In a consultation paper published earlier this month, the FCA proposed to extend its Principles for Business to payment institutions (PIs), e-money institutions (EMIs) and registered account information service providers (RAISPs). The FCA also proposed extending rule BCOBS 2 - which provides rules concerning communication with retail banking customers - to PIs, EMIs and RAISPs.
What is the current situation?
Payment services are provided by payment service providers, which in the UK, includes the following:
- Credit institutions (banks and building societies);
- PIs;
- EMIs; and
- RAISPs
Currently, not all of the above are authorised in the same way. Credit institutions can provide payment services, but are authorised under the Financial Services and Markets Act 2000 (FSMA). PIs and RAISPs are authorised under the Payment Systems Regulations 2017 (PSRs) and EMIs are authorised under the E Money Regulations 2011 (EMRs).
Notwithstanding the fact that all are subject to the Consumer Protection from Unfair Trading Regulations 2008 (CPRs) (which the FCA is able to enforce through the Enterprise Act 2002), there remains a disparity between the FCA's ability to intervene to uphold standards in respect of credit institutions as authorised under FSMA, and those authorised under the PSRs or EMRs.
Why does the FCA want to make changes?
Currently, PIs, EMIs and RAISPs are not subject to the FCA's Principles for Business. Furthermore, BCOBS 2 (which also doesn’t apply to the foregoing), doesn't apply to credit institutions when undertaking payment services by virtue of their authorisation under FSMA.
In recent months, the FCA purports to have seen a number of instances of misleading marketing practices from PIs and EMIs when communicating their services to customers. This has included making reference to terms that were unavailable to customers or making unsubstantiated claims. Of particular concern to the FCA was the manner in which exchange rates were communicated by PIs and EMIs to their customers when providing currency conversion services.
The Financial Promotion regime in the UK does not apply to payment services and e-money issuers, nor does the FCA have the power (under related legislation) to extend this regime to the foregoing categories of firm.
However, the PSRs give the FCA new powers to intervene in payment services and the e-money sector, with the ability to formulate rules applicable to PIs, EMIs and RAISPs. This allows the FCA to extend its financial promotion and communications rules included in BCOBS 2 to PIs, EMIs and RAISPs. It is worth nothing that BCOBS 2 already applies to payment services when provided by a credit institution authorised under FSMA.
What does the FCA propose?
The table below is adapted from the table at paragraph 1.12 of FCA's Consultation Paper 19/21.
Proposals | Activities to which this applies | Firms to which this applies |
Extending the application of the Principles for Businesses | To the activities of provision of payment services and issuance of e-money (where not already a regulated activity) and activities connected with these activities | PIs, EMIs and RAISPs (in addition to credit institutions |
Extending the application of rules and guidance in BCOBS 2 concerning communication with retail banking customers | To communication with payment service and e-money customers | PIs, EMIs and RAISPs in addition to credit institutions |
New rules and guidance in BCOBS 2 on currency exchange transfer services | To payment services and the issuance of e-money involving a currency conversion | PIs, EMIs in addition to credit institutions, providing such services |
What happens next?
Firms and other affected stakeholders can respond to the consultation until 1 November 2018. Thereafter, the FCA will look to publish rules by way of a policy statement by 31 January 2019.
Taylor Wessing is an international law firm that is well placed to advise on financial services and payments related issues. For more information, please contact one of our experts.
