Key developments of interest over the last month include:
- Europe: The European Commission has published a communication setting out an EU Retail Payments Strategy.
- France: The French Observatory for the Security of Payment Means has published its Annual Report for 2019.
- United Kingdom: HM Treasury has published a call for evidence on access to cash, seeking views to feed into legislative work in this area.
In this Newsletter:
- Regulatory Developments
- Payment Market Developments
- Surveys and Reports
Europe: European Commission communication on EU Retail Payments Strategy
On 24 September 2020 the European Commission published a communication setting out an EU Retail Payments Strategy identifying key priorities and objectives for retail payments in Europe over the next four years. The Strategy will contribute to the broader vision for digital finance set out in the related European Commission communication on an EU Digital Finance Strategy, in which the Commission acknowledges the key role of payment services among digital financial services and the consequent requirement for specific policy measures (see the separate item on the EU’s Digital Finance Strategy).
The four key pillars of the Retail Payments Strategy are:
- Pillar 1: Increasingly digital and instant payment solutions with pan-European reach. Key actions include the Commission’s evaluation of the moderately low numbers of payment service providers (PSPs) participating in the SEPA Instant Credit Transfer Scheme and, if advisable, the proposal of legislation requiring PSPs to adhere to the Scheme by the end of 2021.
- Pillar 2: Innovative and competitive retail payments markets. Key actions include the launch, at the end of 2021, of a comprehensive review of the application and impact of PSD2. This review will, among other things, involve re-examination of the existing legal limits of contactless payments, with a view to striking a balance between convenience and fraud risks. Building on the PSD2 experience and the Digital Finance Strategy, the Commission plans to present a legislative proposal for a new "Open Finance" framework by mid-2022.
- Pillar 3: Efficient and interoperable retail payment systems and other support infrastructures. Key actions include the Commission evaluating if it should bring payment institutions and electronic money institutions into scope of the Settlement Finality Directive (SFD) in a review of the SFD starting in Q4 2020.
- Pillar 4: Efficient international payments, including remittances. Key actions include the Commission, as part of the PSD2 review, assessing whether to require that the maximum execution time in "two-leg" transactions also applies to "one-leg" transactions, and whether further improvement of the transparency of cross-border international transactions is required.
France: Publication of Annual Report of the Observatory for the Security of Payment Means
On 22 September 2020 the French Observatory for the Security of Payment Means (OSPM) published its Annual Report for 2019 (Report) in the context of the COVID-19 crisis. The OSPM also published a press release, a letter of introduction for the Report and a PowerPoint presentation.
The Report highlights good results in terms of payment fraud management across the EU (except with respect to cheques) and also notes the need to finalise the implementation of strong customer authentication (SCA) requirements, in particular for online payments, early in 2021.
United Kingdom: HM Treasury publishes call for evidence on access to cash
On 15 October 2020, HM Treasury (HMT) published a call for evidence on access to cash. The government is seeking views through this call for evidence to feed into HMT’s legislative work on access to cash.
In outline, the call for evidence covers the following areas:
- Cash withdrawal facilities: How can the government ensure the UK maintains an appropriate network of cash withdrawal facilities over time through legislation? What is the potential for cashback to play a greater role in the provision of cash withdrawal facilities, and how can legislation facilitate further adoption of cashback? Here, the call for evidence includes a government proposal to make legislative changes after the end of the post-Brexit transition period to enable widespread adoption of "cashback without a purchase", a service which is currently limited by the lack of exemption under PSD2 as implemented in the UK by the Payment Services Regulations 2017.
- Cash deposit-taking facilities: How can the government ensure the UK maintains an appropriate network of cash deposit-taking facilities over time through legislation?
- Cash acceptance: What are the key factors and considerations for maintaining cash acceptance in the UK?
- Regulatory oversight of the cash system: Should the government give a single regulator overall statutory responsibility for maintaining a well-functioning retail cash distribution network? If so, with which regulator should this responsibility sit? The government proposes making the FCA responsible for overseeing the cash system, rather than the current combination of HMT, the Bank of England, the FCA and the Payment Systems Regulator.
The call for evidence closes on 25 November 2020. The government will then provide a summary of responses and will set out next steps for its work on cash access, including delivering the commitment made at Budget 2020 to bring forward legislation to protect access to cash.
Europe: European Commission communication on EU Digital Finance Strategy
On 24 September 2020 the European Commission published a communication on a Digital Finance Strategy for the EU. A summary of responses to its April 2020 consultation on the Strategy and Q&As on the Strategy were also published.
The Digital Finance Strategy comprises a package of measures relating to the following four priorities (with a number of key actions) which should guide the transformation of the EU financial sector, leading up to 2024:
- Harmonisation in the Digital Single Market for financial services.
The Commission aims, by 2024, for the EU to implement a comprehensive legal framework allowing the use of interoperable digital identity solutions to enable new customers to access financial services quickly and in a straightforward way.
- Taking steps to ensure that the EU regulatory framework aids digital innovation in the interests of consumers and market efficiency.
