On 2 July 2015, the Payment Systems Regulator (PSR) published its Annual Report and Accounts 2014-15.  

In her foreword, Hannah Nixon, the managing director of the PSR states that the PSR’s work in 2014-15 ‘was very much focused on creating an effective regulator, with the right policies, processes and people in place to carry out our work well from our first day of operation’.  The PSR has now changed its focus however, ‘from effective set-up to effective regulation’

Launch of the PSR 

The main aim set out in the PSR Annual Plan and Budget 2014/15 was to build an organisation fit for regulating designated payment systems.  In order to do this it focused on three main areas: itspeopleprocesses and policies.  One year on, the Annual Report addresses each of these priorities in turn:- 

People 

The PSR’s senior leadership team is now complete, with the last appointee joining on 1 April 2015. As at March 2015, the PSR had successfully recruited 33 full-time equivalent employees, yet this fell considerably short of the PSR’s initial target of 50.  The gaps have been filled by temporary resource and consultants. 

Processes 

The PSR has set up a number of processes in order to provide as much transparency as possible to its regulated population. These include a number of separate processes for complaints and a freedom of information process on its website.  

The PSR panel, which the PSR was required to set up under statute, has also been established and is periodically meeting.  Made up of 17 industry experts, its role is to represent the interests of payment system participants and service-users. 

Policies

Much emphasis is placed on consultation and engagement with PSR stakeholders. A policy statement was published in March 2015, which the PSR refers to as being the ‘first time such a comprehensive set of measures had been developed to improve competition, innovation, and address the needs of the people and businesses’. The PSR heralds this as an important step towards giving the UK’s companies and consumers the ‘world-class payment systems they deserve’.  

Following publication of its policy statement, a PSR policy success measures project has been set up to help it gather the right data in order to measure its progress.  This is in line with its aim to be open and transparent.  

Statutory Objectives 

Progress towards promoting the PSR’s three statutory objectives has been given prominence in its Annual Report. 

Promote competition

A start has been made on tackling this objective with the publication of draft terms of reference for two market reviews on 25 March 2015.  One review into the supply of indirect access to payment systems; and the other into the ownership and competitiveness of infrastructure provision.  Eversheds has reported on both:

PSR confirms terms of reference and timetable for its first market review into indirect access

PSR confirms terms of reference and timetable for its market review into ownership and competitiveness of infrastructure provision

A code of conduct for indirect access to UK payment systems is being developed by the industry which the PSR expects to see in place by 30 June 2015, coming into full effect by 30 September 2015.

The PSR offers little information as to timescales for its competition concurrency guidance, which it hopes to be finalised in the coming year. 

Promote innovation

The PSR set up a working group to develop the terms of reference for the Payments Strategy Forum.  The Forum will consist of an independent chair and around 20 members, engaging with a wider payments community, open to all parties interested in payments system.  We have reported on the Forum, see here. It will meet six times a year, leading an ongoing process to identify, prioritise and develop initiatives to promote innovation for the benefit of those who use payment systems. 

Promote the interests of service users 

The Report refers to the PSR panel and regulatory directions on governance as being in place to promote service user interests.  So far, six general directions have been issued, covering relationships with the PSR, access, and governance of regulated payment systems. Interestingly, the PSR also refers to conducting ‘investigations’ as part of this work, although it is not clear what such investigations concern.  It is possible, however, that the PSR is already dealing with regularity or competition law complaints, for example. 

Other regulators and competition authorities 

The report identifies the steps taken to work with other regulators and competition authorities.  The PSR has developed and published a Memorandum of Understanding with the Bank of England, Prudential Regulation Authority and the Financial Conduct Authority. 

It has also succeeded in its aim to participate in the UK Competition Network and the UK Regulators Network.

The PSR Board 

As chairman, John Griffith-Jones leads the PSR Board, and the executive running of the organisation is undertaken by Hannah Nixon.  Four other non-executive directors make up the rest of the Board including Martin Wheatley CEO of the FCA, who has recently announced that he will be stepping down from his FCA role.  

As of 1 July 2015, the PSR added two new executive members to its board: Mark Falcon, Head of Regulatory Strategy and Policy, and Carole Regent, Head of Legal.  

Strategic Report 

The PSR is based in the same building as the FCA in Canary Wharf, allowing it to share the FCA’s resources and infrastructure wherever appropriate. A Provision of Services Agreement exists between the FCA and PSR, which sets out services that are supplied by the FCA and the costs of those services. 

In terms of finances, the PSR had accumulated a deficit of £11,533k which, at 31 March 2015, is represented by an inter-company loan payable to the FCA of £11,032k.  The balance represents amounts due to trade creditors.  The PSR reports a slight overspend against budget, which it primarily attributes to staff costs and the need for temporary resource and consultants.  The fees for the PSR (for costs for 2015/16 and £11.5m set-up costs) will be levied on the payment systems it regulates towards the end of 2015.  Until they are recovered, the PSR will continue to be funded by the FCA. 

The report also highlights key risks and uncertainties that the PSR considers payment systems are currently facing.  The principle risks are:

  • Payment systems are not open, transparent and accessible;  
  • Payment systems are not fast, easy to use, secure, reliable and value for money;  
  • Payment systems are not responsive to current and future needs and do not promote innovation and competition;  
  • There is no improvement in the representation of the people and organisations that rely on services provided by payments systems;  
  • Payment systems do not function in the best interests of the people and organisations that use them and the services they support.

Other risks identified as shared between the PSR and the FCA are internal operational risk, reputational risk, environmental risk, and financial risks such as liquidity, credit, counter-party and final salary pension scheme risks.

Hannah Nixon is positive about what the PSR has achieved in its first year and what it will achieve in its second:-

I am confident we can open up the industry to new players and encourage innovation which consumers and organisations will value, while promoting their interests.  I believe we have the right team and the right framework in place to do this well – although, of course, we will continue to develop both’.

Comment

Overall, the report documents a busy year for the PSR.  With the extensive work programme it has committed to, including two market reviews and its call for input on cards, it does not look likely to get any less busy.  The PSR’s next Annual Report will provide an opportunity to assess whether the PSR has gone any way to addressing the payment systems risks set out in its Annual Report and how far it has been able to promote its statutory objectives.