HM Treasury Publishes Response to Payments Regulation and Systemic Perimeter Consultation08/14/2023
HM Treasury has published a response to its consultation on payments regulation and the systemic perimeter. The consultation was prompted by the U.K. government's Payments Landscape Review and HM Treasury's concern that some payments services operators were not subject to systemic supervision but may pose systemic risks to the U.K. financial system.
HM Treasury's response confirms that it will take forward the proposals made in its consultation, including adopting a "same risk, same regulatory outcome" approach, which will enable the Bank of England to recommend for recognition any entity throughout the payments chain that constitutes a systemic risk. Where an entity could potentially fall within both the systemic payments perimeter and the new critical third parties regime under the Financial Services and Markets Act 2023 (discussed in our client note, "A Boost for UK Financial Services"), HM Treasury will assess which regime would be the most appropriate in each circumstance. There will be no automatic U.K. location requirement for systemic payments firms — instead, the need to have a U.K. presence will be determined on a case-by-case basis, depending on the activities performed within the U.K. payments market by the entity in question. HM Treasury will implement an accountability framework for the BoE's systemic perimeter, so that the BoE will be held to similar accountability standards across its entire financial market infrastructure remit (taking account of the new accountability framework introduced under the Financial Services and Markets Act 2023 for central counterparties and central securities depositories). HM Treasury is postponing a final decision on the application to the payments industry of the Senior Managers and Certification Regime until after it has completed its review of the SMCR's legislative framework.
HM Treasury has taken on board certain feedback to its consultation, and plans, for example, to develop guidance for market participants on how systemic importance will be assessed. It will also require the Bank of England to update its Memorandum of Understanding with the U.K. Financial Conduct Authority and Payment Systems Regulator following the introduction of the new systemic payments regime, to ensure the regulators properly coordinate data requests to market participants, in light of proposed new information gathering powers for the BoE.
The U.K. government will publish draft legislation to implement the changes to the systemic payments services regime at a future date, after which the Bank of England will publish its own proposed approach to supervision.
The consultation's proposed enhancements to the U.K. PSR's legislative framework were also met with broad support by industry. HM Treasury plans to consult further and implement proposed changes at a future date.
A number of reforms to payment services supervision have already been taken forward as part of the Financial Services and Markets Act 2023 (discussed in our client note, "A Boost for UK Financial Services"). For example, the proposal to grant the FCA and PSR appropriate powers in relation to retained EU payments law has been reflected in a new statutory instrument (the Electronic Money, Payment Card Interchange Fee and Payment Services (Amendment) Regulations 2023). The government plans to review the Payment Services Regulations 2017 and the Electronic Money Regulations 2015 as part of its Future Regulatory Framework Review, with progress expected to be made during the course of 2023.
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