By 2024 the EU should put in place a sound framework enabling the uptake of distributed ledger technology (DLT) and cryptoassets in the financial sector. In addition, by 2024 the Commission, working together with the ESAs, intends to ensure clarity with regards to supervisory expectations about how the legislative framework on financial services should apply to artificial intelligence applications.
- Establishing a European financial data space to promote data-driven innovation.
The Commission aims, by 2024, for the information publicly released under EU financial services legislation to be disclosed in standardised and machine-readable formats. In addition, the EU should have an open finance framework in place, in line with the EU Data Strategy, the forthcoming Data Act, and the Digital Services Act. The Commission will present a legislative proposal for a new open finance framework by mid-2022.
- Responding to the new challenges and risks associated with digital transformation.
The Commission will propose, by mid-2022, various modifications to the existing financial services legislative framework in relation to consumer protection and prudential rules, to protect end-users of digital finance, safeguard financial stability, protect the integrity of the EU financial sector and ensure a level playing field.
The Commission also highlights the related legislative proposals that it has published alongside the communication (and which are covered in separate items in this Newsletter), as follows:
- A proposed Regulation on markets in cryptoassets.
- A proposed Regulation on digital operational resilience for the financial sector.
- A proposed Regulation on a pilot regime for market infrastructures based on distributed ledger technology (DLT).
- A proposed Directive supporting the Digital Finance Strategy by clarifying and amending existing EU financial services Directives.
Payment services are also singled out in the Commission’s communication as playing a key role among digital financial services, with the consequent requirement for specific policy measures. It has therefore published a separate communication on an EU Retail Payments Strategy (see the separate item on this).
Europe: European Commission adopts legislative proposals for Regulation on digital operational resilience for financial sector and Directive supporting EU Digital Finance Strategy by clarifying and amending existing EU financial services Directives including PSD2
On 24 September 2020 the European Commission adopted a legislative proposal for a Regulation on digital operational resilience for the financial sector. On the same day, the Commission also adopted a legislative proposal for a Directive supporting the EU Digital Finance Strategy by clarifying and amending existing EU financial services Directives.
In summary, the legislative proposal for a Regulation on digital operational resilience includes:
- Requirements for financial entities relating to ICT risk management, reporting of main ICT-related incidents, digital operational resilience testing, information and intelligence sharing in relation to cyber threats and vulnerabilities, as well as new measures for financial entities' comprehensive management of ICT third party risks.
- Requirements in relation to the contractual arrangements between financial entities and ICT third party service providers.
- An oversight framework for critical ICT third party service providers when providing services to financial entities.
The purpose of the proposed Directive is to provide legal certainty with regards to cryptoassets and achieve the objective of strengthening digital operational resilience. To achieve that purpose, it is necessary to establish a temporary exemption for multilateral trading facilities and amend or clarify certain provisions in existing EU financial services directives, including PSD2. The proposed Directive's articles relate to, and complement, the proposal for a Regulation on digital operational resilience. Article 7 of the Directive amends the authorisation rules in PSD2 by introducing a cross-reference to the proposed Regulation. Also, the incident notification rules in PSD2 should exclude ICT-related incident notification that the proposed Regulation fully harmonises.
The legislative proposals are part of a digital finance package introduced by the Commission to further enable and support the potential of digital finance (see the separate item on the EU’s Digital Finance Strategy).
See further information here.
Europe: European Commission adopts legislative proposals for Regulation on markets in cryptoassets and Regulation on pilot regime for market infrastructures based on distributed ledger technology
On 24 September 2020 the European Commission adopted a legislative proposal for a Regulation on markets in cryptoassets and a legislative proposal for a Regulation on a pilot regime for market infrastructures based on distributed ledger technology (DLT).
The cryptoassets proposal establishes a new EU legal framework for cryptoassets that are not covered by existing EU financial services legislation, providing legal certainty for those cryptoassets and establishing uniform rules for cryptoasset service providers and issuers at EU level.
The proposed Regulation would replace any existing national frameworks and introduce a mandatory regime allowing cryptoasset issuers and cryptoasset service providers to offer their services in the EU. It would also establish specific rules for stablecoins, including when these amount to e-money. The proposal includes taxonomy of definitions of different types of cryptoasset including asset-referenced tokens (that is, stablecoins), electronic money (e-money) tokens and utility tokens.
The related legislative proposal, which covers a pilot regime for DLT market infrastructures in the form of a Regulation, aims to allow the operation of a DLT market infrastructure by establishing clear and uniform requirements. It has four main objectives:
- To enhance legal certainty.
- To support innovation
- To instil consumer and investor protection and market integrity.
- To ensure financial stability.
Both legislative proposals form part of a digital finance package introduced by the Commission to further enable and support the potential of digital finance (see the separate item on the EU’s Digital Finance Strategy).
See further information here.
Europe: European Parliament adopts resolution on digital finance
On 8 October 2020 the European Parliament published a press release announcing that it had voted in plenary to adopt a resolution on digital finance. It has also published a provisional edition of the resolution.
