Banking and Finance

Basel Committee on Banking Supervision

Prudential treatment of cryptoasset exposures - Basel Committee on Banking Supervision publishes consultation paper - 30 June 2022

The Basel Committee on Banking Supervision has published its second consultation on the prudential treatment of cryptoasset exposures. The consultation builds on the first consultation, published in June 2021, which classified cryptoassets into two groups: those that fulfilled a set of conditions (Group 1), and those that failed to meet one or more of those conditions (Group 2). The second consultation elaborates and refines the classification conditions. These changes include:

• a revised stabilisation test for the classification of stablecoins;
• delinking the capital requirements that apply to cryptoassets from their classification as tangible or intangible assets under accounting standards;
• additional detail to specify the application of the liquidity risk requirements; and
• the introduction of an exposure limit, which will initially limit a bank’s total exposures to Group 2 cryptoassets to 1 per cent of Tier 1 capital.

The proposals aim to address issues raised by respondents to the first consultation and seek to meet the general principles in the first consultation of ‘same risk, same activity, same treatment’, simplicity and minimum standards to which jurisdictions are free to introduce their own measures if required.

The deadline for responding to the consultation paper is 30 September 2022.

Basel Committee on Banking Supervision Consultative Document: Second consultation on the prudential treatment of cryptoasset exposures

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Press release

European Commission

CRR - Commission Delegated Regulation (EU) 2022/1011 on RTS on indirect exposures to underlying clients of derivatives and credit derivatives contracts published in OJ - 28 June 2022

Commission Delegated Regulation (EU) 2022/1011 supplementing the Capital Requirements Regulation (575/2013/EU) (CRR) on regulatory technical standards (RTS) specifying how to determine the indirect exposures to a client arising from derivatives and credit derivatives contracts where: (i) the contract was not directly entered into with the client; but (ii) the underlying debt or equity instrument was issued by that client, has been published in the Official Journal of the European Union.

The European Commission adopted the Commission Delegated Regulation on 10 March 2022. It will enter into force on 18 July 2022.

Commission Delegated Regulation (EU) 2022/1011 of 10 March 2022 supplementing Regulation (EU) No 575/2013 of the European Parliament and of the Council with regard to regulatory technical standards specifying how to determine the indirect exposures to a client arising from derivatives and credit derivatives contracts where the contract was not directly entered into with the client but the underlying debt or equity instrument was issued by that client

Benchmarking of internal models - Commission Implementing Regulation (EU) 2022/951 on draft ITS published in OJ - 30 June 2022

Commission Implementing Regulation (EU) 2022/951 amending the implementing technical standards (ITS) in Commission Implementing Regulation (EU) 2016/2070 on benchmark portfolios, reporting templates and reporting instructions to be applied in the EU for the reporting referred to in Article 78(2) of the Capital Requirements Directive (2013/36/EU) (CRD IV), has been published in the Official Journal of the European Union.

The ITS specify the information that firms must report to the EBA and national competent authorities as part of the 2022 benchmarking exercise, in order for assessments of internal approaches for calculating own funds requirements to be carried out in accordance with Article 78 of the Capital Requirements Directive (2013/36/EU) (CRD IV). The exercise will cover approved internal approaches used for own funds requirements for credit and market risk, as well as internal models used for International Financial Reporting Standard (IFRS) 9.

The European Commission adopted the Commission Implementing Regulation on 24 May 2022. It will enter into force on 20 July 2022.

Commission Implementing Regulation (EU) 2022/951 of 24 May 2022 amending the implementing technical standards laid down in Implementing Regulation (EU) 2016/2070 as regards benchmark portfolios, reporting templates and reporting instructions to be applied in the Union for the reporting referred to in Article 78(2) of Directive 2013/36/EU of the European Parliament and of the Council

European Banking Authority

Mortgage Credit Directive - EBA publishes reply to European Commission’s Call for Advice on review - 24 June 2022

The European Banking Authority (EBA) has published an opinion and report in response to the European Commission’s December 2021 Call for Advice on the review of the Mortgage Credit Directive (2014/17/EU) (MCD) under article 44 of the MCD.

The EBA proposes to clarify the scope of the MCD, the impact of digitalisation and the ways to facilitate the cross-border provision of mortgages. It also addresses how the MCD can contribute to financial stability and the interplay with sustainability.

