Key developments of interest over the last month include:
• United Kingdom: The Payment Systems Regulator (PSR) has published two calls for views, one of which focuses on authorised push payment (APP) scams and the other on consumer protection in interbank payments. • India: The government is planning a cryptocurrency bill with the aim of establishing a framework for the creation of an official digital currency to be issued by the Reserve Bank of India. • United Kingdom: The FCA is consulting on changes to its technical standards on strong customer authentication (SCA) and common and secure methods of communication (UK SCA-RTS) and to its Payment Services and Electronic Money Approach Document.
In this Newsletter:
For previous editions of the Global Payments Newsletter, please visit our Financial Services practice page.
United Kingdom: PSR calls for views on APP scams and consumer protection in interbank payments
On 11 February 2021 the PSR issued a call for views (CP21/3), focussing on authorised push payment (APP) scams.
The PSR explains that, although the Contingent Reimbursement Model (CRM) Code has improved consumer outcomes, its application has not led to the significant reduction in APP fraud losses incurred by customers that is needed. Customers are still bearing a high proportion of losses, despite the default requirement in the Code that customers should be reimbursed where they have acted appropriately.
The PSR proposes three measures which, applied individually or in combination, could help by both reducing APP fraud and, when it happens, improving protection for victims. The measures, which would apply to payments made through the Faster Payments Service and Bacs Direct Credit, are:
- improving transparency on outcomes, by requiring payment service providers (PSPs) to publish their APP fraud, reimbursement and repatriation levels;
- greater collaboration to share information about suspect transactions, by requiring PSPs to adopt a standardised approach to risk-rating transactions and sharing risk scores with other PSPs involved in a transaction; and
- introducing mandatory protection of customers, by changing payment system rules so that all PSPs are required to reimburse victims of APP fraud who have acted appropriately.
Also on 11 February 2021 the PSR published a call for views (CP21/4), focussing on consumer protection in interbank payments. In particular, the PSR considers the levels of protection available to consumers when they make payments from their bank account directly to another bank account using an interbank payment method (particularly the Faster Payments Service).
The PSR explains that more people are transferring money using smartphone apps or online banking. As more transfers are made in this way, the PSR is keen to understand whether the protections currently in place are sufficient. The PSR is exploring how it, and the industry, can ensure that consumers and businesses are not disproportionately harmed when something goes wrong with their interbank payment (including faults with goods or services purchased). The PSR is considering measures that make it easier for consumers to make a claim when something goes wrong, as well as measures that benefit businesses by providing certainty about what happens when a payment is disputed.
Both of the calls for views close on 8 April 2021. The PSR plans to publish a follow-up paper to CP21/3 between July and September 2021. It will set out proposed next steps following CP21/4 later in the year.
India: Government plans new cryptocurrency bill
On 29 January 2021 the lower house of India’s Parliament, Lok Sabha, published a bulletin release which lists “The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021” (Bill) and states that its purpose is “to create a facilitative framework for creation of the official digital currency to be issued by the Reserve Bank of India.”
In addition, the bulletin provides that the Bill will be intended to “prohibit all private cryptocurrencies” while also creating a regulatory framework for a digital rupee issued by the Reserve Bank of India. However, it will also allow for “certain exceptions to promote the underlying technology of cryptocurrency and its uses”.
The text of the Bill has not yet been published. It has been reported that the Indian government is considering taking the ordinance route to quickly pass the Bill.
United Kingdom: FCA consultation on changes to UK SCA-RTS and Payment Services and E-money Approach Document
On 28 January 2021 the FCA published a consultation paper (CP21/3) on changes to its technical standards on strong customer authentication (SCA) and common and secure methods of communication (UK SCA-RTS), to the guidance in its Payment Services and Electronic Money Approach Document (Approach Document), and to the Perimeter Guidance manual (PERG).
To address identified barriers to successful competition and innovation in the UK payments landscape posed by requirements in the onshored SCA‑RTS, the FCA proposes (among other things):
- Account information service provider (AISP) access: Account servicing payment service providers (ASPSPs) need no longer require their customers to perform SCA every 90 days when the customer uses a third party provider (TPP) to provide account information services (AIS), although SCA will be required when customers first connect their account to that service. AISPs will continue to be able to access a customer account without the customer’s active request to do so, up to four times a day, but will now need to reconfirm the customer’s explicit consent every 90 days.