The resolution contains recommendations to the European Commission on digital finance. It addresses emerging risks in cryptoassets, specifically regulatory and supervisory challenges in the area of financial services, institutions and markets.
United Kingdom: Law Commission starts work on two new projects on smart contracts and digital assets
On 21 September 2020 the Law Commission published a press release announcing that it has started work on English law analysis in the context of smart contracts and digital assets. This follows on from the LawTech Delivery Panel's November 2019 legal statement on the status of cryptoassets and smart contracts.
According to the press release:
- The smart contracts work will focus on highlighting uncertainties and gaps in the law and identifying reforms that may be required. The Law Commission is already seeking initial views from businesses and the technology sector on these issues and it aims to publish a call for evidence in late 2020.
- For the digital assets work, the government has asked the Law Commission to make recommendations for reform to ensure that English law is capable of accommodating transactions involving digital assets such as cryptoassets. A particular focus will be the concept of "possession" of these assets, where existing legislation is preventing the shift to a complete digitisation of trade and transactions, particularly in international trade finance. The Law Commission aims to publish a consultation paper on the issue of possession in early 2021.
Global: FSB publishes final report on high-level recommendations on global stablecoin arrangements
On 13 October 2020 the Financial Stability Board (FSB) published the final version of its report setting out ten high-level recommendations for the co-ordinated and effective regulation, supervision and oversight of global stablecoin (GSC) arrangements. It also published an overview of the responses received to its April 2020 consultation on the draft report and recommendations.
The report focuses on regulatory, supervisory and oversight issues relating to privately-issued GSCs primarily used for retail purposes. However, the FSB states that it may also be relevant for other types of stablecoin, including those used for wholesale market purposes and those that may only pose risks to financial stability in some countries or regions. The report may also have relevance for other cryptoassets that could pose risks similar to some of those posed by GSCs due to similar international reach, scale and use.
In addition to the recommendations, the report:
- Describes GSCs and how they may differ from other cryptoassets and stablecoins.
- Identifies the potential risks raised by GSCs.
- Looks at existing regulatory, supervisory and oversight approaches to GSCs.
- Pinpoints issues that should be addressed.
- Examines specific challenges arising in a cross-border context.
In terms of next steps, the FSB has agreed to some further actions as a key building block of the roadmap to enhance cross-border payments commissioned by the G20, which was also published on the same day (see the separate item on this). The further actions include the FSB, along with other standard-setting bodies, reviewing the implementation of the recommendations, identifying potential gaps and updating them or adapting international standards by July 2023.
Global: FSB stage 3 report containing roadmap to enhance cross-border payments published
On 13 October 2020 the Financial Stability Board (FSB) published a stage 3 report containing a roadmap to enhance cross-border payments.
The report builds on the previously published FSB stage 1 report, which set out the challenges and frictions in cross-border payments, and the Committee on Payments and Market Infrastructures' (CPMI) stage 2 report, setting out 19 building blocks to respond to the challenges. (See also the separate item on the FSB’s final report on high-level recommendations on global stablecoin arrangements.)
The roadmap provides a high-level plan of goals and milestones that can be adapted as work progresses across five focus areas which are as follows:
- Committing to a joint public and private sector vision to enhance cross-border payments.
- Co-ordinating on regulatory, supervisory and oversight frameworks.
- Improving existing payment infrastructures and arrangements to support the requirements of the cross-border payments market.
- Increasing data quality and straight-through processing by enhancing data and market practices.
- Exploring the potential role of new payment infrastructures and arrangements.
The FSB will co-ordinate the work and report on progress to the G20 and the public on an annual basis. This might result in the roadmap being updated and adapted to ensure its goals are met.
The roadmap was delivered to G20 Finance Ministers and Central Bank Governors for their meeting on 14 October 2020.
United Kingdom: FCA announces first firms will move to RegData in October 2020
On 23 September 2020 the FCA published a press release announcing that the first firms will be moved from Gabriel to RegData, the FCA's new data collection platform for gathering regulatory data from firms, over the weekend of 17 and 18 October 2020. These firms will then complete their regulatory reporting on RegData.
The FCA will continue to move firms to RegData from Gabriel in stages over the months to come, depending on their reporting requirements.
The FCA has created a dedicated webpage on moving firms to RegData which contains a checklist for firms in advance of their move and also sets out the process they will follow to join RegData.
United Kingdom: FCA consults on approach to international firms
On 23 September 2020 the FCA published a consultation paper on its approach to international firms (CP20/20).
In the paper, the FCA sets out its approach to international firms providing or seeking to provide financial services which need authorisation in the UK. Those firms include:
- EEA firms that have applied, or intend to apply, for authorisation in the UK (including those entering the temporary permissions regime (TPR)).
- Firms from non-EEA countries that have applied, or intend to apply, for authorisation in the UK, or are already authorised in the UK.
The FCA states that it is not proposing to change existing rules or other provisions in the FCA Handbook. Instead, the FCA wants international firms to understand its approach and expectations.
