Payments market update 

Open Banking offers the opportunity for the development of new solutions in payment services that increase competition, foster innovation and benefit customers.

However, despite reaching some notable milestones since its inception in 2018, Open Banking has not yet fulfilled its promise to create a revolution in financial services and there are a number of structural features that has made penetration in the payments sector more difficult.

In December 2022, HM Treasury, the Competition and Markets Authority (CMA), the Financial Conduct Authority (FCA) and the Payment Systems Regulator (PSR) published a Joint Statement to update on the future of Open Banking. 

Read our insight as we look at the progress of Open Banking in payments to date. We also summarise the key priorities identified the Joint Statement and consider the impact that the next phase of UK Open Banking may have on the payments sector.

On 1 February 2023, HM Treasury published a consultation and call for evidence on the future regulatory regime for cryptocurrencies or, as the Treasury and FCA call them, cryptoassets.

This represents the next step in a phased approach adopted by the Government to the regulation of this sector. Phase 1 relates to stablecoins used as a means of payment. The Treasury consulted on this topic in 2021 and published its response in April 2022. In short, using new powers due to be introduced in the Financial Services Bill, it will bring stablecoins used as payment within the scope of regulation through amendments to the Electronic Money Regulations 2011 and Payment Services Regulations 2017, and widen the application of the Banking Act 2009 and Financial Services (Banking Reform Act) 2013 in certain ways. It will also extend the Financial Market Infrastructure special administration regime to systemic stablecoin arrangements and introduce a new custodial activity to cover wallet providers and exchanges.

Read the full article for more information on Phase 2 and proposals for a digital pound.

On 31 July 2023, the new FCA Consumer Duty (the Duty) will come into force for all new and existing products and services open to customers. This includes payment services where customers are individuals, micro-enterprises or small charities.

Much has been written about the potential impact on firms such as banks and Payment Service Providers (PSPs) that issue cards to consumers. However, there has been much less commentary about what it might mean for the card acceptance market (including acquirers and payment facilitators). Read our full article, as we look at the impact of the Duty from their perspective.

On 14 February 2023, the Government published a second consultation on the regulation of Buy-Now-Pay-Later (BNPL) agreements alongside draft legislation.

This consultation is open until 11 April 2023. The proposed legislation covers the scope of regulation, anti-avoidance measures, regulatory controls and transitional arrangements for BNPL providers.

Read our full article where we provide an overview of the proposed legislative changes. 

On 24 January 2023, the Civil Aviation Authority (CAA) published ATOL Reform: assessing the impacts of the options for reform – request for further information (CAP 2496) (the RFI). The RFI forms part of the CAA’s ongoing consideration for reform to ATOL. Responses to the RFI are due by 31 March 2023. PSPs will be interested in the outcome of the reform because of the potential exposure that payment firms (including issuers and acquirers) face to the travel industry - particularly when there are insolvencies. 

Although the CAA stresses that no decisions have yet been made, the likely direction of travel appears to be towards a form of segregation of client monies and a variable APC (the contribution payment made by ATOL holders). The CAA acknowledges that the financial markets option is not currently a viable option in isolation to cover the entire market risk. The CAA says it remains committed to reform to strengthen the financial licensing arrangements for ATOL holders.

The CAA will use the responses from stakeholders to the RFI to finalise its approach to assessing the options for reform and the preparation of an impact assessment. That will then form part of its advice to Government, along with its recommendation on the preferred option for reform.

We are tracking the reform and please do get in touch if you are affected and require any advice.

Author: Sam McCollum