The EBA’s proposed amendments to the MCD include:

• revising the requirements on pre-contractual and advertising information to provide consumers with the appropriate information to make an informed decision and to compare products;
• ensuring that the requirements on information disclosure are fit for digital channels;
• introducing additional consumer protection measures when artificial intelligence systems are used for creditworthiness assessment; and
• establishing an EU-wide definition of ‘green mortgages’ to encourage sustainable lending and borrowing.

Opinion of the European Banking Authority on the European Commission request for technical advice on issues related to the Mortgage Credit Directive (EBA/Op/2022/07)

EBA letter to John Berrigan: European Commission request to European Banking Authority (EBA) for technical advice on the review of Directive 2014/17/EU (Mortgage Credit Directive) (EBA-2022-D-3991)

Press release

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CRD IV and IFD - EBA publishes revised Guidelines on the data collection exercise regarding high earners, and revised and new Guidelines on the remuneration and gender pay gap benchmarking exercise - 30 June 2022

The European Banking Authority (EBA) has published its final updated Guidelines on the data collection exercise regarding high earners (EBA/GL/2022/08), under the Capital Requirements Directive (2013/36/EU) (CRD IV) and the Investment Firms Directive ((EU) 2019/2034) (IFD). The EBA has also published its final updated Guidelines on the remuneration and gender pay gap benchmarking exercise (EBA/GL/2022/06) under CRD IV and issued separate Guidelines on the remuneration and gender pay gap benchmarking exercise for investment firms (EBA/GL/2022/07) under the IFD. The Guidelines were originally published in 2012 and were revised in 2014 (EBA/GL/2014/07). The updated and new Guidelines will apply from 31 December 2022.

The EBA explains that the updated and new Guidelines reflect the amended remuneration framework laid down in CRD IV, including the introduction of derogations to pay out a part of the variable remuneration in instruments and under draft deferral arrangements. They also reflect the introduction of the specific remuneration regime for investment firms as laid down in the IFD and Investment Firms Regulation ((EU) 2019/2033) (IFR).

Guidelines on the data collection exercise regarding high earners

The EBA explains that the CRD IV and IFD require national competent authorities (NCAs) to collect information on the number of natural persons, per credit institution and investment firm respectively, whose remuneration is EUR 1 million or more per financial year, in pay brackets of EUR 1 million. The information should also include details of their job responsibilities, the business area in which they operate and the main elements of the salary, bonus, long-term award and pension contribution. The Guidance is intended to ensure that their data is of the appropriate quality for deriving reliable and consistent information.

The EBA reminds firms that the annual collection of data regarding high earners under the updated Guidelines should start in 2023 for the financial year ending in 2022. The EBA will continue to publish high-earners data annually on an aggregate home member state basis in a common format.

Guidelines on the remuneration and gender pay gap benchmarking exercise under CRD IV and IFD

Both the Guidelines for credit institutions and the new Guidelines for investment firms integrate the changes made to the remuneration and disclosure requirements under CRD IV and the new remuneration framework for investment firms under the IFD and IFR.

The EBA explains that the templates for the data collection have been revised, taking into account the changes made to the European Commission’s Implementing Regulation on Disclosures ((EU) 2021/637). Additional information will be collected on the application of the derogations to the application of the requirements to pay out parts of the variable remuneration in instruments and under deferral arrangements, and specific templates have been introduced.

The EBA notes that, in accordance with the principle of equal pay for equal work or work of equal value and measures to ensure equal opportunities, the benchmarking of the gender pay gap will allow NCAs to monitor the implementation of such measures and their development at different levels of pay. The Guidelines aim to ensure that the benchmarking of the gender pay gap covers a representative sample of institutions and investment firms.

The EBA reminds firms that benchmarking data for the financial year ending in 2022, excluding gender pay gap data, should be submitted by credit institutions and investment firms to NCAs by 31 August 2023, and by NCAs to the EBA by 31 October 2023. The first benchmarking exercise regarding the gender pay gap will apply in relation to the 2023 financial year.