The FCA explains the factors it will consider when assessing international firms against minimum standards on authorisation and ongoing supervision. It also sets out the circumstances where international firms could present higher risks of harm, and how those risks can be mitigated.
The consultation closes on 27 November 2020.
Europe: EPC updated guidelines for appearance of mandates for SEPA direct debit schemes
On 24 September 2020 the European Payments Council (EPC) published version 6 of its guidelines on the appearance of mandates for the Single Euro Payments Area (SEPA) Direct Debit (SDD) Core Scheme and the SDD Business-to-Business (B2B) Scheme.
The guidelines provide guidance on the visual presentation of mandates under the SEPA SDD Core Scheme and the SDD B2B Scheme issued by creditors under the SDD schemes to enable debtors to make payments. The aim is to illustrate several ways to reduce mandate complexity without losing any essential content and while still remaining in compliance with the relevant scheme rulebook.
The EPC also provides advice on when the delivery of the debtor bank's bank identifier code is mandatory in SDD transactions.
The EPC has also published version 8 of its creditor identifier overview following its annual review by the Scheme Management Board. The document aims to inform creditors about the need for a creditor identifier on SDD mandates and forthcoming collections, and about the institution(s) in each SEPA country that can issue such a creditor identifier.
United Kingdom: FCA finalised guidance on cancellations and refunds in context of COVID-19 pandemic
On 2 October 2020 the FCA published its finalised guidance for credit and debit card firms and insurance providers on cancellations and refunds.
The guidance is intended to ensure that such firms deal with enquiries and claims from consumers in reasonable time, fairly and in a way that reduces inconvenience to the consumer to a minimum.
The finalised guidance includes the following key points:
- If an insurance company is referring a consumer to a credit card issuer for a section 75 claim, they must be reasonable and must assess whether there is a claim and explain why.
- Card providers must handle any claim in a timely fashion.
- Confirmation that the guidance does not provide a set route for consumers to get a refund.
- Much will depend on policy wording but unreasonable conditions can’t be imposed, i.e. a requirement to go to court to recover money before claiming on a policy.
- If a card firm is rejecting a section 75 claim or a chargeback claim, it must explain why and what other options may be available.
The guidance came into force immediately and is effective until 2 April 2021.
United Kingdom: FCA publishes 2019/20 Perimeter Report
On 29 September 2020 the FCA published its Perimeter Report 2019/20, which provides an update on the issues raised in its 2018/19 report. The report also sets out other areas where the FCA has made progress, or continues to see harm to consumers and market users around its regulatory perimeter, particularly as a result of the COVID-19 pandemic.
The report highlights potential perimeter issues and summarises actions taken to reduce or mitigate harm relating to products including:
- Developing payment markets business models: One area where the FCA has seen technology and the location of the regulatory perimeter helping to encourage innovation is the payments market, which has experienced a degree of intermediation and innovation leading to new models currently outside the perimeter. As the first stage of the government’s review of the UK payments landscape, HM Treasury published a Call for Evidence in July 2020 seeking views on the opportunities, gaps and risks that need to be addressed to ensure that the UK maintains its status as a country at the cutting edge of payments provision and technology. The FCA will continue to support the review, and to consider how the payments market is developing, especially in the light of the COVID-19 pandemic.
- Cryptoassets: The FCA’s consumer research on cryptoassets showed that, in general, consumers correctly understood that they do not have regulatory protections when purchasing unregulated cryptoassets. However, there remains a risk that consumers can be confused, wrongly believing that regulatory protections exist when cryptoassets are used to deliver services in certain ways; particularly when the unregulated activity looks and feels similar to more familiar regulated financial services. The FCA will continue to work closely with the Bank of England and the Treasury as part of the Cryptoasset Taskforce. The Treasury has committed to consulting on the UK’s broader regulatory approach to cryptoassets, including stablecoins, by the end of 2020.
United Kingdom: PSR requests input on choice and availability of payments as part of new future strategy review
On 1 October 2020 the PSR published a new webpage requesting input on its theme of choice and availability of payments as part of developing its future strategy.
The PSR is focusing on three key areas that it believes are particularly relevant to current issues in payments. It requested input on its innovation and future payment methods theme at the time of launch of its new future strategy in July 2020 and published a webpage requesting input on its competition theme in September 2020.
Input can be provided up to the end of October 2020. The PSR will consult on a full draft strategy at the beginning of 2021.
United Kingdom: FCA reopens notification window for temporary permissions regime until end of 30 December 2020
On 30 September 2020 the FCA published an updated webpage on the temporary permissions regime (TPR) which will apply from the end of the post-Brexit transition period.
European Economic Area (EEA) firms and fund managers have a new window in which they can notify the FCA if they wish to use the TPR. Notifications can now be submitted to the FCA via the Connect system until the end of 30 December 2020.
Firms that have already submitted a notification do not need to take any further action.
