Committee on Payments and Market Infrastructures
Real-time gross settlement systems - CPMI publishes final report - 12 May 2022
The Committee on Payments and Market Infrastructures (CPMI) has published its final report (the Report) on extending and aligning payment system operating hours for cross-border payments. The Report follows the CPMI’s November 2021 consultative report on the matter, as previously reported on in this Bulletin.
The Report focuses on the operating hours of real-time gross settlement (RTGS) systems, which are considered key to enhancing cross-border payments. The CPMI explains that an extension of RTGS operating hours across jurisdictions could help increase the speed of cross-border payments and reduce liquidity costs and settlement risks.
The Report sets out three potential improvements (end states), based on an analysis of 62 RTGS systems worldwide, and discusses operational, risk and policy considerations related to those end states. It also introduces the concept of a ‘global settlement’ window as the period when the largest number of RTGS systems simultaneously operate.
The CPMI will now work to develop technical and operational approaches to address the central challenges associated with the extension of operating hours of key payment systems. Central banks (as RTGS system operators) and other relevant payment system operators are encouraged to work with their participants and other stakeholders to consider the potential end states and their benefits, risks and challenges, to determine the best path forward for RTGS operating hours.
CPMI Final Report: Extending and aligning payment system operating hours for cross-border payments
PSD2 and open finance framework - European Commission publishes two targeted consultations and public consultation - 10 May 2022
The European Commission (the Commission) has published two targeted consultation papers on: (i) its review of the revised Payment Services Directive ((EU) 2015/2366) (PSD2); and (ii) the open finance framework, alongside a public consultation on the review of PSD2 and open finance.
The Commission seeks feedback on the application and impact of PSD2 in light of new payment services and risks. This will enable the Commission to determine whether EU coordinated action and/or policy measures are needed to ensure that its rules remain relevant.
The Commission also seeks views on the broader concept of ‘open finance’, which could cover a range of financial services, such as investment in securities, pensions and insurance. The Commission aims to enable data sharing and third party access for a wide range of financial sectors and products, in line with data protection and consumer protection rules.
The deadline for responses to both targeted consultations is 5 July 2022. The deadline for responses to the public consultation is 2 August 2022.
Targeted consultation on the review of the revised Payment Services Directive (PSD2)
Targeted consultation on open finance framework and data sharing in the financial sector
Public consultation on the review of the revised Payment Services Directive (PSD2) and on open finance
APP scam reimbursement - HM Treasury publishes policy paper - 10 May 2022
HM Treasury has published a policy paper on the government’s approach to authorised push payment (APP) scam reimbursement. The policy paper follows the Payment Systems Regulators’ (PSR’s) February 2021 call for views on APPs scams and subsequent consultation paper on the matter (CP21/10), published in November 2021.
The government intends to legislate in the Financial Services and Markets Bill, announced in the Queen’s speech on 10 May and covered in the General section of this Bulletin, to enable regulatory action by the PSR to require banks and other payment service providers to reimburse APP scam losses.
This legislative amendment will clarify that the PSR may use its existing regulatory powers, as set out in the Financial Services (Banking Reform) Act, to establish a liability framework and require reimbursement in cases of APP scams in designated payment systems, including ‘Faster Payments’.
Currently, under regulation 90 of the Payment Services Regulations 2017, where a payment is executed in accordance with the unique identifier provided by the customer, a payment service provider has correctly executed the payment. The government’s legislative amendment will clarify that this does not affect the PSR’s ability to use its existing regulatory powers regarding APP scams.
The PSR intends to publish a consultation paper on its preferred approach to APP scam reimbursement in autumn 2022.
Policy Paper: Government approach to authorised push payment scam reimbursement
Prudential Regulation Authority
Non-performing and forborne exposures - PRA publishes statement on the EBA’s Guidelines - 6 May 2022
The PRA has published a statement on the European Banking Authority’s (the EBA’s) Guidelines on the management of non-performing exposures (NPEs) and forborne exposures (FBEs) (the Guidelines). The EBA published its Guidelines in October 2018. The PRA’s statement follows feedback from firms that the status of the Guidelines in the UK is currently uncertain.
The PRA acknowledges that the Guidelines’ prudential aspects broadly represent good credit risk management standards and that the Guidelines may be a helpful reference material for firms’ management of NPEs and FBEs. However, the PRA notes that the Guidelines do not apply to or in the UK. In particular, the Guidelines:
- apply detailed requirements for firms with a gross NPE ratio of at least 5%. The PRA has not adopted the 5% threshold and the associated additional obligations when a firm exceeds this threshold; and
- require national competent authorities to define a common threshold for the individual valuation and revaluation of the collaterals used for NPEs. The PRA has not set a common threshold and the approach to valuation and revaluation is at the discretion of individual firms.
PRA Statement on EBA Guidelines relating to the management of non-performing and forborne exposures
Trading activity wind-down - PRA publishes Policy Statement (PS4/22) - 6 May 2022
The PRA has published a Policy Statement (PS4/22) on its expectations relating to the wind-down of trading activities that may affect UK financial stability, following its consultation paper (CP20/21) on the proposals published in October 2021.The policy statement is relevant, although may not apply directly, to all PRA-authorised UK banks, their qualifying parent undertakings, PRA-designated investment firms that are engaged in trading activities, and relevant third country branches.