- Access interface for TPPs: The use of dedicated interfaces, rather than modified customer interfaces (MCIs), will be mandatory for personal current accounts, accounts that would fall under the definition of payment accounts within the meaning of the Payment Accounts Regulations 2015 (PARs) but that are held by SMEs and credit card accounts held by consumers or SMEs.
- Contingency mechanism exemption (CME): EEA ASPSPs operating under the Temporary Permissions Regime (TPR) or the supervised run-off regime (SRO), which is part of the Financial Services Contracts Regime (FSCR), will be able to rely on any home state CME until they apply to the FCA or the PRA for authorisation. At that point they will need to apply to the FCA for a new exemption.
- Contactless payments: The single and cumulative transaction thresholds for contactless payments will rise from £45 up to £100 (or potentially a maximum of £120) and from £130 to £200 respectively.
Approach Document For its Approach Document, the FCA is proposing:
- Amendments to reflect changes resulting from Brexit and the onshoring process, and also to explain how the regulations, rules and guidance apply to firms within the TPR or SRO. These changes include the amendment of Article 34 of the UK SCA-RTS (that now requires account providers to accept at least one other electronic means of identification issued by an independent party, in addition to eIDAS certificates).
- Updates to reflect developments over the past two years, including certain Q&A responses and opinions from the EBA and the European Commission on SCA and the RTS, and industry input.
- Changes to make its July 2020 temporary guidance on safeguarding and prudential risk management permanent and to consolidate its guidance on risks and controls relating to the insurance method of safeguarding as provided in a December 2019 letter to firms’ compliance officers (Appendix 3 to the consultation paper), extending it to the guarantee method of safeguarding.
- Clarification of its expectations on notifications under the Limited Network Exclusion and Electronic Communications Exclusion.
Given the current COVID-19 crisis, the FCA plans to respond to feedback received on the consultation questions relating to contactless payments as soon as possible after 24 February 2021. The deadline for the rest of the consultation is 30 April 2021.
See more information here.
France: Order relating to AML/CTF internal controls published in Official Journal
On 16 January 2021 an Order dated 6 January 2021 relating to internal systems and controls in the fight against money laundering and terrorist financing (AML/CTF) and the freezing of assets and prohibition on making available or using funds or economic resources (Order) was published in the Official Journal of the French Republic.
- supplements the provisions of Ordinance No.2020-115 of 12 February 2020 strengthening the national AML/CTF system (implementing the Fifth EU Money Laundering Directive, MLD5); and
- specifies the nature and scope of internal procedures, the rules for organising internal control and the content of the reports on internal control provided for in Articles R. 561-38-6 and R. 561-38-7 of the French Monetary and Financial Code and the time limit and procedures for their submission to the Autorité de contrôle prudentiel et de résolution (ACPR).
The Order also enables France to comply with the recommendations of the Financial Action Task Force (FATF) dated 2012 updated on October 2020 on the basis of the valuation method published by the FATF and updated in November 2020.
United Kingdom: Report by the Lending Standards Board on review of CRM Code for APP scams
On 28 January 2021 the Lending Standards Board (LSB) published a report following its review of the implementation and adoption by firms of the contingent reimbursement model code (CRM Code) for authorised push payment (APP) scams. The review also considered any improvements that might be needed in order to achieve better consistency in the CRM Code’s application.
The LSB found that there are still inconsistencies in application and outcomes, and awareness of the CRM Code remains low. Industry take-up has also been slower than the LSB expected.
The report contains ten recommendations, including the following:
- The scope of the CRM Code should reflect the complex nature of APP scams to ensure that it is able to provide effective consumer protection.
- New governance and oversight provisions should be introduced.
- The CRM Code should more fully reflect the roles and responsibilities of receiving firms in the customer payment journey.
- A series of success measures that take account of and look beyond reimbursement levels should be defined.
- The practitioners guide should be reviewed with the aim of ensuring fair treatment of vulnerable customers.
The LSB will begin work on the recommendations immediately. Where the recommendations require further work, it will issue a call for input by the end of Q1 2021. It is also planning to publish a timeline for its work by the end of February 2021.
United Kingdom: FCA publishes Regulation round-up for January 2021
On 21 January 2021 the FCA published its Regulation round-up for January 2021.