United Kingdom: FCA updates Handbook to reflect Brexit amendments, publishes instruments applying at end of Brexit transition period and updates non-Handbook guidance
On 1 October 2020 the FCA announced that it has updated its Handbook to reflect the amendments relating to Brexit that will come into effect at the end of the transitional period at 11.00 pm on 31 December 2020 (IP completion day). It has also published a guide to the FCA Handbook for post-Brexit transition.
The FCA has added a time travel function into the Handbook which makes it possible for users to view a post-IP completion day version of its rules and guidance. The post-IP completion day version of the Handbook implements the majority of changes that the FCA had previously consulted on in its consultation papers CP19/27 and CP19/33, except for minor drafting amendments. FCA Handbook Notice No.80 contains details of specific amendments made to instruments consulted on.
The FCA has also announced the publication of the final versions of the instruments which it consulted on in CP19/27 and CP19/33 (including instruments amending binding technical standards (BTS)), together with a number of other instruments in preparation for IP completion day.
In addition, the FCA has published updated versions of its guidance on its approach to EU non-legislative materials, its approach to non-Handbook guidance where it relates to EU-law or EU-derived law and its interpretative guide on completing its forms after the UK's withdrawal from the EU.
United Kingdom: FCA updates Brexit temporary transitional directions and explains how it will use the Temporary Transitional Power (TTP)
The FCA has published draft transitional directions and an explanatory note together with a statement on the intended use of the TTP, confirming that – subject to certain exceptions requiring compliance by 31 December 2020 - firms will have until 31 March 2022 to comply with the changes brought about by onshoring.
The FCA has confirmed that the TTP will not apply to certain key requirements. Firms must therefore make the necessary changes by 31 December 2020. The requirements include those relating to payment services, where the FCA has confirmed that it expects firms to comply with the UK-RTS (the onshored SCA-RTS). The FCA acknowledges the scale and complexity of the changes proposed and confirms that it does not intend to take enforcement action against firms for non-compliance where there is evidence that they have taken reasonable steps to comply with the new obligations by 31 December 2020.
The FCA expects firms to use the period to 31 March 2022 to prepare for full compliance with the onshored UK regime. The final TTP directions will be published in December 2020, ahead of IP completion day.
The BoE and the PRA have also published information on the TTP and their transitional directions, namely a new BoE webpage on the TTP, general guidance on the BoE’s transitional direction and general guidance on the PRA’s transitional direction.
United Kingdom: PRA and BoE joint consultation on changes required before end of post-Brexit transition period
On 22 September 2020 the PRA and the Bank of England (BoE) published a joint consultation paper (CP13/20) on changes to their rules and binding technical standards (BTS), and the use of temporary transitional powers, required before the end of the post-Brexit transition period. A number of appendices are listed separately on the consultation webpage.
The consultation paper includes:
- An update on the BoE and PRA's intended use of the temporary transitional power provided for in the Financial Services and Markets Act 2000 (Amendment) (EU Exit) Regulations 2019.
- Proposals in relation to consequential changes required to existing BoE and PRA EU Exit Instruments to update references to exit day and a small number of changes in light of adaptations to relevant EU legislation made by the European Economic Area (EEA) Agreement.
- PRA proposals in relation to the PRA Rulebook and BTS that will, or are expected to, be retained in UK law.
- BoE (as FMI competent authority) proposals in relation to BTS that will be retained in UK law.
The deadline for responses is 17 November 2020. The PRA and the BoE intend for the changes to take effect on IP completion day, ie 31 December 2020.
United Kingdom: Draft Securities Financing Transactions, Securitisation and Miscellaneous Amendments (EU Exit) Regulations 2020 laid before Parliament
On 15 October 2020 a draft version of the Securities Financing Transactions, Securitisation and Miscellaneous Amendments (EU Exit) Regulations 2020, which has been laid before Parliament, was published on legislation.gov.uk, along with an explanatory memorandum.
Among other things, the draft Regulations:
- Amend the Credit Transfers and Direct Debits in Euro (Amendment) (EU Exit) Regulations 2018 to ensure that the FCA continues to have powers (set out in the Payments in Euro (Credit Transfers and Direct Debits) Regulations 2012) to supervise and enforce the retained parts of the Cross Border Payments Regulation (EC) No 924/2009 (as amended by Regulation (EU) 2019/518 – CBPR2)) (CBPR)
- Amend the Financial Services (Miscellaneous) (Amendment) (EU Exit) Regulations 2019 so that the CBPR is not revoked in its entirety.
- Maintain the existing policy of revoking the provisions of the CBPR which equalise charges for cross-border payments, but maintain and fix deficiencies in Articles 3a and 3b (currency conversion transparency requirements). According to the explanatory memorandum, the amendments contained in the draft Regulations ensure that Articles 3a and 3b continue to apply to payments where the currency conversion offered is between Sterling and EU currencies. They also ensure that the provisions continue to apply where the payment is domestic (between two UK payment service providers) or between a UK payment service provider and a payment service provider located in the EEA. The explanatory memorandum further clarifies that points (5) and (6) of Article 3a will not come into UK law. It explains that this is because they apply in April 2021, after the end of the post-Brexit transition period, and therefore cannot be onshored into UK law under the terms of the European Union (Withdrawal) Act 2018, as amended.
