On the 1st August 2018, the FCA released a consultation paper on general standards and communication rules for the payment services and e-money sectors. Since the revision of the Payment Services Directive (PSD2) earlier this year, these two sectors have undergone rapid innovation and change.
Different payment service providers (PSPs) and e-money issuers are subject to different regulatory requirements, as both firms under the Financial Services Markets Act (FSMA) and non-FSMA businesses operate within these sectors. Some regulatory requirements that differ between firms include those on behaviour and the treatment of customers across the market.
The FCA's ‘Principles for Businesses’ set out high-level standards, however, they do not currently apply to payment institutions (PIs), electronic money institutions (EMIs) or registered account information service providers (RAISPs). Furthermore, they do not apply to credit institutions providing payment services which are not connected to their regulated activities.
The FCA’s proposals can be summarised as follows:
- Extending the application of the Principles for Businesses
- Extending the application of rules and guidance in BCOBS 2 (Banking Conduct of Business Sourcebook, chapter 2) concerning communication with retail banking customers
- New rules and guidance in BCOBS 2 on currency exchange transfer services
The FCA would like to ensure that payment services and e-money issuances comply with the FCAs Principles for Business in an effort to improve trust and confidence in markets and ensure good customer outcomes.
Credit institutions are authorised by the FCA under FSMA and must comply with the Principles for Businesses when carrying on FSMA regulated activities. Payment services are not a regulated activity under FSMA, meaning that the Principles for Business, for example, are only applicable where these services are provided as an activity ancillary to a FSMA regulated activity. Additionally, e-money issued by credit institutions is a regulated activity, but communication rules such as in BCOBS are not applied to this activity.
The FCA is trying to prevent potential market conduct inconsistencies and would like to clarify expectations of behaviour. Therefore, the FCA is considering applying the FSMA based rules to the provision of payment services and issuance of e-money.
Setting consistent expectations in the payment services and e-money sectors
The FCA Principles for Businesses set out, at a high level, how firms should treat their customers, run their business, and how they should interact with the regulator. The FCA proposes to apply the Principles detailed in the FCA Handbook to credit, payment and electronic money institutions and to account information providers. The consultation paper provides illustrations of good practice in the following areas to promote understanding of specific Principles:
- Integrity, skill, care and diligence
- Management and control, financial prudence and market conduct
- Treatment of customers and communications with clients
- Conflicts of interest and relationships with customer
- Client assets
- Communication with the regulator
Many of those who have complained about PSPs and e-money issuers have alleged that marketing and advertising has been misleading. There have been some circumstances where services have been advertised as if no fees were to be applied, but customers were still charged due to the presence of intermediary firms. Firms should be transparent, fair and ensure that they are not misleading where fees may be charged. Additionally, the FCA would like to ensure that communications rules detailed in BCOBS are clear and not misleading.
Misleading communication of currency exchange transfer services
The FCA's proposals confront the issue of potentially misleading communications. The proposed rules will prevent firms from misleading consumers through the promotion of unachievable exchange rates. They would also end the issue of firms making claims concerning the cost of service by another provider, unless these comparisons are proved to be true, fair and balanced.
The FCA welcomes feedback on the consultation and the ten specific questions asked in the paper by the 1st November 2018. The FCA will consider the feedback and is expected to publish the rules in a Policy Statement before the 31st January 2019.
CONSIDERATIONS FOR FIRMS
Understanding the payments landscape is vital to ensuring that firms manage their costs and charges effectively, support any mandatory regulatory compliance related to payments, and deliver the best and most appropriate payment methods to their customers.
Huntswood's in-house experts have the knowledge and experience to work with you across all areas of payments. This may include detailing how firms can deliver excellent customer experience, achieve regulatory readiness and compliance and deliver the most appropriate payments operating model, all while ensuring payments security. We are also well placed to help you identify and respond to the commercial opportunities and challenges presented as part of this market consultation.