On 11 October 2021, Her Majesty’s Treasury published the UK Government’s response (Response) to its Call for Evidence to the Payments Landscape Review (Review).

The Response set out the UK Government’s plans in four priority areas:

  • strengthening consumer protections within Faster Payments;
  • unlocking the future of Open Banking enabled payments;
  • enhancing cross-border payments; and
  • future-proofing the regulatory and legislative framework that governs payments.

The call for evidence

The Review was launched in July 2020. We have written about the Review in this FinBrief.

The objective of the UK Government is to ensure that the UK continues to be an early adopter and facilitator of payments technology whilst at the same time ensuring that payments are safe and that payment systems are resilient and stable.

  1. Underpinning this objective are the following 4 high-level aims:
  2. That the UK payment networks operate for the benefit of end users, including consumers;
  3. The UK payments industry promotes and develops new and existing payment networks;
  4. UK payment networks facilitate competition by permitting open access to participants or potential participations on reasonable commercial terms; and
  5. UK payment systems are stable, reliable and efficient.

To meet this objective, the UK Government published the Review and sought evidence from the industry on its proposed actions. The Review received 68 responses which are summarised in Annex A of the Response.

Government response

In the Response, HM Treasury noted that the UK Government is, in the post-Brexit context, committed to evolving its legislative framework and regulatory environment to create the conditions for the UK to maintain its status as a country at the cutting edge of payments technology while ensuring protection, resilience and stability.

In the Response, HM Treasury outline the four priority areas for action by the Government, UK regulators and the payments industry. These are as follows.

Faster payments

The UK Government’s view is that changes are needed to ensure the right level of protection for consumers using Faster Payments to address what happens when a payment goes wrong and equip Faster Payments for the future. New scheme rules are required which set out reimbursement and liability requirements of all scheme members in order to prevent authorised push payment scams. The UK Government is engaging with the Payment Systems Regulator (PSR) on next steps.

The UK Government expects Pay.UK, the Open Banking Implementation Entity (OBIE), and Faster Payments participants to reduce the level of harm to consumers both through preventative measures and reimbursement. The UK Government does not rule out further regulation but cites the success of Confirmation of Payee as an example of positive industry action.

Open banking

The UK Government wants to see the Open Banking initiative being used to facilitate further account to account payment transactions in a secure manner.

The Response notes that debit and credit cards are dominant payment method in shops and online. Whilst there has been considerable innovation in payments services, these innovations have tended to rely on cards, for example enabling payments to be made by cards held in digital wallets and card processing making it easier for businesses to accept card payments.

Giving consumers the option to use account to account transactions would create competition and choice between payment networks, enable FinTech propositions and provide cheaper and more tailored payments to merchants and consumers alike.

Such transactions are already happening. For example, HM Revenue and Customs is already harnessing Open Banking enabled payments to allow taxpayers to submit payments directly from their bank accounts, rather than through a debit or credit card.

The UK Government has committed to looking at what changes are required to the Faster Payments infrastructure to support real-time account to account transactions. The UK Government notes that the Competition and Markets Authority (CMA) has already set out the final steps of the implementation phase of Open banking including in terms of what it needs to support reverse payments such as refunds and for variable recurring payments such as regular purchases from the same merchant.

Enhancing Cross-Border Payments

The UK Government has an ambition for the UK to be an open and global financial hub in which people and businesses can make and receive cross-border payments seamlessly, quickly and cheaply, whether it is to or from family or friends, or when trading, buying or selling goods and services across borders.

In the Response, the UK Government welcomed the ambitious implementation proposes of the G20 in its roadmap as well as the Financial Stability Board’s targets for addressing the challenges of cross-border payments (namely their cost, speed, access and transparency). For example, the quantitative targets of the FSB include that 75% of global retail payments must result in funds being available to the recipient within 1 hour of the initiation of the payment by the end of 2027. You can read about the FSB’s targets in this FinBrief.

In the Response, the UK Government acknowledged that in order to meet these targets, it will be necessary for central banks and industry to make all necessary investments to update legacy infrastructure and adopt new standards.

Future-Proofing the legislative and regulatory framework for payments

In the Response, the UK Government states that it will transfer responsibility for firm-facing requirements in areas of retained EU financial services law to the regulators. The UK Government expects this will include retained EU payment services law. To this extent, the UK Government is seemingly prepared to delegate more responsibility for the regulation of payment services and electronic money away from Parliament to UK regulators such as the Financial Conduct Authority. The UK Government notes that legislation is typically less easy to flex than regulatory rules in order to respond to the changing payments landscape.

The UK Government is also proposing to consult on bringing systematically important firms in payments chains into the Bank of England’s regulation and supervision in the first half of 2022.

In addition to the above new developments, the UK Government in the Response refers to existing consultations and proposals including:

  • the UK Government consultation on extending the Senior Managers and Certification Regime to Financial Market Infrastructures supervised by the Bank of England;
  •  the UK Government consultation on proposals to ensure the UK’s regulatory framework is equipped to harness the benefits of new forms of digital money, so-called stablecoins, supporting innovation and competition, while mitigating risks to consumers and stability; and
  •  HM Treasury and the Bank of England’s Central Bank Digital Currency Taskforce.

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