Items of interest include showcase sessions relating to the FCA’s Digital Sandbox launched in November 2020, and temporary measures for UK firms providing financial services in the EEA.
United Kingdom: Financial Stability Board publishes 2021 work programme
On 20 January 2021 the Financial Stability Board (FSB) published its 2021 work programme, which reflects a strategic shift in priorities due to the COVID-19 pandemic. The FSB will continue to monitor new developments to identify, assess and address new and emerging risks to global financial stability.
Significant areas of the FSB's work during 2021 include the following:
- Non-bank financial intermediation (NBFI).
- Cross-border payments.
- Climate change and sustainable finance.
- Cyber and operational resilience.
The FSB will also continue to promote financial stability during market stress related to COVID-19.
Europe: European Commissioner outlines next steps for UK-EU relationship
On 26 January 2021 the European Commission published the opening remarks of Mairead McGuinness, European Commissioner for Financial Services, Financial Stability, and Capital Markets Union (CMU) at a meeting of the European Parliament's Economic and Monetary Affairs Committee (ECON).
Regarding the future UK-EU relationship, the Commissioner explains that the Commission envisages a future framework for financial services similar to that between the EU and the US, involving a voluntary structure to compare regulatory initiatives, exchange views on international developments and discuss equivalence-related issues. She emphasises that this is not about restoring the market access rights the UK has lost. Once the working arrangements are agreed, the EU will be able to resume its unilateral equivalence assessments of the UK, using the same criteria as with all third countries, including in relation to anti-money laundering legislation.
Europe: ECB publishes opinion on proposed codified Regulation on cross-border payments in EU
On 25 January 2021 the European Central Bank (ECB) published an opinion on the European Commission's proposal for a Regulation on cross-border payments in the EU (CON/2021/3), the aim of which is to codify the existing Regulation on cross-border payments (924/2009). The Commission adopted the proposed Regulation in July 2020.
The ECB generally welcomes the codification exercise and notes that instruments affected by codification do not contain substantive changes. However, it opines on one provision of the proposed Regulation that was introduced by Regulation 2019/518 and which relates to the reference to the euro foreign exchange reference rates issued by the ECB (ECBRRs).
The ECB is concerned that the reference to the ECBRRs in the proposed Regulation could, contrary to the objectives of the ECBRRs, create incentives for some market participants to trade at the ECBRRs. Therefore, the ECB recommends that the reference in Article 4 of the proposed Regulation to the ECBRRs is removed and replaced by an appropriate reference to a foreign exchange benchmark rate that falls within the scope of the Benchmarks Regulation (BMR), and which may be used in the context of the currency conversion charges. The accuracy and integrity of such benchmarks, ensured by the BMR, protects the interests of customers of payment service providers and parties providing currency conversion services.
The ECB's opinion includes a technical working document with suggested drafting to incorporate the suggested amendment.
China: Plan to build a global payment network based on central bank digital currencies is unveiled
On 15 January 2021 China’s Blockchain-based Service Network (BSN) revealed plans to develop a universal digital payments network (UDPN) based on standardised procedures for international transfers and payments with and between central bank digital currencies (CBDCs).
CBDCs from different nations will be supported by the network. The UDPN network will be available through API connection as well, for any information system such as banking, insurance, and mobile applications in order to enable a standardized digital currency transfer method and payment procedure.
The state-sanctioned blockchain network aims to roll out the UPDN in beta as early as the second half of 2021 as part of its roadmap for enabling new features and functions and to accelerate the mass adoption of blockchain technology worldwide.
France: Bank of France to shut down a third of cash handling centres
On 21 January 2021 it was reported that the Bank of France will close more than a third of its cash handling centres by the end of 2022 as the pandemic accelerates a decline in the use of notes and coins.
Operations will cease at 14 of the 37 centres that stock currency and replace damaged notes and coins. The central bank estimates the network would be 40% underused if it remained as expansive as it is now.
The central bank expects a further 25% drop by 2022 from last year’s levels.
Philippines: Central bank issues AML-focused crypto guidelines for the industry
On 25 January 2021 the Philippines central bank, Bangko Sentral ng Pilipinas (BSP), released new guidelines for virtual asset service providers (VASPs) in a bid to prevent money laundering.
