Shearman & Sterling LLP | Financial Regulatory Developments Focus | Post-Brexit UK Secondary Legislation Published For Temporary Permissions Regime For Payments Services
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  • Post-Brexit UK Secondary Legislation Published For Temporary Permissions Regime For Payments Services
    HM Treasury has published draft statutory instruments on the regulation of payments and e-money and on access to the Single Euro Payments Area in preparation for the U.K.'s withdrawal from the EU - the draft Electronic Money, Payment Services and Payment Systems (Amendment and Transitional Provisions) (EU Exit) Regulations 2018 and the Credit Transfers and Direct Debits in Euro (Amendment) (EU Exit) Regulations 2018. The draft Regulations are relevant to all Payment Service Providers and registered Account Information Service Providers. The draft Regulations will amend the Payment Services Regulations 2017, Electronic Money Regulations 2011 and the SEPA Regulation to:
    • Create a temporary permissions regime for EEA payment firms
    In line with the proposed temporary permissions regime for EEA firms regulated under the Financial Services and Markets Act 2000 (covered by the draft EEA Passport Rights (Amendment, etc., and Transitional Provisions) (EU Exit) Regulations 2018), HM Treasury is proposing a TPR for payments. EEA firms operating under the TPR for payments will need to establish a U.K. subsidiary at the end of the proposed three-year TPR period. This provision should give firms the time to fully operationalize their new U.K. subsidiary.
    • Ensure access to segregated safeguarding accounts
    The EU Payment Services Regulations require payment institutions and e-money firms to safeguard consumer funds in the event of an insolvency. One method for doing so is to hold the funds in a segregated account with a EU bank so that if the payment institution or e-money firm goes into insolvency, the customers' funds will be paid out in priority to other creditors. HM Treasury is proposing to allow, subject to certain conditions being met, these firms to hold such safeguarding accounts at banks incorporated anywhere in the world.
    • Maximize the prospect of the U.K. maintaining access to SEPA
    This will be achieved by retaining the same operative provisions as are applicable under the EU SEPA Regulation and making certain changes to account for the U.K. accessing SEPA as a third country instead of as an EU Member State. In addition, the EU PSR will be amended so that relevant sections will continue to apply in full to transactions in Euro within SEPA, including intra-U.K.-EU transactions. Should the U.K. not be able to continue its participation in SEPA, it is proposed that HM Treasury is granted a power to remove the SEPA Regulation from U.K. laws and to apply the PSR requirements only to the part of a Euro transaction that is carried out in the U.K.

    HM Treasury is proposing not to retain the EU Cross-Border Payments Regulation on the basis that cross-border transactions will not be regulated under U.K. regulation and compliance with the requirements is unnecessary for third-country membership of SEPA. The U.K. government will assess whether this approach needs to be adopted once the proposed changes to the Cross-Border Payments Regulation have been finalized. HM Treasury has confirmed that draft regulations onshoring the Interchange Fee Regulation will be issued at a later date.

    HM Treasury intends to lay the draft Regulations before Parliament in the autumn. The Financial Conduct Authority is expected to consult in the autumn on changes to its Handbook as a result of the draft Regulations and to reflect the relevant EU Technical Standards. The draft Regulations will not take effect on March 29, 2019 (Exit Day) if the EU and the U.K. agree an implementation period.

    View the draft Regulations and the explanatory guidance.

    View details of the TPR for FSMA firms.

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