We reported in March 2015 that the Payment Systems Regulator (PSR) had announced its regulatory framework for payment systems in the UK. Alongside its Policy Statement, the PSR launched two market reviews: one into the supply of indirect access to payment systems and the other into ownership and competitiveness of infrastructure provision1.

Following consultation on draft terms, on Tuesday 30 June 2015 the PSR confirmed the final terms of reference for its Market review into the ownership and competitiveness of infrastructure provision - PSR MR15/2.1 (ToR).

Why is the PSR conducting this review?

Concerns have been raised by stakeholders over time about the extent of vertical relationships and common ownership within the UK’s interbank payments systems. For example, a small number of the larger payment service providers (PSPs) are direct members of (and therefore own and/or control) Bacs, Faster Payments and LINK as well as VocaLink, the company that provides central infrastructure services to them.

Some argue that these arrangements are beneficial, since the payment systems are robust, reliable and resilient. It is also argued that as the main users of the systems, the large PSPs have a strong incentive to keep infrastructure services costs down. However, others claim that the arrangements have led to these systems being developed and run in the interests of the PSPs that own/control them, rather than end-users of the payment systems, and that the arrangements dampen competition.

What is in scope?

Despite some stakeholders suggesting that the PSR should broaden the scope of the review, the PSR has confirmed that it will focus on infrastructure services related to BACs, Faster Payments and LINK. Payment systems infrastructure is defined by the PSR in its ToR as the ‘hardware, software, secure telecommunications network and operating environments that are used to manage and operate payment systems.’

The review will consider whether the way infrastructure services are currently provided to Bacs, Faster Payments and LINK is good for the users of those systems. In particular, it will cover:

  • infrastructure services enabling clearing of payments;
  • infrastructure services that are provided at the interface between payment service providers and clearing functions2 e.g. database services; and
  • other features of interbank payment system infrastructure services including services that are outsourced by PSPs to central clearing service providers, such as management of ATM network requirements.

The review does not cover infrastructure services relating to settlement, despite requests by some stakeholders for the review to consider the entire value chain of infrastructure service provision. Also excluded from its remit are services concerned with the communication channel between settlement services and central clearing functions as well as PSPs’ own payments infrastructure.

The PSR will not cover the other interbank payment systems it regulates in detail in the review3. Nor will it consider Visa or MasterCard, except to the extent that providers of infrastructure to these card payment systems are relevant to the analysis of competition for provision of central infrastructure services to Bacs, Faster Payments and LINK. The PSR has launched a separate programme of work on cards and considers that some of the issues covered by the review have already been addressed by the Interchange Fee Regulation (Regulation (EU) 2015/751).

What measures are already in place?

In March of this year, the PSR imposed three general directions on the operators of the main interbank payment systems to try to address some of the concerns about governance of those systems. One stakeholder in its response to the consultation on the infrastructure market review draft terms of reference suggested that the PSR should give these directions a chance to bed down before commencing this review. The PSR rejected this idea, however, as doing so would ‘prolong regulatory uncertainty’.

What specific questions will the market review address?

The review will cover the following questions:

  • Is competition effective in the provision of infrastructure services in interbank payment systems, and if not, what are the reasons for this?
  • How do the current ownership arrangements of infrastructure providers affect competition in the provision of infrastructure services related to interbank payment systems?
  • Are there any barriers to effective competition?
  • What is the likelihood of entry or expansion in respect of the provision of infrastructure services?
  • Are there any efficiencies resulting from the present ownership arrangements or from other factors, and how could these be affected if there were greater competition?
  • How does demand from interbank payment system operators as customers of infrastructure service providers, demand from PSPs as customers of interbank payment systems operators, and demand from ultimate end-users of interbank payment systems, affect competition in the provision of infrastructure services related to interbank payment systems?
  • What could be the benefits of greater levels of competition in the provision of infrastructure services in interbank payment systems?


The PSR sets out the possible outcomes of its review. These include:

  • imposing specific or general directions on industry, or amending existing ones;
  • requiring the disposal of all or part of an interest in an infrastructure provider to a regulated payment system. This is the PSR’s newest, and one of its most interventionist powers. It was not originally in the legislation that established the PSR4 - it was added to its toolkit earlier this year. Although it seems unlikely that the PSR would ever go as far as to use this power, VocaLink and the direct members of Bacs, Faster Payments and LINK will be aware that the PSR could order divestment, should it conclude that it is appropriate to do so5.
  • making recommendations for further industry initiatives or enhanced industry self-regulation;
  • making proposals to the Bank of England, FCA or Prudential Regulation Authority if appropriate;
  • publishing guidance;
  • asking the Competition and Markets Authority to consider investigating the market(s). Industry participants are likely to be hoping that this does not happen given that a referral could potentially mean even deeper regulatory scrutiny, and for even longer; or
  • taking no further action.

Next steps

The PSR will now commence a phase of information-gathering and stakeholder engagement, including specific surveys and requests for information, interviews, round tables and site visits.

This kind of engagement with a regulatory authority can be a time-consuming and costly exercise. However, it could also be beneficial, since some firms could stand to gain from any action the PSR ultimately decides to take at the end of the market review: such action is likely to be with a view to promoting greater competition in the provision of infrastructure services to Bacs, Faster Payments or LINK systems, or in related services.

Firms that are actual or potential competitors of those currently providing such services may benefit as a result of the review. Equally, the PSPs using relevant systems and related services could benefit, where there are improvements to prices and service quality, more innovation, or if there is a greater choice of providers offering such services.

Firms are advised to:

  • consider how to influence the direction, focus and outcome of the review. Where firms are not required to participate, consider whether there is benefit to them in proactively engaging with the PSR.
  • think strategically about what outcomes would be most advantageous for the firm and how to influence to best achieve those outcomes.
  • think about whether it is appropriate to challenge requests for information, for example if the scope is too wide or to rephrase questions to ensure the focus of any data-gathering is useful.
  • be careful to mark selectively any sensitive written submissions to the PSR as confidential - the PSR will assume anything not marked confidential can be published and will not accept ‘blanket’ confidentiality claims.
  • be aware that while confidential information is generally likely to be protected from disclosure, the PSR is empowered to share firms’ confidential information where it would assist it in performing its functions.

Anticipated timeline for the market review – according to the PSR’s ToR

Information gathering

July 2015 - August 2015: Request for information issued to infrastructure providers, PSPs and operators

August 2015 - September 2015: Receipt of responses to request for information and potential follow up questions / request for clarification of responses

July 2015 - September 2015: Stakeholder meetings

August 2015 - December 2015: Analysis of information gathered

Interim report consultation

January 2016/February 2016: Publication of interim report for consultation

March 2016/April 2016: Interim report consultation closes

Final report

May 2016/June 2016: Publication of final report


June 2016 – September 2016: Formulation of and consultation on any proposed remedies/actions

November 2016: Notification of decision on remedies/actions to be published