It has been reported that in a related document the BSP said that under the framework VASPs will need to apply for a licence, a “certificate of authority”, in order to operate as a money sending business. They will also need to align with the central bank’s existing rules for financial service providers in areas such as liquidity and operational risk, IT risk, internal controls, consumer protection and anti-money laundering.
VASPs will now need a minimum capital requirement of 50 million Philippine pesos (just over $1 million) if they provide custody services, or a smaller amount of 10 million pesos ($208,000) if not. VASPs will also be responsible for conducting their own customer due diligence and must treat cryptocurrency transactions as cross-border wire transfers, keeping participant data for those over 50,000 pesos ($1,000).
The document indicates that the guidelines are based on international standards for regulators issued by the Financial Action Task Force (FATF).
United Kingdom: FCA publishes finalised Approach to International Firms
On 3 February 2021 the FCA published its Approach to International Firms document (Approach Document), setting out its general approach to the authorisation and supervision of international firms providing or seeking to provide financial services that require authorisation in the UK. This includes those firms that have applied or intend to apply in the future, and those that are already authorised in the UK.
The Approach Document contains sections on:
- An overview of the FCA's approach.
- Main considerations in the FCA approach.
- Mitigating identified risks.
United Kingdom: PRA and FCA announcements on COVID-19 regulatory reporting amendments
On 5 February 2021 the PRA published a statement on COVID-19 regulatory reporting amendments, providing guidance on submitting this year's annual submissions and other types of regulatory reporting. On the same day, the FCA updated its webpage on changes to regulatory reporting during the pandemic, stating that due to the challenges faced by firms and their auditors preparing audited financial statements during the pandemic, it will allow flexibility in the submission deadline for FIN-A (annual report and accounts).
United Kingdom: PSR consultation on delivery and regulation of New Payments Architecture
On 5 February 2021 the Payment Systems Regulator (PSR) published a consultation paper (CP21/2) on the delivery and regulation of the New Payments Architecture (NPA), together with responses to its January 2020 call for input on competition and innovation in the NPA.
The PSR is concerned that:
- there are unacceptably high risks that the NPA programme will not provide value for money and could delay or prevent the benefits to competition and innovation in payment services that it wants the NPA to deliver; and
- the potential risks of disruption to payments during the migration of Bacs and Faster Payments transactions to the NPA need to be managed.
Therefore the PSR is seeking views on:
- narrowing the scope of the initial contract for delivery of those NPA services that will provide an enhanced immediate payments service, and enable Faster Payments transactions to move to the NPA;
- the appropriate way to secure the above contract; and
- reducing risks to competition and innovation in the NPA.
Following the consultation, the decisions the PSR makes will have implications for the PSR's Specific Directions (SDs) 2 and 3. These require Pay.UK to run a competitive procurement for the central infrastructure for Bacs and Faster Payments respectively. In the light of its conclusions, the PSR will consider whether the directions should be varied, revoked or replaced.
Comments on the proposals for reducing risks to the delivery of the NPA can be made until 19 March 2021, after which the PSR plans to publish a follow-up document in Q3 2021. If it is considering requiring Pay.UK to make changes to the procurement, the PSR will set out and consult on the proposals in that document, which will include the draft legal instruments it plans to use. It expects to publish its final decision in Q4 2021, along with the final legal instruments, where appropriate. Comments on the proposals relating to competition and pricing can be made until 5 May 2021, after which the PSR plans to publish a policy statement in Q4 2021.
United Kingdom: FCA consultation on extending COVID-19 guidance on cancellations and refunds
On 12 February 2021 the FCA published a guidance consultation on extending its October 2020 finalised guidance on cancellations and refunds, which is aimed at credit and debit card firms and insurance providers. Given the unprecedented number of cancellations of trips, holidays, and other events due to the COVID-19 pandemic, the guidance is designed to ensure that such firms handle enquiries and claims from consumers in a reasonable timescale, fairly and in a way that minimises inconvenience to the consumer.
The guidance was due to expire on 2 April 2021, but the FCA is now consulting on extending it because of the ongoing uncertainty around the pandemic. It is proposing that the guidance should remain in force during the exceptional circumstances arising out of the COVID-19 pandemic until varied or revoked.
The consultation closes on 26 February 2021.
