On 27 January 2021, the UK Financial Conduct Authority (FCA) published Consultation Paper 21/3 on proposed changes to the manner in which the FCA regulates payment services and the issuance of electronic money (CP 21/3). The consultation for the following initiatives will remain open until 30 April 2021.
Overview of CP21/3
CP 21/3 seeks to address the changes in the payments landscape in recent years including the continued growth of open banking. The coronavirus (COVID-19) pandemic has further accelerated changes in business models and consumer behaviour. The FCA continues to emphasise its focus on maintaining adequate protections for consumers, and ensuring regulatory expectations keep pace with the changing landscape. It is seeking here to support competition and innovation in the payments and e‑money sector. This builds on the priorities set out in the FCA 2020/2021 Business Plan, in which FCA has identified the payments sector as a priority for the next 3 years.
The CP21/3 proposals
The FCA proposes a number of regulatory initiatives, including announcing that the FCA plans to consult on:
- amendments to the regulatory technical standards on strong customer authentication and common and secure methods of communication (SCA-RTS).to encourage confidence in and uptake of open banking. The proposed changes to SCA‑RTS include:
- adding a new exemption from strong customer authentication for when customers access their account information though an account information service providers to address concerns about whether current requirements give rise to customer detriment and taking into account fraud risk considerations;
- mandating the use of dedicated interfaces (such as application programming interfaces) by account servicing payment service providers (ASPSPs) such as banks to facilitate third party provider access to retail and SME customers’ payment accounts;
- changing requirements for publishing interface technical specifications, availability of testing facilities, and fallback mechanisms by account providers; and
- treating EEA ASPSPs with deemed authorisation under temporary permissions regime as exempt from the requirement to set up a fallback interface, where the ASPSP has an exemption from its home state competent authority.
- changes to amend the guidance in the document ‘Payment Services and Electronic Money – Our Approach’ (Approach Document). The proposed changes include:
- to make permanent the temporary guidance issued on 9 July 2020, to strengthen payment and e-money firms’ prudential risk management and arrangements for safeguarding customers’ funds in the exceptional circumstances due to COVID-19, and incorporate it in the Approach Document. We wrote about this guidance in our prior FinBrief;
- reflecting the guidance issued by the European Banking Authority and European Commission prior to the completion of the EU‑UK implementation period on 31 December 2020 where such guidance still remains relevant to the UK, for example relating to SCA factors and the operation of the SCA corporate exemption;
- reflecting the changes to the regulations and rules following the UK’s withdrawal from the EU and the end of the transition period;
- updating FCA rules and guidance to firms in one of the temporary permission schemes designed to enable EEA payment institutions, electronic money institutions and registered account information services providers to continue operating in the UK for a limited time after the end of the transition period; and
- providing additional guidance on the limited network exclusion and electronic communications exclusions and on information sharing between different types of firm in the payments ecosystem (with related changes to the FCA’s perimeter guidance).
Who will the changes apply to?
If implemented, these proposals will apply to credit institutions providing payment services and/or issuing e‑money, as well as payment institutions, e‑money institutions and registered account information services providers.
The regulatory changes will also apply to firms subject to the temporary permission regime and the financial services contracts regime as set out in schedule 3 of the Electronic Money, Payment Services and Payment Systems (Amendment and Transitional Provisions) (EU Exit) Regulations 2018.
The proposed changes will be relevant to Gibraltar firms providing payment services in the UK.