EBA Draft Final Report on Guidelines on the data collection exercises regarding high earners under Directive 2013/36/EU and under Directive (EU) 2019/2034 (EBA/GL/2022/08)

Press release

EBA Final Report on Guidelines on the benchmarking exercises on remuneration practices, the gender pay gap and approved higher ratios under Directive 2013/36/EU (EBA/GL/2022/06)

EBA Final Report on Guidelines on the benchmarking exercises on remuneration practices and the gender pay gap under Directive (EU) 2019/2034 (EBA/GL/2022/07)

Press release

European Central Bank

G-SIB assessment methodology - ECB publishes statement on treatment of banking union - 27 June 2022

The European Central Bank (ECB) has published a statement on the treatment of the European banking union (EBU) in the assessment methodology for global systemically important banks (G-SIBs). The statement follows the Basel Committee on Banking Supervision’s May 2022 decision to give recognition in the G-SIB framework to the progress made in developing the EBU through the existing methodology. Under the agreement, a parallel set of G-SIB scores will be calculated for EBU-headquartered G-SIBs and used to adjust their bucket allocations.

The ECB sets out details of the methodology that will be used for exercising supervisory discretion regarding cross-border intra-EBU exposures in the G-SIB assessment framework. The methodology adds an extra step to the existing G-SIB assessment framework through a bank-specific adjustment for structural regional arrangements (ASTRA). ASTRA is defined as the change in the G-SIB score that a EBU-headquartered bank would face if all exposures to counterparties resident in a European banking union country were regarded as domestic exposures. The ECB highlights that this new step only applies to EBU-headquartered banks and does not affect the G-SIB scores of non-EBU banks.

ECB Governing Council statement on the treatment of the European banking union in the assessment methodology for global systemically important banks

CRD VI - ECB opinion on proposed Directive published in OJ - 30 June 2022

The European Central Bank’s (ECB) opinion (CON/2022/16) (dated 27 April 2022) on the proposed Directive amending the Capital Requirements Directive (2013/36/EU) as regards supervisory powers, sanctions, third-country branches and ESG risk (CRD VI), has been published in the Official Journal of the European Union.

The European Commission (the Commission) adopted legislative proposals for CRD VI and for a Regulation amending the Capital Requirements Regulation (575/2013/EU) (CRR) to implement the final Basel III standards (CRR III Regulation) in October 2021. The ECB published its opinion (CON/2022/11) on the proposed CRR III Regulation in March 2022.

Opinion of the European Central Bank of 27 April 2022 on the Proposal for a Directive of the European Parliament and of the Council amending Directive 2013/36/EU as regards supervisory powers, sanctions, third-country branches, environmental, social and governance risk (CON/2022/16)

UK Parliament

A strong and simple prudential framework - House of Commons Treasury Sub-Committee on Financial Services Regulations issues Call for Evidence - 24 June 2022

The House of Commons Treasury Sub-Committee on Financial Services Regulations (the Sub-Committee) has issued a Call for Evidence on the PRA’s proposal for a ‘strong and simple prudential framework for smaller UK banking firms’. The PRA published a Consultation Paper (CP5/22) in April 2022 on the definition of a ‘Simpler-regime Firm’, and a Discussion Paper (DP1/21) in April 2021 and Feedback Statement (FS1/21) in December 2021 on the proposed framework, as previously reported in this Bulletin.

As set out in DP1/21, the PRA is seeking to mitigate the ‘complexity problem’ that can arise when the same prudential requirements are applied to all firms. It aims to achieve this through its ‘strong and simple’ initiative that would seek to simplify the prudential framework for non-systemic domestic banks and building societies, while maintaining their resilience. Since this would be a major change in prudential policy, taking a number of years to develop and implement, the PRA is first developing a ‘simpler regime’ for the smallest firms, so that the benefits of simplification are experienced by the largest number of firms as soon possible.

The Sub-Committee has requested written evidence on the proposals, the framework’s scope, and the PRA’s consultation, ahead of an upcoming evidence session. The deadline for responses is 11 July 2022.

House of Commons Treasury Sub-Committee on Financial Services Regulations Call for Evidence: The Strong and Simple Framework

Inquiry

Press release

HM Treasury

The Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) (No. 2) Order 2022 - Statutory instrument and explanatory memorandum published - 30 June 2022

The Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) (No. 2) Order 2022 (the Order) has been published, together with an explanatory memorandum, under sections 22(1) and (5) and 428(3) of, and paragraph 25 of Schedule 2 to, FSMA 2000.