United Kingdom: House of Commons EU Scrutiny Committee letter confirming files it will continue to scrutinise following end of Brexit transition period
On 11 February 2021 the House of Commons European Scrutiny Committee published a letter from Sir William Cash, Committee Chair, to Michael Gove, Chancellor of the Duchy of Lancaster, stating that, in the light of the end of the Brexit transition period and the UK-EU trade and co-operation agreement (TCA), it intends to continue to scrutinise only a limited number of files on EU documents.
The Committee’s approach was to identify a limited number of files that it considers to be legally or politically important (or both), which it will continue to scrutinise. Those files are detailed in the Annex to the letter. They include the EU's proposed Regulation on markets in cryptoassets (MiCA) and the proposed Regulation on a Single Market For Digital Services (Digital Services Act). The Committee expects to continue to scrutinise and engage with the government on these files. It asks that all outstanding and future requests for further information are promptly addressed.
In its 29th report of the 2019-21 session, published in November 2020, the Committee noted that it would continue to monitor EU legislative developments in the context of the government's own review of UK financial services regulation.
United Kingdom: Bank of England Governor speech on ‘The case for an open financial system’
On 10 February 2021 the Bank of England (BoE) published a speech by Andrew Bailey, BoE Governor, given at the Mansion House. In his speech, Mr Bailey looks at the benefits of a global financial system and talks about the UK's current and future role in it. He argues that the benefits are global, not regional, in nature and therefore global cooperation is needed to ensure a safe and strong financial system.
Mr Bailey stresses that none of the UK plans for reform mean that it should or will create a low-regulation, high-risk, financial centre and system. He states that there is an overwhelming body of evidence that such an approach is not in the UK's interests, let alone anyone else's. Mr Bailey believes that the UK has a very bright future competing in global financial markets, underpinned by strong and effective common global regulatory standards.
Europe: ESAs letter on proposed EU Regulation on digital operational resilience
On 9 February 2021 ESMA published a letter sent jointly by it, EIOPA and the EBA (together, the European Supervisory Authorities (ESAs)) to the EU co-legislators on modifications to the legislative proposal for a Regulation on digital operational resilience for the financial sector (DORA). In their letter, the ESAs emphasise their strong support for the establishment of an oversight framework covering the ICT services provided by critical third-party providers (CTPPs) to the financial sector. However, the ESAs note:
- it is important to clearly communicate that the proposed oversight role for the ESAs is limited to the ICT risks which CTPPs may pose to financial entities, and that the oversight currently envisaged will not amount to full supervision of CTPPs across their full range of activities; and
- another structural challenge for the role of the ESAs in the oversight framework is that individual CTPPs may serve entities across the entire financial sector, just as they may serve businesses across the wider economy. Unlike the established remits of the ESAs, where specialisation by sub-sector offers natural advantages, an ESAs-led oversight model for CTPPs will need to be carefully crafted to address coordination and consistency challenges.
With these constraints in mind, the remainder of the ESA’s letter sets out their views on how to most efficiently take forward important aspects of the governance and operational processes of the oversight framework for CTPPs and the application of the proportionality principle in DORA.
Europe: European Commission consults on review of Settlement Finality Directive
On 12 February 2021 the European Commission published a consultation paper on a targeted review of the Settlement Finality Directive (98/26/EC) (SFD).
The review covers a broad range of issues that have been identified since the Commission's last SFD review in 2008/09, including:
- Extending the scope of the SFD to e-money and payment institutions: Some member states have introduced national solutions that allow e-money and payment institutions either direct or indirect participation in payment systems, provided they fulfil certain criteria.
- Technological neutrality: There are concerns that some of the requirements under the SFD create obstacles to the use of distributed ledger technology (DLT) and cryptoassets, mainly in relation to the application of the SFD in a decentralised permission-less DLT and in a context where multilateral, as opposed to mainly bilateral, relationships prevail.
- Clarity of the interaction of the SFD with other relevant legislation, for example PSD2.
The consultation closes on 7 May 2021. The Commission's review findings will feed into a report to the Parliament and the Council of the EU.
Luxembourg: Bill aimed at modernising existing legal framework for dematerialized securities adopted and subsequently enters into force
On 21 January 2021 the bill of law no 7637 modifying the Luxembourg law of 5 April 1993 on the financial sector and the law of 6 April 2013 on dematerialised securities (the Bill) was adopted. It aims to modernise the existing legal framework for dematerialized securities, notably by explicitly recognising the possibility of using secure electronic registration mechanisms, including distributed electronic registers or databases, for the purpose of issuing dematerialised securities.
