Key developments of interest over the last month include:
In this Newsletter:
For previous editions of the Global Payments Newsletter, please visit our Financial Services practice page.
On 18 February 2020 the Spanish Council of Ministers approved the draft Bill for the Digital Transformation of the Financial System, which will create a Spanish "sandbox" to test FinTech initiatives.
The "sandbox" will create a legal framework designed to ensure that innovation in the financial sector is initiated and developed in an efficient and secure way for consumers. For example, projects may be exempted from certain regulations during the testing period. The "sandbox" also allows the testing of unregulated activities so that new regulatory frameworks can be formulated following the testing period.
Any entity which meets the eligibility requirements can seek access to the "sandbox" by applying to the General Secretariat of the Treasury and International Finance (SGTFI) with a memorandum explaining their proposed project. The SGTFI will maintain a list of admitted projects on its website.
The draft Bill is now with the Spanish Parliament for final approval.
See further information here.
On 11 March 2020 Rishi Sunak, Chancellor of the Exchequer, delivered the Spring 2020 Budget. Points of interest include:
On 26 February 2020 the European Commission announced that it would launch a public consultation from March to May 2020 to help it to formulate a new EU Digital Finance Strategy, which will be presented in Q3 2020.
The Commission set out some questions that it would like to ask:
On 3 March 2020 the European Banking Authority (EBA) published a speech which encourages the Commission to establish supervisory frameworks for third party service providers, and to implement higher standards regarding security, data protection and crypto-assets in particular. To assist with this, the EBA will look into how regulators can use technology to help monitor and supervise market participants.
On 12 March 2020 the BoE published a discussion paper on central bank digital currency (CBDC). As the use of cash falls and the digital economy grows, the BoE is interested in exploring how CBDC could improve the usability of central bank money and assist the BoE to maintain monetary stability.
The paper sets out what the BoE considers to be the opportunities and risks of CBDC, and how it could be designed and implemented. It also provides a CBDC model under which the BoE would provide a core ledger to record CBDC and process payments, and regulated private sector 'Payment Interface Providers' would interact with end-users and provide additional payments functions.
The BoE would like to receive input from a variety of stakeholders, including the public, the payments industry, technology providers and other central banks. Questions that the discussion paper asks include:
The deadline for responses is 12 June 2020.
On 25 February 2020 the Council of the EU adopted a Decision which finalised the EU's negotiating directives in preparation for the negotiations between the UK and the EU regarding their future relationship.
Though largely based on the draft directives which were published on 3 February 2020, the finalised directives include an additional statement regarding financial services to say that "equivalence mechanisms and decisions remain defined and implemented on a unilateral basis" by the EU and that the EU will preserve its regulatory and supervisory autonomy.
On 26 February 2020 the European Commission published a speech given by the EU's chief negotiator, Michel Barnier, which supports this aim to maintain equivalence as a unilateral, impermanent decision by the EU which is "not subject to joint management with the UK".
This approach is at odds with the UK's objective for "structured processes for the withdrawal of equivalence findings" as set out in the government's policy paper.
On 4 March 2020 the Indian Supreme Court passed a judgment to overrule the Reserve Bank of India's decision in April 2018 to prohibit financial institutions from providing services related to cryptocurrency trading.
The Reserve Bank of India implemented this ban out of concern for "consumer protection, market integrity and money laundering" and had given the entities it regulated three months to terminate any services they provided that facilitated dealing with or settling of virtual currencies.
Several cryptocurrency exchanges challenged this ban in court on the basis that there was no evidence of any damage to regulated financial institutions as a result of cryptocurrency trading prior to the ban, and so the ban was a disproportionate reaction by the central bank. The Supreme Court agreed with these arguments.
On 5 March 2020 the European Payments Council (EPC) published an updated version of its Single European Payments Area (SEPA) Proxy Lookup (SPL) Scheme rulebook. It also published a related press release and webpage.
The main changes to the rulebook include:
The EPC has also published:
The updated version of the rulebook comes into effect on 1 June 2020.
On 11 March 2020 HM Treasury published its response to the Call for Evidence on regulatory coordination in the financial services sector, which ran from July to October 2019.