The Order makes amendments to the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (the RAO) to clarify the regulatory position of certain credit agreements, detailed in articles 60H and 60HA of the RAO, entered into by high-net-worth individuals who have spent at least 183 days in the UK during the continuous period of 365 days ending with the date that the agreement is entered into.

The RAO currently provides for a ‘designated guidance provider’ to be exempt from carrying on specified regulated activities where the provider provides pensions guidance under arrangements made with HM Treasury. These providers have been replaced by the Money and Pensions Service (MaPS) and its pensions guidance function. The Order makes amendments to the RAO to provide for MaPS and its delivery partners to be exempt from regulation in specified circumstances when fulfilling MaPS’ pensions guidance function.

The Order comes into force on 21 July 2022.

The Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) (No. 2) Order 2022

Explanatory memorandum

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Prudential Regulation Authority

UK implementation of Basel III - PRA clarifies intended timetable - 27 June 2022

The PRA has published a letter to firms on the timetable for submitting internal model and standardised approach pre-applications relating to its implementation of market risk reforms following the Fundamental Review of the Trading Book (FRTB). The letter follows the PRA’s March 2022 announcement that it would consult on the UK implementation of Basel III, including FRTB, in Q4 2022.

In the letter, the PRA sets out its proposed approach for firms preparing for the FRTB reforms, across the following areas:

• existing internal model permissions: the PRA expects existing internal model permissions for market risk to become redundant as part of the legislative changes required to bring in Basel III in the UK. Given the new market risk rules introduced by the FRTB are substantially different to the current rules, the PRA does not currently intend to consult on any temporary extension of the existing modelling regimes or permissions. Current internal model approach firms would automatically move to the new standardised approach when the new rules are implemented, unless they have been granted a new internal model approach permission by the PRA under the FRTB;
• new internal model applications: based on an assumed January 2025 implementation date, the PRA expects firms to submit final pre-application materials at least 12 months in advance (i.e. 1 January 2024). It will then assess these materials ahead of formal permission confirmation once the relevant rules come into force. Firms submitting materials after this date should expect to be required to use the standardised approach, at least for an initial period, pending the completion of their model review;
• pre-engagement: the PRA intends to use its regular dialogues with firms on FRTB issues to cover more in-depth reviews on selected topics. It sets out its proposed timings for these reviews, which will cover the default risk charge, the risk factor eligibility test, non-modellable risk factors, and the profit and loss attribution test and back-testing; and
• standardised approach: the PRA expects there will be a number of provisions that will require regulatory permission. It expects firms to submit any related pre-application materials at least 12 months in advance of UK implementation to allow sufficient time for review. The PRA intends to conduct a further round of benchmarking in 2023/24, ahead of implementation. This will cover all PRA-regulated firms in scope of the new standardised approach.

The PRA will provide further details on the materials expected to be included in model/standard approach pre-applications, and the application confirmation process at a later date.

PRA letter: Fundamental Review of the Trading Book (FRTB): Timetable for submission of internal model/standard approach pre-applications

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Review of the use of the SIMM model - PRA publishes conclusions - 28 June 2022

The PRA has published a letter detailing the conclusions of its review of large banks’ use of the Standardised Initial Margin Methodology (SIMM) model. SIMM was launched in June 2015 by the International Swaps and Derivatives Association (ISDA) to establish a single model that can be used by all authorised licensees to exchange collateral in a way that is consistent with margin requirement rules.

The PRA’s review was aimed at monitoring the SIMM model’s performance during early COVID-19 market stress period and, more broadly, at assessing model compliance against the Regulations governing exchange of margin on non-centrally cleared derivatives contained within the onshored version of the European Market Infrastructure Regulation ((EU) 648/2012) (EMIR) (UK EMIR).

The PRA highlights that the existing governance process, by which firms rely primarily on ISDA to update the methodology or negotiate add-ons to it for model underperformance, may result in margin levels not adequate to cover for risks at the 99% confidence level as required under Commission Delegated Regulation (EU) 2016/2251.