The Bill is a continuation of the law of 1 March 2019 modifying the law of 1 August 2001 on the circulation of securities which introduced the transfer of securities through the use of secure electronic registration mechanisms, in particular where based on the technology of distributed electronic ledgers or databases. In line with the law of 1 March 2019, the Bill contributes to the efforts to promote innovation in the Luxembourg financial sector.
In addition, the Bill intends to broaden the scope of application of the law of 6 April 2013 on dematerialised securities by opening the activity of central accountholder for unlisted debt securities to credit institutions and investment firms (as defined in the amended law of 5 April 1993 on the financial sector).
See more information here.
The Bill was subsequently published in the Luxembourg Official Journal on 22 January 2021 and entered into force as a law on 26 January 2021.
Europe: European Commission publishes call for advice from ESAs on digital finance and related issues
On 2 February 2021 the European Commission published a call for advice to the European Supervisory Authorities (ESAs) for technical advice on digital finance and related issues.
In recognition of the fact that digitalisation may make it more challenging for the existing regulatory and supervisory frameworks to safeguard financial stability, consumer protection, market integrity, fair competition and security, in the Digital Finance Strategy (DFS) adopted in September 2020 the Commission set out its intention to review the existing financial services legislative framework.
In preparation for this review, the Commission is asking the ESAs for advice on how to address a number of issues in the following areas:
- The regulation and supervision of more fragmented or non-integrated value chains.
- Platforms and the bundling of various financial services.
- The risks of groups combining different activities.
- Non-bank lending.
- The protection of client funds.
More information on the deadlines for the interim and final reports that the Commission has requested are set out in the call for advice.
In addition, the Commission advises that as part of its DFS over the next four years it may propose new legislation, amend existing EU legislation or take other actions. The ESAs' technical advice will be a key input to this work.
United Kingdom: FCA publishes findings from multi-firms review on implementing technology change
On 5 February 2021 the FCA published its findings from its multi-firms review of how firms implement technology change, the impact of change failures and the practices used to help reduce the impact of incidents resulting from change management.
As part of the review, the FCA analysed over 1 million production changes implemented in 2019 by a sample of firms leveraging different business models at varying scale. This data was supplemented with a qualitative questionnaire, a confidential board questionnaire and industry workshops.
Among other things, the FCA found that:
- failed technology changes are one of the main causes for operational disruption within firms, accounting for a quarter of all high-severity incidents that cause harm to consumers and the market;
- changes made by firms with strong, well-established governance and day-to-day risk management strategies are more successful;
- robust testing is an important part of the change process;
- testing automation has benefits, but it also presents challenges;
- firms that deployed smaller, more frequent releases had higher change success rates than those with longer release cycles;
- relying on high levels of legacy technology is linked to more failed and emergency changes.
The FCA does not expect changes to be implemented without incident, but it emphasises the importance of firms understanding how technology change activity can affect the services they provide, and investing in their resilience to protect themselves, consumers and the markets. This is especially important as firms increasingly use remote and flexible working. Firms are advised to consider the review findings when assessing their future technology changes.
United Kingdom: FCA publishes statement on bank branch closures during COVID-19 lockdown
On 28 January 2021 the FCA published a statement asking banks to reconsider branch closures during the COVID-19 lockdown. It wants banks and building societies to review their plans against its finalised guidance (FG20/3) on branch closures and ATM closures and conversions (September 2020).
Where firms are unable to meet the expectations of the FCA's guidance during lockdown measures, they should consider pausing or delaying new branch closures where possible, particularly where this could have significant impact on vulnerable customers. This would be similar to the approach firms took during lockdown measures in 2020.
Where firms consider it is appropriate to continue with plans during this period, the FCA expects them to have considered its guidance and be able to demonstrate how they have taken the concerns and expectations set out in its statement into account.
If firms are considering new closures or advancing those previously announced during this period, the FCA expects them to:
- Communicate with customers in a clear, fair and not misleading manner to inform them of the closure proposals, with particular consideration to the best way to make sure vulnerable and hard-to-reach customers are aware of the proposals and are able to contact the firm.
- Give customers clear information about how the firm can help them access alternatives during this period, for example online banking support.