United Kingdom: FCA response to Treasury Committee questions about closures of EU-resident customers' UK bank accounts post-Brexit
On 14 October 2020 the House of Commons Treasury Committee published a letter from Nikhil Rathi, FCA Chief Executive, to Mel Stride, Committee Chair.
The letter responds to an earlier letter in which the Committee questioned the FCA about reports that customers of UK banks living in the EU have begun to receive letters informing them that their current accounts will be closed after the end of the Brexit transition period.
In his letter, Mr Rathi makes the following points:
- In the absence of any pan-European equivalents to the UK's temporary permissions regime (TPR) and financial services contracts regime (FSCR) schemes, the extent to which UK banks can service EEA-based customers is a matter of local law and regulation as well as the decisions firms take in light of their specific business models and structures.
- Where banks inform customers that their current accounts will be closed, contractual provisions between the firm and the customer govern the notice periods they need to give. These vary by firm and by banking product. For example, under the Payment Services Regulations 2017, banks must provide a minimum notice period of two months when closing in-credit current accounts. The FCA's rules and guidance set out other requirements for banks to provide clear and timely information to customers when closing other types of account (BCOBS 4.1.1). As a minimum, the FCA expects firms' actions to be consistent with customers' contractual rights.
- In line with their obligation to treat customers fairly, firms must be able to show they have considered how their plans for the end of the transition period may affect their customers, bearing in mind that different categories of customer might be affected in different ways. This includes identifying whether closing accounts would cause any individual customers or classes of customer undue financial hardship, taking account of the availability of alternative products. Firms should consider this when deciding how much notice to give and how much support they provide to customers to ensure they can smoothly transition to new arrangements.
- The FCA is engaging closely with the large banking groups about their plans for servicing EEA-based customers after the transition period. The letter reiterates the FCA’s expectations regarding planned account closures as set out in a recent PRA and FCA ‘Dear CEO’ letter on final preparations for the end of the Brexit transition period.
United Kingdom: FCA launches COVID-19 digital sandbox pilot
On 5 October 2020 the FCA published a press release announcing that it has launched its digital sandbox pilot to support innovative firms trying to overcome challenges caused by the COVID-19 pandemic. The FCA has also updated its webpage on the digital sandbox pilot.
Some of the features tested by the FCA as the foundations of a digital sandbox include:
- Access to synthetic data assets to enable testing of prototype technology solutions for SME lending data and customer accounts.
- An API marketplace where digital service providers list and provide access to services via APIs.
- An integrated development environment in which applicants can develop and test their solution.
- A collaboration platform to facilitate provision of support and input to digital sandbox participants from organisations such as academia, government bodies, venture capital, and charities.
The FCA is accepting applications until 30 October 2020. It will confirm successful applicants and give access to the digital sandbox in early November 2020.
Europe: Delegated Regulation on RTS on PSD2 central contact points published in OJ
On 9 October 2020 Commission Delegated Regulation (EU) 2020/1423 supplementing PSD2 with regard to regulatory technical standards (RTS) on the criteria for appointing central contact points within the field of payment services and on the functions of those central contact points, was published in the Official Journal of the EU (OJ).
The RTS set out the criteria for the appointment of central contact points by payment institutions. Their aim is to create legal certainty about the criteria that member states will apply to determine whether it is appropriate to appoint a central contact point and to set out the functions a central contact point must have to fulfil its duties.
The Delegated Regulation will enter into force and apply on 29 October 2020.
Europe: EBA consultation on revision of guidelines on major incident reporting under PSD2
On 14 October 2020 the EBA published a consultation paper on proposals to revise the guidelines on major incident reporting under PSD2.
The original guidelines on major incident reporting (July 2017) apply to the classification and reporting of major operational or security incidents under Article 96 of PSD2 and are addressed to payment service providers (PSPs) and the competent authorities (CAs) under PSD2.
Under Article 96(4) of PSD2, the EBA is required to review the guidelines regularly. This review has shown that the guidelines would benefit from some targeted amendments to optimise and simplify the major incident reporting, to capture additional security incidents, and to reduce the number of operational incidents that PSPs are required to report.
Therefore the EBA proposes to:
- Increase the absolute amount thresholds of the incident classification criterion "transactions affected".
- Make changes to the calculation of the criteria "transactions affected" and "payment service users affected" in the lower impact level.
- Introduce a new incident classification criterion "breach of security measures" aimed at capturing incidents where the breach of the PSP's security measures has an impact on the availability, integrity, confidentiality or authenticity of the payment services-related data, processes or systems.
- Introduce a standardised file for PSPs to report major incidents to CAs.
- Remove the requirement for PSPs to provide regular updates to CAs on the intermediate report, extend the deadline for PSPs to submit the final report, and reduce the fields in the reporting template.
