non-banks to compete with their bank counterparts.

Many new businesses see the lack of direct access for non-banks as a barrier to entry, particularly as this can mean that non-banks are bound by the systems, service levels and general willingness of their competitors.

This BoE announcement follows the launch of the BoE’s blueprint for a new RTGS service, published on 9 May 2017 (see our related Client Alert). Through the new RTGS service, the BoE aims to deliver a materially stronger, more secure and flexible sterling settlement system that simultaneously promotes innovation and competition, bringing it up to date to provide a service suitable for the current and future payments landscape.

Who is eligible?

Authorised e-money institutions and payment institutions are now eligible to apply for settlement accounts in the RTGS. Payments businesses that are only registered (small e-money institutions and small payment institutions) are not eligible to apply.

However, although the BoE and the FCA are ready to receive and process applications now, access is dependent upon the finalisation of the framework allowing access by non-banks. In particular, the legislative changes required before non-bank payment service providers can join the RTGS are not expected to come into force until January 2018. This timing, combined with the rigour of the application process, means that the BoE does not expect the first non-bank payment service providers will join the RTGS until the second half of 2018.

What is required?

The FCA and HMRC (supervisors of non-bank payment service providers) have developed a strengthened supervisory regime for those wishing to apply for an RTGS settlement account. However, applications will first need to be reviewed by the relevant payment schemes and the BoE.

Each payment scheme has its own eligibility criteria for direct settling participants. Consequently, interested parties are advised to contact the relevant payment system operator to discuss the access requirements in the first instance, before making an application.

The BoE has designed special RTGS account arrangements for non-bank payment service providers (reflecting the fact that such firms will not become participants of the Sterling Monetary Framework). Before non-bank payment service providers can open a settlement account, they will need to demonstrate compliance with a new risk management framework developed by various stakeholders over the past year, and will be expected to meet the same strong protections and connectivity requirements already in place for existing RTGS account holders.

If non-bank payment service providers pass this initial review, they will then be referred onwards for a supervisory assessment by the FCA (and HMRC, where appropriate) to determine compliance with existing regulatory requirements, including those relating to financial crime, safeguarding of customer funds, and governance arrangements. It is expected that this assessment will take around three months, and will include an information request and follow-up visit. Successful applicants then will be subject to on-going strengthened supervisory oversight by the FCA (and HMRC, where appropriate); this likely will include requiring the firm to commission independent audits covering key risk areas.

The regulators expect that the process will take around a year from a firm formally submitting its application until its “go-live” date, but this will depend on various factors such as the firm’s technical preparedness and the availability of on-boarding slots at the BoE.

The BoE, the FCA and the major payment systems operators have published a guide on access to UK payment systems for non-bank payment service providers. This guide provides background about RTGS access and the requirements, plus an overview of the process to become a direct settling participant.

Concluding thoughts

The BoE’s announcement marks a significant step forward for non-bank payment service providers, who have thus far been denied direct access to this crucial infrastructure. Although the possibility of direct access will not serve as a panacea for all new payment firms seeking to grow in the sector, it demonstrates an important willingness by the UK regulators to try to open up markets to non-traditional providers.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Latham & Watkins LLP | Attorney Advertising

Written by:

Latham & Watkins LLP
Contact
more
less

Latham & Watkins LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.