The PRA expects Category 1 banks (those which, by virtue of their size, complexity, interconnectedness and business type, have the capacity to cause ‘very significant disruption’ to the UK financial system, as defined in the PRA’s October 2018 ‘Approach to Banking Supervision’) to take the steps indicated in the Annex to the letter to address the risk of under-margining. In particular, the PRA expects banks to undertake a self-assessment of their implementation of the mandatory margining for non-centrally cleared OTC derivatives’ requirements against the relevant Regulations and provide a corrective action plan for any gaps identified. Firms must complete these steps by December 2022 and report the findings to their supervisors.

PRA’s review of the use of the SIMM model: Conclusions

Financial Conduct Authority

Supervision of mainstream consumer credit lenders - FCA publishes portfolio letter - 27 June 2022

The FCA has published a portfolio letter to the CEOs of mainstream consumer credit lenders (MCCLs) outlining its supervisory strategy for these firms. It sets out the FCA’s view of the key risks of harm in the markets MCCLs operate in, outlines its expectations and provides an overview of its strategy and programme of work, including in relation to:

• the treatment of borrowers who fall into financial difficulty: the FCA cautions that higher inflation and increasing interests rates are likely to cause an increase in customers facing difficult personal and financial circumstances. Firms must ensure their customers receive fair and appropriate support;
• affordability assessments: lenders should ensure that consumers do not become over-indebted by being given credit they cannot afford and ensure affordable credit is available. The FCA also stresses that firms should not be seeking to increase business by lowering the stringency of affordability checks. The FCA outlines five points of consideration for firms as they review their strategies for assessing affordability including the application of reasonable and proportionate checks, assessing customer income and non-discretionary expenditure, and performing the affordability calculation;
• persistent credit card debt the FCA expects firms to continue engaging with customers in persistent credit card debt and to discuss the options available to them to pay down their debt within a reasonable period; and
• firms’ section 75 Consumer Credit Act 1974 (CCA) responsibilities: the FCA notes that, following COVID-19, there has been an increase in section 75 CCA claims, with a growing number of these being upheld by the Financial Ombudsman Service. The FCA has requested claims and complaints data from firms to review how firms have handled these.

Additional topics covered in the letter include: (i) poor customer outcomes; (ii) third party oversight arrangements; (iii) data-led regulation; (iv) raising standards; (v) the fair treatment of consumers with vulnerable characteristics; and (vi) ESG. The FCA also refers in the letter to the priorities set out in its recently published 2022-25 Strategy.

The FCA will write again in 2024 with an updated view of the key risks in the MCCL portfolio and its updated supervisory plans for the next cycle.

Portfolio letter: FCA Supervisory Strategy for Mainstream Consumer Credit Lenders (MCCL) portfolio​​​​​​​

Supervision of debt advice firms - FCA publishes portfolio letter - 27 June 2022

The FCA has published a portfolio letter to the CEOs of debt advice firms outlining its supervisory strategy for these firms, as well as the FCA’s view of the key risks of harm in the debt advice market, its expectations for such firms and its programme of work, including in relation to:

• insufficient capacity: the FCA cautions that firms must prepare for the implications on consumers arising from the rising living costs forecast. It encourages firms to engage with services the FCA offers to proactively forecast demand and plan accordingly;
• quality of advice: firms should ensure that all advice given has regard to the best interests of customers, is appropriate to the individual circumstances of the customer and is based on a sufficiently full assessment of the financial circumstances of the customer. The FCA also stresses that customers should be presented with the available options identified as suitable for their needs, as well as sufficient information on why these are suitable. Where firms are administering debt management plans, they should regularly monitor and review the financial position and circumstances of the customer;
• customers in vulnerable circumstances: the FCA expects customers in default or arrears difficulties to be treated with forbearance and due consideration, including where firms administer debt management plans. Appropriate support should be offered when required to ensure customers in vulnerable circumstances achieve outcomes as good as those for other customers;
• problems outside of the FCA’s regulatory remit: the FCA reminds firms that receive leads from lead generators of their obligation under chapter 8.9 of the Consumer Credit Sourcebook (CONC) in the FCA Handbook; and
• insufficient prudential resources: the FCA expects firms to manage their financial resources prudently with clear planning for the future. It reminds firms operating in the debt advice sector of the requirements in CONC 10.2 to ensure that the firm is always able to meet its liabilities as they fall due.

