With the introduction of a new payments regulator, the Payments Council will cease to exist in its current form. Ahead of that, here is what the organisation wants to see become of the industry it has overseen since 2007
Why did the UK need a dedicated regulator for payments?
In March 2013, the government published a consultation, Opening Up UK Payments, setting out its proposal to bring payment systems under formal economic regulation, and establish a new competition-focused, utility-style regulator for retail payment systems.
The UK is recognised globally for its payment systems and services and the Payment Systems Regulator (PSR) can play a positive role to help the industry maintain this.
Also, as a result of the new regulatory regime, a brand new representative body for the payments industry will be launched this summer and the Payments Council will cease to exist. The new representative body will provide a voice for the industry and help it identify and deliver collaborative change for the benefit of all those who use payments.
What does the Payments Council make of the regulator’s responsibilities and powers? Is it everything the UK payments system needs?
The new regulator will be fully operational by 1 April and has three objectives: promoting competition; promoting innovation; and ensuring that payment systems operate in the interests of their users.
The Payments Council supports the introduction of the PSR as the new economic regulator for payments. We believe that, if it is well implemented, the PSR and the industry have the potential to develop the right strategy to deliver its objectives and help the industry deliver change at an increased pace.
We agree with the PSR’s proposed approach to appoint an industry forum that will agree the strategic priorities for the long-term future of payment systems. We believe that the forum should be responsible for agreeing the high-level industry strategic objectives and outcomes, with the industry responsible for developing and executing a collaborative plan to design and deliver against these objectives. The setting up of issue-specific working groups that report into the forum will help with the delivery of this.
What did the Council make of the proposed regulatory framework for payments systems in the UK, particularly the inter-bank ones?
The Payments Council is now formally separate from the payment schemes and each of the schemes will now be regulated in their own right by the PSR.
The PSR has said that its work will be underpinned by evidence and any use of its powers will be proportionate. We agree with the strategy-setting approach via the forum, as this enables the industry to execute the actions to deliver the PSR objectives, and we agree that the PSR should take appropriate action should these not be achieved.
We note that this arrangement recognises the role of collaboration in payments and how this has enhanced competition in the interests of service users, for example, the recent development of the Faster Payments Service (FPS). The Current Account Switch Service is another more recent example of how the industry has worked together to create common standards and a consistent customer experience, to enable and empower consumers to move bank accounts with a minimum of administration, an agreed switch date and a guarantee to provide confidence.
It is vital that we ensure that collaboration of this nature can continue in the new regulatory environment being implemented by the PSR. Collaborative innovation spurs competition by providing a common platform built through shared investment on which incumbent and new market participants of all sizes can develop their own competitive customer propositions.
This collaborative innovation enables change to be achieved at a lower cost overall (a particular benefit for new entrants as well as for customers) and provides the ubiquity and reach in payments that is crucial for customers.
What are the Council’s main concerns with the proposed framework and how would you like these concerns to be addressed?
One challenge for the PSR will be how it manages to fulfill its promise to be evidence-based and act as an economic and not a conduct regulator.
The Financial Conduct Authority (FCA) has significant influence over the PSR, whose board is constituted of FCA board members, and the two regulators share the same chair. The PSR needs to ensure that it is independent both of other regulators and of the government in its approach, notwithstanding the need to work closely with other authorities with overlapping remits and complementary powers.
The PSR’s expectation for a ‘no surprises’ culture is understandable in order for it to regulate effectively and to minimise the potential need for regulatory intervention. We would still expect payment service providers to be able to launch competitive payment services without first having to disclose commercial information to the PSR, on the basis that as regulated firms they would undertake due diligence on the regulatory and legislative requirements imposed on them.
Operational launch is scheduled for 1 April—is this too soon or are payments participants ready to abide by the framework?
We believe that the timing is right. Following publication of the regulator’s policy approach, the Payments Strategy Forum would develop and agree the strategic priorities for the long-term future of payment systems, letting the industry progress through coordination of a collaborative plan to design and deliver against these objectives by setting up issue-specific working groups.
We look forward to seeing the initial set of objectives and outcomes from the Payments Strategy Forum. Between now and then, the industry does not wish to lose momentum on the current work that is under way on a world-class payments system and so will continue to develop this into a plan that can be presented to the forum as soon as it is up and running.
