HM Treasury have laid before Parliament the Payment Services Regulations (the Regulations), which implement the Payment Services Directive (PSD) in the UK.
The PSD introduces:
- a prudential authorisation regime for those who offer payment services who are not credit or electronic money institutions; and
- conduct of business rules which will apply to anyone who conducts payment services (covering the information provided to customers and the rights and duties imposed on both parties).
The Regulations set the framework for implementing the PSD in the UK. Brett Hillis and Dominic Gilmore look at key timelines for payment institutions.
When can you make an application for authorisation?
Those who provide payment services, and who are not credit or electronic money institutions, will have to apply to FSA to become authorised payment institutions or to register with FSA as a small payment institution. Applications for authorisation or registration are allowed from 1 May 2009 onwards.
The Regulations set out what the applications will need to contain, although FSA has not yet published the application forms themselves. Among the material FSA will want to see from an applicant for authorisation is:
- a programme of operations setting out the proposed payment services;
- a business plan including a forecast budget calculation;
- evidence the applicant holds the required initial capital; and
- a description of the applicant’s governance arrangements and internal control mechanisms.
Those applying for authorisation will have to satisfy FSA on various fronts. For example, FSA needs to see effective procedures for identifying risks, consistent lines of responsibility and that anyone who has a qualifying holding (usually 20 per cent) in the applicant is fit and proper.
FSA will have power to impose extra requirements on firms. This includes the significant measure of asking an applicant to separate its payment service business from its other business.
FSA has three months from the date it receives an application to decide whether to grant or refuse it.
What powers do the Regulations give FSA?
The Regulations give FSA wide-ranging supervisory and enforcement powers:
- FSA officers may require, without a warrant, access to any property where payment services are being provided and an inspection of documents found there and an explanation of their content;
- if there is a breach, FSA may impose a public censure, a financial penalty or seek an injunction from the courts; and
- if a provider has made a profit because of a breach of a requirement, then an order for restitution can be made. Anyone who carries out a payment service without permission under the Regulations will commit a criminal offence which can lead to imprisonment for up to two years and/or a fine.
What transitional rules are there?
Previously in the draft Regulations, if you were:
- a body corporate who was not a small payment provider;
- based in the UK; and
- had provided payment services before 25 December 2007
then you did not need to apply for authorisation before 1 May 2011. Neither, on a close reading, did you need to comply with conduct of business rules.
The final Regulations cut back the exclusion considerably. The key change is that those who can benefit from the transitional rule for authorisation must still comply with the conduct of business requirements.
What is happening next?
FSA will shortly publish its Perimeter Guidance and an Approach Document, giving details on the scope of the Regulations and the supervisory and enforcement approach of the regulators. The Regulations will come fully into effect on 1 November 2009.
What should firms do?
Firms should decide whether they need authorisation or registration and, if so, whether they can rely on the transitional provisions. If an application is made before 1 August 2009, the FSA must determine it before 1 November 2009.
Regardless of the need for authorisation or registration, all payment service providers will have to comply with the conduct of business rules set out in the Regulations. Now is the time for firms to consider what changes to their systems will be necessary.