The EBA also acknowledges the European Commission's legislative proposal for an EU regulatory framework on digital operational resilience, which contains a proposal for incident reporting that is inspired by PSD2 but goes beyond payments-related incidents (see the separate item on this). It notes that, while it will be years before that framework becomes legally applicable, it expects the revised guidelines proposed in the current consultation to become applicable in Q4 2021 and remain in force at least until the digital operational resilience requirements take effect.
The consultation closes on 14 December 2020. The EBA will publish a final report in due course.
Russia: Bank of Russia considers issuing digital ruble
On 13 October 2020 the Bank of Russia – the Russian central bank – announced that it is exploring the possibility of issuing a central bank digital currency (CBDC), a digital ruble. The bank hasn't yet decided whether to issue a CBDC but will hold a public consultation period on the matter.
Nigeria: Federal government is reported to be developing an ambitious plan to facilitate national crypto adoption
On 15 October 2020 it was reported that Nigeria's federal government is developing an ambitious plan to facilitate national crypto adoption with the vision of creating a "Digital Nigeria".
According to an early draft of the strategy framework, the country's Federal Ministry of Communications and Digital Economy and the National Information Technology Development Agency (NITDA) have partnered to develop a blueprint for national blockchain adoption.
United Kingdom: BoE publishes information on revised approach to ISO 20022 migration
On 13 October 2020 the Bank of England (BoE) updated its webpage on ISO 20022. Following consultation with CHAPS direct participants, other central banks and members of the payments industry on its plans for ISO 20022 migration, the real-time gross settlement (RTGS) renewal programme has confirmed a revised approach to ISO 20022 migration. Among other points, the revised approach includes:
- Moving the implementation date for the BoE’s migration of the CHAPS payments messages to ISO 20022 from April to June 2022 (part of Phase 2 (TS2)).
- The BoE introducing the new RTGS2 core ledger and settlement engine in September 2023, which is about six months later than previously announced (part of Phase 3 (TS3)).
The BoE will provide further guidance for CHAPS direct participants on these changes, along with technical information, during the week commencing 26 October 2020.
Payment Market Developments
Global: ACI Worldwide and Mastercard agree on collaboration
On 29 September 2020 Mastercard and ACI Worldwide, a global provider of digital payment software and solutions, announced that they will partner to provide a wide range of real-time payment solutions globally. The companies will collaborate to offer central infrastructure, payments localisation and access solutions to central banks, scheme operators, financial institutions and payment service providers.
China: Ant Group launches blockchain-based trade platform
On 25 September 2020 Chinese fintech Ant Group unveiled Trusple, a blockchain powered global trade and financial services platform. The new platform will make it easier and cheaper for firms, especially SMEs, to sell their goods and services around the world while also reducing costs for financial institutions. By using the firm's blockchain technology, the buyer's and seller's banks automatically process the payment settlements through the smart contract.
United States: Santander Bank to provide new digital home lending platform
On 24 September 2020 Santander Bank announced that it is partnering with Roostify on its digital home lending platform to provide a more convenient way for customers to apply for the Bank's home lending services. The new digital platform offers a streamlined loan application and fulfilment process for home buyers and owners during a purchase or refinance.
Hong Kong: Standard Chartered launches a new virtual bank "Mox"
On 22 September 2020 Standard Chartered announced the launch of its new virtual bank "Mox" in Hong Kong. Mox provides a wide variety of retail banking services completely digitally over its app, with Mox customers reportedly able to open an online account within three minutes.
Scotland: Nuapay links with OneBanks to deepen financial inclusion
On 25 September 2020 Scottish fintech OneBanks announced its new global partnership with open banking specialists Nuapay. With the goal of expanding financial inclusion, OneBanks will provide accessible kiosks operated by people in retail locations with limited or no banking facilities.
Italy: Nexi has signed an open banking partnership with Ebury
On 30 September 2020 Nexi, an Italian paytech company, announced the signing of an open banking partnership with fintech Ebury. As a result, Nexi's partner banks will be able to offer their clients international cash management, FX risk management and import/export lending.
Asia: Shopee and Visa sign five-year strategic partnership
On 1 October 2020 Shopee, the leading e-commerce platform in Southeast Asia and Taiwan, together with Visa, announced a five-year regional strategic partnership that will encourage greater participation in Southeast Asia's digital economy, a key component of accelerating the region's overall economic growth.
Australia: RiskCapCom and Apollo Fintech announce compliance and fintech partnership
On 4 October 2020 regtech firm Risk & Capital Compliance Solutions and Apollo Fintech announced a new partnership aimed to bring a world-first regtech and fintech solution to the global financial service and cryptocurrency and blockchain technology industries. The partnership will service and market the cryptocurrency and financial services markets of the Middle East, Africa, Asia, and Australia.
United States: Venmo launches credit card
On 5 October 2020 the P2P payments giant Venmo announced the launch of its first credit card. The card comes with a personalised rewards setup and a built-in QR code. It also allows users to split payments more naturally and receive cash-back rewards directly into the Venmo app.
