Fully operational from 1 April, the Payment Systems Regulator (the “PSR”) is an independent regulator that will oversee the £75 trillion payment systems industry. Its mission is to open up access of the infrastructure underpinning financial transactions, from mobile payments to house purchases. Hannah Nixon, managing director of the PSR, has said that she wants “to break open the control of payment systems, so it’s not just the big banks that control them who can use them”.
Here we provide a brief introduction to the PSR and its current work programme.
The FCA was required to set up the PSR under the Financial Services (Banking Reform) Act 2013 (the “FSBBA”). Under the FSBBA the Treasury has powers to designate payment systems for regulation by the PSR. The designated payment systems are:
- C&C (Cheque & Credit)
- Faster Payments Scheme (FPS)
- Northern Ireland Cheque Clearing (NICC)
- Visa Europe (Visa)
The companies regulated by the PSR are those “participants” in those payment systems:
- the operator of the payment system;
- any infrastructure provider; and
- any payment service provider (PSP).
The PSR’s principal regulatory powers are set out in sections 54 to 58 the FSBBA:
- to give directions to participants in regulated payment systems;
- to impose certain requirements on the operator of a regulated payment system concerning the rules of the system
- to order the provision of access to a regulated payment system
- to vary the fees and charges payable under, and other terms and conditions of, an agreement concerning access to a regulated payment system; and
- to require the disposal of an interest in the operator of a regulated payment system.
In exercising these powers, section 49 of the FSBBA requires the PSR to, in so far as is reasonably possible, to act in a way that advances one or more of its “payment systems objectives”: the “competition objective”, the “innovation objective” and the “service-user objective”.
In recognition of its “competition objective”, the PSR has – in addition to its regulatory powers - concurrent competition powers to enforce the prohibitions on anti-competitive agreements and concerted practices and abuse of dominance under the Competition Act 1998 (the “CA98”) and to conduct market studies under the Enterprise Act 2002 (the “EA02”).
Certain representative bodies will also have the opportunity to file a ‘super-complaint’ with the PSR, which will alert the PSR of a feature, or a combination of features, of a payment systems services market in the UK that is, or appears to be, significantly damaging the interests of service-users. These complaints will follow a similar mechanism to the one used for filing complaints with the CMA under the EA02. The PSR must respond to such a complaint within ninety calendar days, and can choose to follow up with a number of actions, which range from using its competition or regulatory powers to choosing to do nothing. Draft guidance on super-complaints was published by the PSR on 30 March 2015.
This strong focus on competition is reflected in the PSR’s new policy statement published on 25 March. The PSR is also finalising its draft guidance on its competition concurrency powers following a consultation held in January 2015. The policy statement was produced after a consultation with the industry stakeholders, including consumer groups, businesses and payment service providers and sets out how the PSR proposes to exercise its functions and powers to advance its three statutory objectives.
More specifically, alongside the policy statement, the PSR also published its Annual Plan for 2015/16. This details its work programme over the next year. In addition to developing a Code of Conduct for sponsor banks when providing indirect access to PSPs and undertaking a programme of work relating to card payments, it intends to conduct two extensive market reviews:
- Ownership and competitiveness of infrastructure provision: The first market review will be into the ownership and competitiveness of the provision of payment services infrastructure. This stems from concerns that the current competitive climate is limited due to the fact that a similar set of PSPs own or control both Interbank Operators and Infrastructure Providers, allowing some PSPs unfair influence over infrastructure developments. The PSR wants to gather evidence with a view to reaching a conclusion over whether the current ownership arrangements need changing to provide better outcomes for service users. It will focus its review on the infrastructure behind the Bacs, Faster Payments Scheme and LINK systems.
- Supply of indirect access to payment systems: The second market review will be into the supply of indirect access to payment systems – i.e. those that allow access to the interbank payment system through a sponsor bank – which will enable the PSR to develop a deeper understanding of the factors limiting the degree of choice available in order to inform its framework for regulating indirect access. The reason behind this decision is that it wishes to explore concerns over difficulties in gaining indirect access.
The PSR is taking comments on the scope of both market reviews over the next four weeks, after which it will finalise its terms of reference and publish a more detailed timeline. It expects to take around twelve months to complete the reviews and report on its findings, and a further six months to implement improvements in the market.
The PSR Publications website (which can be found here) should also be closely followed, as both the draft and final forms of various pieces of guidance are due to be published in the very near future.
The full PSR Policy Statement, as well as its corresponding annexes can be found here.