- Engage with customers, where appropriate, to understand their needs and properly consider how they will be affected by the proposals.
United Kingdom: FMLC publishes meeting minutes for December 2020
On 21 January 2021 the Financial Markets Law Committee (FMLC) published the minutes of a meeting held on 10 December 2020. Points of interest include:
- FinTech: The FMLC referred to the European Commission's digital finance package, published in September 2020. It was agreed that the FMLC should draw attention to any legal uncertainties arising in the context of the proposed legislation. In relation to the FMLC's engagement with EU law after Brexit, especially in the context of FinTech it is important that the FMLC highlight any uncertainties in EU law because the UK is likely to establish its own regulations in due course and it would be unfortunate if there were minor discrepancies between the two regimes, creating an additional burden on firms, were questions of legal uncertainty not addressed. Note was made that the Brexit Advisory Group had recommended that the FMLC should continue to comment on EU legislative proposals.
- Future of UK financial services regulation: Making sense of onshored EU legislation would be a large project spanning at least three to five years. It was suggested that the FMLC become involved once there is clarity on the UK's proposed approach.
United Kingdom: PRA consultation on depositor protection identity verification
On 20 January 2021 the PRA published a consultation paper (CP3/21) on depositor protection identity verification.
The consultation paper contains proposed rules on the timing of identity verification required for eligibility of depositor protection under the Financial Services Compensation Scheme (FSCS) which would allow for retrospective identity verification.
Under existing rules in the Depositor Protection Part of the PRA Rulebook, if a depositor or ultimate beneficiary has not had their identity verified in accordance with relevant AML requirements at the compensation date, their deposits are automatically ineligible for FSCS protection (through no fault of the depositor or ultimate beneficiary). The proposed rule changes are intended to prevent FSCS eligibility issues in such a situation by allowing identity verification to be carried out retrospectively.
The PRA is also proposing amendments to its expectations in Supervisory Statement (SS) 18/15, ‘Depositor and dormant account protection. These include a new expectation that insolvency practitioners should carry out the retrospective identity verification checks, given their obligations and responsibilities under the Banking Act 2009. The PRA clarifies that the proposals don’t change the responsibilities of responsible persons to adhere to the relevant AML requirements and ensure the quality of their single customer view systems.
The consultation closed on 17 February 2021 (although the PRA's consultation webpage states that the closing date was 15 February 2021). The proposed implementation date for the changes is 24 March 2021.
Payment Market Developments
China: PayPal becomes first foreign company to provide digital payments in China
On 14 January 2021 it was reported that PayPal has completed a stake acquisition deal of Gopay, making it the first foreign company to offer digital payment services in China.
PayPal acquired a 30% stake in Gopay, a Chinese provider of electronic payment services, a little more than a year after purchasing 70% of the same company, making it the sole owner.
Moldova: Paysafe launches its services in Moldova
On 13 January 2021 Paysafe, a market leader in eCash payment solutions, announced the launch of its services in Moldova. Paysafe hopes to provide Moldovan customers with a new secure and easy way to pay with cash for online purchases, particularly in the digital entertainment space.
United Kingdom: Tanzanian money remittance startup launches in the UK
On 14 January 2021 a Tanzanian money remittance startup NALA announced the launch of its new money transfer app in the UK in early 2021. The company, which recently gained EMD Agent approval from the UK’s Financial Conduct Authority, aims to tailor its services to the needs of the East African communities in the UK.
Germany: Partnership on environmentally-friendly payment cards
On 13 January 2021 German company Giesecke+Devrient (G+D) and the environmental organization Parley for the Oceans announced an agreement on the production and offering of environmentally friendly payment cards. By recycling plastic waste from the world’s oceans for the production of the cards, the companies want to support clients in their sustainability strategies and promote eco-innovation through payment solutions.
Brazil: Fintech unicorn to bring Pay Later to Brazilian SMEs
On 19 January 2021 dLocal, a cross-border payment platform connecting global merchants to emerging markets, announced a new partnership deal with Dinie to allow global merchants to offer instalment payments to their customers in Brazil as a form of small business lending. The partnership will give SME customers a wider choice of payment options and more purchasing power at the checkout.
Europe: Contis partners with cardless cash provider Pin4 in UK and Europe
On 21 January 2021 a European Banking-as-a Service and payments provider Contis announced a partnership with Pin4, an international fintech pioneering access to cash. This partnership will allow account holders to access cash via their mobile phones which they can instantly collect at any enabled ATM.