The response summarises the views that the government received and the key themes that were raised, including:
In response to these concerns, the government will launch the Regulatory Initiatives Grid over the summer. This will be a two-year forecast of major upcoming regulatory initiatives in the financial services sector and will be a biannual publication. It will be managed by the Financial Services Regulatory Initiatives Forum, with the Bank of England, PRA, FCA, PSR, Competition and Markets Authority and HM Treasury as its members.
On 5 March 2020 the PSR published new versions of General Directions 1 to 5 and Specific Direction 1 following its consultation in 2019.
The PSR also published a paper explaining the changes made to these Directions, and setting out its responses to the feedback it received during the consultation. The key changes to the Directions include:
As the changes to the General Directions were minor, the PSR is providing a one-month transition period so that the changes will take effect from 5 April 2020.
A longer transition period is being provided for the updated Specific Direction, which will take effect from 5 May 2020.
On 5 March 2020 the European Payments Council published updated versions of the rulebooks for the SEPA Credit Transfer scheme, the SEPA Instant Credit Transfer scheme, the SEPA Direct Debit Core scheme and the SDD Business-to-Business scheme.
These rulebooks now include an updated version of the SEPA Payment Scheme Management Rules, which reflect the creation of an Appeals Committee and a Dispute Resolution Committee, which replaces the Compliance and Adherence Committee.
The updates did not make any changes to the business and operational rules contained in these rulebooks.
The updated versions of the SEPA scheme rulebooks are in force from 1 April 2020 to 21 November 2021.
On 11 February 2020 the FCA published its findings following a review of how retail banks provide information about BBAs, which are fee-free accounts designed to be inclusive products and help vulnerable customers.
The FCA found that there was room for improvement in several areas. For example, frontline staff need further training to identify customers who are potentially eligible for BBAs, and to conduct the non-standard identity checks correctly.
In terms of next steps, the FCA encourages firms to create a customer journey that is inclusive of all customers, and to review the FCA's guidance on vulnerable customers which is expected to be published by the end of the year.
On 27 February 2020 UK Finance announced an extension to the interim funding arrangement to pay compensation to victims of authorised push payment (APP) scams in the "no blame" scenario under the APP scams voluntary industry code which launched in May 2019. The interim funding has been extended to 31 December 2020. This is to allow more time to deliver a long-term sustainable funding arrangement.
On 20 February 2020 the ACPR published a revised version of Position 2013-P-01 on internal control measures to be applied by financial institutions relying on banking and payment services intermediaries (IOBSPs) to distribute their products.
The update provides clarification to financial institutions in relation to the following:
On 13 January 2020, the Spanish National Securities Market Commission published a brief guide to FinTech, which is defined to include all activities "that involve the use of innovation and technological developments for the design, offer and provision of financial products and services".
The guide gives a basic explanation of the sector, including the different types of FinTechs that exist in the market, depending on the type of product or service provided and their business model, and a list of considerations for consumers to bear in mind when dealing with FinTechs.
On 4 February 2020 BIS published a working paper on the economic forces driving FinTech adoption across countries worldwide.
The key forces behind FinTech adoption analysed by the paper are:
On 6 March 2020 the Financial Action Task Force (FATF) published guidance on digital identity (digital ID).
The aim of the guidance is to clarify how digital ID systems, such as biometric technology, the use of smart phones and distributed ledger technology (DLT) can be used for customer due diligence (CDD) for the purposes of FATF recommendation 10. It looks at the main FATF requirements on digital ID and the benefits and risks of using digital ID for CDD purposes.
According to FATF, financial institutions, authorities and other stakeholders should:
During a summit which took place on 22 – 23 February 2020 in Riyadh, Saudi Arabia, (see the communiqué) the G20's Finance Ministers and Central Bank Governors reiterated their support for the Financial Action Task Force's (FATF) AML and CTF recommendations.
In particular, the G20 urges countries to implement the standards relating to virtual assets and virtual asset services providers (VASPs). This includes the controversial "travel rule" where VASPs should obtain sender and recipient information in relation to virtual asset transfers, and submit this information to the recipient's VASP or financial institution immediately and securely.
Other requirements include the need to conduct risk assessments with regard to virtual asset activities and VASPs, and monitor VASPs to ensure compliance with their AML and CTF obligations.
On 24 February 2020 HM Treasury updated its advisory notice regarding what jurisdictions are considered to be high-risk due to unsatisfactory AML and CTF controls.