The PRA sets out its final policy in the form of:
- Statement Of Policy: Trading activity wind-down (SoP);
- Supervisory Statement: Trading activity wind-down (SS1/22); and
- Updated Supervisory Statement: Recovery planning (SS9/17).
The PRA notes that it received four responses to its consultation paper. Of these, respondents generally supported the trading activity wind-down policy. However, they made a number of observations and requests for clarification, following which the PRA has made minor changes to its final policy. For example, in SS1/22 chapter 4, the PRA provides further clarification on the projection of risk-based losses.
Relevant firms are expected to meet the expectations in SS1/22 by 3 March 2025. Supervisors will want to understand that firms are making adequate preparations significantly in advance of the implementation date and have oversight of progress to implementation. Firms should expect this dialogue to commence in the second half of 2022, with the exact timing to be confirmed by PRA supervisors.
PRA Policy Statement: Trading activity wind-down (PS4/22)
Statement of Policy: Trading activity wind-down
Supervisory Statement: Trading activity wind-down (SS1/22)
Updated Supervisory Statement: Recovery Planning (SS9/17)
Financial Conduct Authority
Financial promotions - FCA publishes Dear CEO letter to consumer credit firms - 6 May 2022
The FCA has published a Dear CEO letter sent to approximately 28,000 credit brokers and firms providing high-cost lending products about ensuring financial promotions are clear, fair and not misleading.
The FCA notes that, as a result of the cost of living crisis, it expects to see greater demand for credit. This includes short-term credit, which will particularly impact consumers in vulnerable circumstances. The FCA will therefore be keeping the sector under close review to ensure that demand does not result in unsustainable and unaffordable lending.
The FCA identifies a number of practices that are of concern, including:
- a number of financial promotions where firms include phrases such as ‘no credit check loans’, ‘loan guaranteed’, ‘pre-approved’ or ‘no credit checks’. The FCA is concerned that consumers could be led to believe that the lender will make no checks on credit status;
- promotions offering brokerage/direct lending services for high-cost short-term credit, which fail to specify the required risk warning in breach of CONC 3.4.1R;
- that some promotions fail to include the representative APR when required under CONC 3.5.7R and 3.5.8G; and
- promotions by credit brokers, which fail to state that they are brokers and not lenders as required by CONC 3.7.7R.
In response to these concerns, the FCA outlines a number of actions for firms, including encouraging firms to review their processes, systems and controls for financial promotions to determine whether they are sufficiently robust.
The FCA intends to monitor the market proactively to assess compliance. Later in 2022, the FCA will confirm its final rules on the new ‘consumer duty’.
FCA Dear CEO letter: Action needed to ensure your financial promotions are clear, fair and not misleading
Payment Systems Regulator
Digital Payments Initiative - PSR Panel publishes report - 10 May 2022
The Payment Systems Regulator (PSR) Panel, which provides independent advice and input to the PSR, has published a report on the PSR’s Digital Payments Initiative (the Initiative). The Initiative was launched last year by the PSR to understand potential barriers to the take-up of digital payments, and to identify potential solutions and appropriate regulatory actions.
The Initiative concluded that there are four high-level areas that need to be worked on to address the drivers of cash reliance and enable greater take-up of digital payments. These are:
- improving consumers’, small businesses’ and other small organisations’ awareness and understanding of, and trust in, digital payment options;
- tackling barriers to new digital payment services and service features, including enabling new functionalities and improving trust by addressing fraud risks;
- reducing digital exclusion; and
- putting better data in place to monitor the transition to digital payments.
The report made 12 detailed recommendations across these four areas, and considered emerging developments across the payments sector. In particular, the Initiative identified that open banking could be key to developing digital payment services that better meet the needs of users, including those who currently prefer to use cash.
Financial Services Consumer Panel
Equity release products - FSCP publishes final research and position paper - 11 May 2022
The Financial Services Consumer Panel (FSCP) has published a research paper and a position paper relating to how consumers choose and buy equity release products to meet their later life needs.
The research paper reveals that the current sales and advice process does not always prevent consumers from experiencing poor outcomes, including regrets and misunderstandings about their purchase, and that vulnerable consumers may fail to consider the long-term implications.
The FSCP has identified four sets of risks from its investigation, covering the consumer journey from pre- to post-contract, including marketing, and makes a number of recommendations to the FCA regarding these risks. The FSCP also calls for further investigations into:
- how equity release products are marketed and sold to later life consumers, including the role of financial promotions, direct marketing and commission-based sales;
- whether regulation and industry standards can do more to protect consumers from financial and psychological harm;
- the impact on consumers of the different regulatory regimes for equity release and alternative products; and
- the risks to the FCA and industry posed by increasing demand from customers who purchase from a position of vulnerability.
Equity release and alternative products: A consumer perspective on experiences and outcomes
FSCP Position Paper: How vulnerable consumers choose and buy equity release products