The Netherlands: Rabobank becomes first bank in the country to offer bank account for utility token
On 6 October 2020 Rabobank announced that it has entered into an agreement with the 2Tokens Foundation to facilitate payments for digital currency tokens. Rabobank is enabling a bank account for the Foundation which allows customers to pay for the tokens. They can buy the tokens in euros using the Netherlands' iDeal e-commerce payments system. Rabobank is the first bank in the Netherlands to do so.
France: Mobile payments company Lydia selects Tink as its open banking technology partner
On 8 October 2020 France's leading mobile payment app Lydia announced that it has selected Tink as its open banking technology partner to leverage access to PSD2 APIs across Europe. This new open banking connectivity will be rolled out to Lydia's 4 million users in the coming weeks.
United States: Petal launches credit card for customers with low credit
On 8 October 2020 an American fintech startup Petal announced the launch of its new credit card which is designed for people with non-prime credit scores in the wake of the COVID-19 crisis. The card is called Petal 1 and is a non-annual Visa card aimed at consumers who already have a credit history and want to improve their credit safely in an affordable way.
Surveys and Reports
Global: Central bank group report on principles and features of central bank digital currencies
On 9 October 2020 a group of central banks and the Bank for International Settlements (BIS) published a report on the principles and main characteristics of central bank digital currencies (CBDCs).
The report explains that CBDC issuance and design is a sovereign decision for each jurisdiction based on an assessment of how CBDC could support public policy objectives through the provision of a safe means of payment. It also proposes a number of starting principles of a CBDC:
- A central bank should not compromise monetary or financial stability by issuing a CBDC.
- A CBDC needs to co-exist with and complement existing forms of money.
- A CBDC should promote innovation and efficiency.
In light of those principles, the central banks responsible for the report argue that there is significant common ground about the core features of any future CBDC system, which should be resilient and secure to maintain operational integrity. Any CBDC must be convenient and available at very low or no cost to end users and should have an appropriate role for the private sector and be oriented to promote competition and innovation. In addition, a clear legal framework must reinforce the system.
The central bank group comprises the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, the Federal Reserve, Sveriges Riksbank and the Swiss National Bank.
Global: FSB report on use of RegTech and SupTech by regulatory authorities and regulated institutions
On 9 October 2020 the Financial Stability Board (FSB) published a report on the use of supervisory technology (SupTech) and regulatory technology (RegTech) by regulatory authorities and regulated institutions.
In the report, the FSB studies the demand and supply drivers, and the barriers and enablers, to the development and deployment of SupTech and RegTech by authorities and regulated institutions. The report also looks at the relevant technologies, such as cloud-based services, artificial intelligence, machine learning and application programming interfaces.
The FSB states that SupTech and RegTech tools could offer useful opportunities and benefits for financial stability. However, authorities are cautious in relation to the possible risks that could arise from their use. FSB members' survey responses indicated that the risk of greatest concern relates to resourcing, followed by concerns in respect of cyber risk, reputational risk and data quality issues.
In the report there are a range of case studies providing practical examples of how SupTech and RegTech tools are being used. These include a number of examples related to the COVID-19 pandemic and also to illustrate where authorities have been able to deploy these solutions to support remote working, crisis response and enhanced surveillance and supervision.
Global: SWIFT report on global payments innovation’s (gpi) role in reshaping cross-border payments
On 7 October 2020 Swift, a global provider of secure financial messaging services, published a report in which it discusses how SWIFT gpi has reshaped the cross-border payments landscape.
- Demonstrates the full scope of the SWIFT transformation by aggregating data from the unique end-to-end tracking reference (UETR) carried by every SWIFT payment to show how gpi has facilitated dramatic improvements in cross-border payments.
- Reveals how gpi is increasingly being adopted for domestic and even consumer payments.
- Emphasises the strong foundation that gpi has created for the new strategy and platform transformation that SWIFT plans to deliver instant, frictionless end-to-end transaction management for payments and securities processing.
The report also considers the impact of the remaining frictions in domestic and cross-border transactions, assess how gpi is helping to overcome them, and looks at what still remains to be done.
Africa: Boston Consulting Group report on mobile payments market
On 13 August 2020 the Boston Consulting Group (BCG) published a report on the mobile payments market in Africa. It finds that, by 2025, the overall market across Africa is set to reach 650 million to 750 million customers, as well as a transaction volume of US$14bn to US$20bn.
The report also states that mobile transactions in Kenya represent 87% of the country's GDP, while in Ghana they account for 82% of GDP. However, in other African jurisdictions less than 50% of financial transactions are currently mobile payments although the BCG analysts believe that these countries also exhibit the underlying conditions required for substantial growth in that area.
In addition, the report finds that the African mobile payments market is dominated by telecoms companies. The report points to the main reasons for this as being that telecoms operators have been able to overcome regulatory hurdles, have the biggest customer base, tend to offer lower fees, have broader agent networks and manage the mobile network infrastructure, while banks "typically focus on affluent customers, who represent perhaps 10% of the adult African population".