The Payment Systems Regulator (PSR) has published draft guidance detailing how it will monitor and enforce compliance with the Interchange Fee Regulation (IFR) in the UK and is seeking views from stakeholders during a period of consultation. This follows the decision taken by HM Treasury in accordance with the Payment Card Interchange Fee Regulations 2015 to designate powers to the PSR to supervise and enforce compliance and to act as the competent authority and lead regulator for the IFR in the UK.

The draft Guidance on the PSR’s approach as a competent authority for the IFR1 (Guidance) has been informed by the Call for Input2 (CfI) that was launched on 24 June 2015. The CfI sought to help the PSR understand whether the business rules contained in the IFR required further interpretation and helped to form its approach to monitoring compliance with these rules. For more information on the Call for Input see our briefing of 29 June 2015, Payment Systems Regulator Call for input on regulation of card payment systems – a chance for industry to engage.

The first phase of the consultation was announced on 2 December 2015 and will focus on those provisions that come into force on 9 December 2015, which most significantly include the interchange fee caps. This will be followed by a second phase of consultation focusing on the majority of the business rules set out in the IFR which are due to take effect on 9 June 2016.

For more information on the IFR and the timetable for implementation see our briefing of 20 May 2015, Regulation on debit and credit card interchange fees will enter into force on 8 June 2015.

Guidance on the PSR’s approach as a competent authority for the EU Interchange Fee Regulation

The Guidance is relevant to users, providers and operators of payment systems, payment services and payment infrastructure and sets out details on:

  • how card schemes are classified
  • the interchange fee caps that will take effect from 9 December 2015
  • the exemption from domestic interchange fee caps for three-party schemes operating with licensees (market share calculation)
  • business rules that will take effect from 9 December 2015, relating to licensing, steering and information provisions
  • the PSR’s proposed approach to monitoring and enforcement of the IFR
  • the PSR’s powers and procedures under the IFR
  • penalties under the IFR.

Interchange fee caps

With effect from 9 December 2015, cross-border and domestic interchange fees for credit card transactions will be capped at 0.3% of the value of the transaction.  Cross-border debit card transactions will be capped at 0.2% of the transaction.  For domestic debit card transactions, a weighted average cap will apply, set at 0.2% of the average value of UK debit card transactions made within a scheme in the previous year.

A temporary exemption from domestic caps will be available until 9 December 2018 for three-party schemes operating with licensees provided that the value of the scheme’s annual UK domestic transactions are no more than 3% of the total combined value of all UK transactions. The Guidance sets out how the PSR is proposing to calculate market shares. 

Business Rules

With effect from 9 December 2015, any exclusive territory clause or other territorial restriction limiting a PSP’s ability to freely operate as an acquirer, issuer, or both, within the EEA will be prohibited.  This would include any requirement to obtain a country-specific license or authorisation to operate on a cross-border basis.  Essentially only a single license for all countries in the EEA will be permitted.

Merchants should also be free to steer customers towards a specific payment instrument.  As for surcharging, a merchant must not charge consumers more than their costs for accepting a particular method of payment.  Once the new Payment Services Directive (PSD2) comes in, merchants will not be able to surcharge in respect of credit or debit card transactions that are subject to the interchange fee caps.

Information

The Guidance provides details of the communications the PSR expects from acquirers to merchants and how information needs to be made available.

Monitoring and enforcing compliance

The PSR is proposing to use its information-gathering powers to monitor and enforce compliance with the rules on interchange fees for debit3 and credit card transactions4 and the prohibition of circumvention5. It will require schemes and issuing and acquiring PSPs to demonstrate compliance with the interchange fee caps by submitting annual reports together with supporting evidence such as data on transaction values, interchange fees and issuer net compensation. Parties will be required to have such information certified by independent auditors and the PSR is proposing to use this information for on-going compliance discussions and will consider whether further action is needed to ensure systems are compliant.

Compliance with licensing6 and steering rules7, as well as requirements for PSPs to provide payees with transaction information8 will primarily be conducted by way of a complaints-led approach.

Enforcement action

Stakeholders should note that a compliance failure can be sanctioned by fines.  Any fine will be determined in accordance with the PSR’s statement on penalty principles but, subject to the penalty being “appropriate and proportionate”, there is no statutory cap for the total amount of fine that could be imposed.

Next steps

Consultation on the Guidance will close on Friday 29 January 2016 and the PSR is encouraging a broad response from interested parties. The consultation process provides interested parties with a good opportunity to help shape the PSR’s approach and to address any ambiguities or uncertainties currently presented in the Guidance.

Additional guidance and a second phase of consultation will follow in the New Year in respect of the provisions that will take effect from 9 June 2016.