This update brings the notice in line with recent FATF statements which identified high-risk jurisdictions, including the Democratic People's Republic of Korea and Iran. As a result, firms regulated in the UK should apply counter measures and enhanced due diligence measures in relation to these jurisdictions. The advisory notice also includes jurisdictions that were identified by FATF as being potentially high-risk, so firms should take appropriate actions to minimise the associated risks.
On 10 March 2020 the EBF published a report detailing its recommendations for the EU's AML policy.
The report sets out 20 policy recommendations in total, which include the following:
On 4 March 2020 the FCA published a statement on its expectations of firms in relation to Covid-19. The FCA states that, working alongside the BoE and HM Treasury, it is working closely with the financial services sector to ensure it is responding effectively to the Covid-19 outbreak.
The FCA states that all firms should have contingency plans in place to deal with major events and, alongside the BoE, it is reviewing the contingency plans of a wide range of firms. This includes assessing operational risks, firms' ability to continue to operate effectively and the steps firms are taking to serve and support their customers.
The FCA expects firms to take all reasonable steps to meet their regulatory obligations. It has no objection to firms undertaking necessary activities from backup sites or with staff working from home.
Separately, on 3 March 2020 the BoE published a Governor statement to the Treasury Select Committee relating to Covid-19. Among other things, the Prudential Regulation Committee is reviewing the contingency plans of banks, insurers and financial market infrastructure.
On 6 March 2020 the ECB published a letter sent to banks classified as significant institutions for the purposes of the single supervisory mechanism on its expectations in relation to Covid-19.
The ECB expects banks to review their business continuity plans and consider what actions can be taken to enhance preparedness to minimise the potential adverse effects of the spread of Covid-19. It also expects banks to take appropriate actions for preparing and responding to a potential pandemic.
Banks should contact their joint supervisory team (JST) immediately if they identify significant shortfalls after performing the checks outlined in the letter or if there are any significant developments. The ECB also expects banks to provide to their JST contact details of the team and key person responsible for business continuity in the context of a pandemic.
On 27 February 2020 the ECB published for consultation a draft Regulation amending the ECB Regulation on Payment Statistics (ECB/2013/43).
The amending Regulation introduces new data collection requirements as follows:
The data only covers payment instruments that are regulated under PSD2.
In making the amendments, the ECB and the EBA have tried to align the Regulation with the EBA Guidelines on fraud reporting under PSD2. In its FAQs on the amending Regulation, the ECB explains that while the Guidelines relate to supervisory needs, the Regulation entails some complementary details on payment fraud relevant for oversight purposes.
The consultation closes on 9 April 2020. The ECB will be holding a public hearing on the draft amending Regulation on 23 March 2020. The updated Regulation will enter into force 20 days after its publication in the Official Journal of the EU. The ECB states that first reporting should not apply for a period of 12 months from the date of adoption of the updated Regulation. The reporting is scheduled to start with the reporting of quarterly data for Q3 2021 and semi-annual data for the second half-year of 2021.
On 17 February 2020 the Bank of England (BoE) published minutes of a December 2019 meeting of its Standards Advisory Panel (SAP).
At the meeting, the BoE and Pay.UK set out their approach to producing thematic market guidance on the use of enhanced messages by the end of 2020. The guidance will explain how to populate enhanced data ISO messages, dependent on the payment purpose. The BoE and Pay.UK envisage the guidance being created and owned by the industry, as industry participants are better placed to understand sector needs, and also when amendments may be required.
The BoE has identified a number of high-level transaction types for CHAPS that will form the core of the market guidance. It will aim to issue guidance for priority transaction types by late 2020, giving participants enough time for implementation before March 2022, when all direct participants in CHAPS must be able to receive ISO 20022 enhanced messages.
On 18 February 2020 the FCA published its Sector Views 2020. The report explores some key cross-sectoral themes impacting the current financial environment, such as the UK's withdrawal from the EU, the US-China trade tensions and developments in technology.
The FCA also highlights potential harms concerning the various sectors it regulates. In relation to retail banking and the payments sector, the report pinpoints issues such as the growth of financial crime, consumers and SMEs receiving poor value from overdrafts and saving accounts, and inadequate consumer protection.
On 24 February 2020 the Lending Standards Board (LSB) published its second summary report on the application of the Access to Banking Standard.
The Standard, which came into effect in May 2017, requires high street banks to inform customers about branch closures and advise them of their options for continuing to access banking services.
