UK Review of the Payment Services and E-money Regulations

The Treasury is calling for evidence in its review of the Payment Services Regulations 2017 (PSRs). This review includes the Electronic Money Regulations 2011 (EMRs), since e-money issuers are also subject to the PSRs. Responses are due by 7 April 2023.

A major issue is whether the PSRs and EMRs should remain harmonised with the corresponding EU directives, as most UK payment service providers will have EEA aspirations, if not their own EEA firms. The European Commission embarked on its review of the second Payment Services Directive (PSD2) in May 2022; and in July the European Banking Authority proposed numerous changes. The UK consultation makes no mention of the review of PSD2, so it would be up to UK firms to consider the EU changes and submit any that they would like to see here based on their application to the UK market.

At this stage, the UK government believes that payment services regulation is working well, but could be made more flexible by moving certain aspects to FCA rules and may need to address:

• the need for all payment service providers to guard against ‘authorised push payment’ (APP) fraud;
• whether ‘strong customer authentication’ requirements are too prescriptive and should be ‘outcome-based’;
• delaying payments where APP fraud is suspected to allow for communication with a potentially affected customer;
• the use of cryptoassets or cryptocurrencies as payment methods.

The UK has previously made changes to its insolvency regime to cater for the more orderly and efficient wind-down of payment and e-money institutions, and the Treasury is inviting evidence on whether these arrangements are adequate.

The government boasts that the UK’s Competition and Markets Authority pioneered ‘Open Banking’ through API remedies proposed in 2016 to improve competition in retail banking. It cites unspecified plans to ‘develop’ and ‘progress’ such services through a Joint Regulatory Oversight Committee after the CMA found that its mandated Open Banking Implementation Entity was improperly managed and lacked corporate governance. However, this ignores the fact that open banking services became available in Europe long before 2013, when the first version of PSD2 proposed to regulate them as ‘account information’ and ‘payment initiation’ services. Again, UK firms should consider how PSD2 is evolving in this area.

Another notable omission is a focus on whether banks are unfairly withholding payment accounts from innovative financial services businesses.

If you have any questions about the review of the Payment Services Regulations 2017 (PSRs), please contact Simon Deane-Johns.