Poland: PayU partners with Twisto to offer customers deferred payments
On 26 January 2021 a global online payments provider PayU announced its partnership with Twisto, a leading Czech FinTech offering deferred payments on the Polish market, to bring additional payment options to the ‘PayU Pay Later’ platform. The companies will serve all existing online retailers and brands using the PayU payment system, allowing them to offer Twisto’s deferred payment solution to their customers.
Africa: Synthesis releases tap-on-phone tech for African merchants
On 26 January 2021 Synthesis, an innovative software and consulting company, announced the launch of Halo, a tap-on-phone contactless payment solution. Halo is the first of its kind in Africa and allows any merchant to instantly receive payments.
Global: Mastercard pledges to reach net zero emissions by 2050
On 26 January 2021 Mastercard announced that it is furthering its commitment to create a more sustainable and inclusive digital economy, with a pledge to reach net zero emissions by 2050. Mastercard highlighted that it has already made progress towards its goal by achieving 100% renewable electricity in 2020, reinforced by a commitment to RE100.
Global: Visa launches AI-powered services for smarter payments
On 2 February 2021 Visa announced the launch of VisaNet +AI, a suite of AI-powered services aimed at addressing long-standing challenges and pain points for banks, merchants, and consumers. VisaNet +AI includes Visa Smarter Posting, a service that uses AI to deliver a customised score for each transaction as part of the authorisation process in order to help issuers create a better banking experience for cardholders.
Asia-Pacific: JCB and Keychain collaborate on blockchain-based micropayment infrastructure for IoT
On 12 February 2021 it was reported that Japanese credit card scheme JCB is working with Singapore's Keychain to develop a secure infrastructure for processing credit-based micropayments between Internet of Things (IoT) devices. The aim is to enable direct human-to-machine and machine-to-machine payments at scale without the constraints of credit cards.
Surveys and Reports
India: Survey finds a third of Indian households use digital payments
On 14 January 2021 the National Payments Corporation of India (NPCI) and People Research on India's Consumer Economy (PRICE) published a survey on ‘Digital Payments Adoption in India, 2020’.
According to the report, around half of the country's richest 20% of households use digital payments. Although the figure is lower for the poorest 40% of households, even among this group a quarter use mobile money. In addition, the NPCI states that there is suppressed demand from people who say they want to use digital payments but who need more information on how to do so.
The survey also points to the fact that smartphone ownership is no longer a bottleneck for the adoption of digital payments, with 68% of the respondents owning smartphones.
The survey also reveals that the banking system is very well connected digitally to users via Aadhaar linkages and SMS facility, even within the lower income groups who were canvassed. The survey found that 87% of the respondents are aware of the fact that they receive SMS from the banks, which gives them the confidence to manage their money safely.
United Kingdom: Consumer Research 2020 - PSR summary report
On 9 February 2021 the Payment Systems Regulatory (PSR) published a summary report on consumer research conducted in 2020.
The PSR previously commissioned an independent research company to conduct a two stage programme of qualitative and quantitative research with consumers. The summary reports on the second wave of this research, which was first conducted in 2017. Fieldwork was conducted earlier in the year than anticipated to capture "in the moment" behaviours as a result of the COVID-19 pandemic.
Overall and in the context of COVID-19, the research looked to:
- understand consumer awareness of payment systems;
- explore consumer expectations and perceptions around payments;
- explore consumers' needs in relation to payments;
- understand any challenges consumers face around payments; and
- identify what consumers expect from the future payments landscape.
The report sets out a high-level summary of the research findings and implications. The key findings are as follows:
- While awareness of payment systems remains low, consumers are familiar with a range of payment methods.
- The most frequently used payment types are contactless card payments, cash and chip and PIN card payments. There has been a significant increase in the claimed use of contactless and mobile payments since 2017.
- There is a high level of satisfaction with the choice of payment systems available to consumers, trust that the system works well, and problems are felt to be rare.
- A range of factors influence the use of different payment systems, such as the value of the payment, retailer preference, social norms and Covid-19 considerations.
- Consumer priorities for the future of payment systems in the UK focus on tackling fraud and payment scams, improving security of payment systems, supporting access to cash and ensuring consumer protection across all payment types.