The report recommends that firms:
Following the report, firms will also notify LINK, the UK's largest cash machine network, of any decision to close a branch which entails the removal of an ATM, so that LINK can consider the impact and protect access to cash.
On 20 February 2020 Sweden's central bank, the Riksbank, announced that it would be working with Accenture to develop and test a digital currency, e-krona.
The purpose of the project is to determine whether the bank can create a user-friendly and secure digital krona, based on blockchain technology, to serve as a complement to cash. The bank envisages a system where individuals can hold e-krona in a digital wallet and make payments, deposits and withdrawals through a mobile app.
The project will run until the end of February 2021 with a possibility for extension.
On 24 February 2020 Network International announced that it had entered into an agreement with Tencent Holdings Limited, developer of WeChat Pay, to make the mobile payment service widely available across the UAE.
WeChat Pay is a function embedded in the popular Chinese app, WeChat, which has more than a billion users worldwide. The agreement with Network International will allow WeChat users to pay for products and services, both in person and online, in the UAE with their WeChat mobile wallet.
On 27 February 2020 London-based payments platform, PPRO, announced that it had become an acquirer for UnionPay International.
This partnership will allow PPRO's European PSPs and merchants to accept e-commerce payments from customers based in China and Asia Pacific.
According to PPRO, "the Chinese e-commerce market is growing at a rate of 19% a year on average", which signals the significance of its partnership with UnionPay.
On 27 February 2020 Banking Circle announced that it had received a banking licence from the Commission de Surveillance du Secteur Financier in Luxembourg.
Banking Circle provides financial infrastructure for payments and banking to financial institutions, so that its clients do not have to invest in their own infrastructure and compliance.
With its Luxembourg banking licence, Banking Circle can provide services to its clients throughout Europe.
On 27 February 2020 Mastercard announced its partnership with myPOS to promote card payment technology to SMEs across Europe.
The aim of the partnership is to raise awareness of the card payment solutions available, and enhance myPOS' capabilities with Mastercard's network and technology. For example, myPOS has developed products and services to aid SMEs such as its mobile app, business debit cards and its ability to facilitate multi-currency and cross-border payments. These can help merchants manage their payments and cashflow in innovative and more efficient ways.
On 2 March 2020 ECOMMPAY announced its partnership with PayPal as the PayPal Commerce Platform's first PSP.
The PayPal Commerce Platform is designed to meet the needs of businesses and marketplaces by enabling them to accept payment from all PayPal users globally and assist with compliance with different local regulations.
By partnering with PayPal, ECOMMPAY can offer its clients additional payment options through a single API.
On 9 March 2020 Paga announced its partnership with Visa so that Paga account holders can enter into transactions anywhere where Visa is accepted, regardless of location.
Paga is a mobile payment company which is currently developing several payment solutions, including QR codes and NFC payments for in-store transactions, online payments and remittance.
With this partnership, Visa adds one more company to its Visa Fintech Fast-Track Program which supports start-ups in an effort to accelerate the growth of digital payments.
On 24 February 2020 the French Tax Administration, in partnership with the network of French tobacconists, began testing a new payment service which allows French taxpayers to pay taxes, fines and public service bills at their local tobacconist.
This payment service is available in all tobacco shops that are equipped with a "La Française des Jeux" payment terminal, for payments not exceeding €300.
The payment system is being tested in 10 departments initially, and will be rolled out nationally on 1 July 2020.
On 26 February 2020 Deloitte US published its findings following a survey of 2,520 consumers who own both credit and debit cards. Some of the key findings include:
Following these findings, Deloitte recommends that credit card providers:
On 27 February 2020 FIS, an international provider of financial services technology, published its 2020 Global Payments Report. The report can be downloaded through the press release. It estimates that global ecommerce will amount to $5.9 trillion by 2023, and that digital wallets will represent half of these sales.
The report also highlights the growing popularity of "Buy Now, Pay Later" payment services, which allow consumers to pay by instalments or delay payment. FIS predicts that the global use of this online payment method will increase annually by 28% over the next five years.
On 1 March 2020 the Bank for International Settlements (BIS) published its quarterly review which provides an in-depth overview of developments in payments.
Among other topics, the review looks at how the Covid-19 outbreak has affected the market; how technological innovation has changed payments; and the feasibility of central bank digital currencies. The review also highlights the room for improvement in relation to cross-border payments in particular.