Additional topics covered in the letter include: (i) data-led regulation; (ii) raising standards; and (iii) ESG, as well as the priorities set out in its recently published 2022-25 Strategy.

Portfolio letter: FCA Supervisory Strategy for the Debt Advice portfolio​​​​​​​

Supervision of lifetime mortgage providers - FCA publishes portfolio letter - 28 June 2022

In addition to its portfolio letters for consumer credit lenders and debt advice firms, the FCA has published a portfolio letter to the CEOs of lifetime mortgage providers (LMPs) again outlining its supervisory strategy for these firms, as well as its view of the key risks of harm in the markets LMPs operate in, its expectations for such firms, and programme of work, including in relation to:

• treating customers in vulnerable circumstances fairly: the FCA notes that firms should be able to evidence how they are monitoring outcomes for customers in vulnerable circumstances and what changes they are making as a result of that monitoring to improve outcomes for these customers;
• product design and governance: the FCA expects firms to have in place product governance frameworks that help identify and manage the ongoing risk of poor consumer outcomes. The FCA also stresses that LMPs should have effective monitoring frameworks in place to ensure products continue to be sold appropriately and to the identified target market and are being delivered in line with expectations;
• fees and pricing structure: the FCA reminds firms that, under MCOB 12, they must ensure that any regulated mortgage contract they enter into does not impose, and cannot be used to impose, excessive charges on a customer. The FCA also highlights its proposed new consumer duty and advises firms to consider what steps they need to take when the new rules and guidance are published later in 2022;
• relationships between lenders and intermediaries: the FCA cautions against the risk that placement of business may be subject to conflicts of interest, for example to providers that offer the highest procuration fees or where there is an adviser-provider relationship;
• responsible lending: firms should be able to demonstrate that their customers are treated fairly, particularly given the ongoing impact of COVID-19, the cost-of-living increases and any associated increase in financial vulnerability. The FCA also stresses that, where applicable, lenders must ensure they apply appropriate affordability criteria. Where a customer makes interest repayments, LMPs must deal with any change in circumstance appropriately;
• post-sale systems and controls: the FCA expects firms to consider the impact of COVID-19 and how this has affected the end consumer when making changes to their products; and
• financial resilience: the FCA encourages firms to familiarise themselves with its June 2020 Finalised Guidance (FG20/1) on ‘Assessing adequate financial resources’.

Additional topics covered in the letter include: (i) regulatory reporting; (ii) the Senior Managers and Certification Regime; and (iii) ESG, as well as the priorities set out in its recently published 2022-25 Strategy.

Portfolio letter: FCA Supervisory Strategy for Lifetime Mortgage Providers

Financial Conduct Authority and Payment Systems Regulator

Joint Regulatory Oversight Committee - FCA and PSR publish terms of reference - 24 June 2022

The FCA and the Payment Systems Regulator (PSR) have published the Terms of Reference for establishing the Joint Regulatory Oversight Committee (the Committee), which aims to support the continued growth of open banking. The Competition and Markets Authority (CMA). The FCA, the PSR and HM Treasury published a joint statement in March 2022, detailing their plan to establish the Committee to oversee the development of open banking through a ‘Future Entity’ which would succeed the Open Banking Implementation Entity (OBIE).

The Terms of Reference set out the key objectives of the Committee and its responsibilities in relation to governance and funding of the Future Entity, transition to and interim oversight of the Future Entity, and agreeing a common vision, strategic roadmap and priorities for open banking.

The terms of reference set out 12 responsibilities for the Committee:

• reach a common authorities’ view and communicate to industry, on the Future Entity’s membership structure and the framework(s) and mechanism(s) necessary to embed robust governance;
• reach a common authorities’ view on a sustainable and proportionate funding model and communicate it to the Future Entity;
• consider the Committee’s role in the recruitment and appointment of the Future Entity’s first chair and any subsequent chair appointments where appropriate until the permanent future regulatory framework is in place;
• advise the CMA on the transition from the OBIE to the Future Entity;
• oversee the Future Entity once established until the formal regulatory framework is in place and operational;
• oversee and provide input on the Future Entity’s development and implementation of its strategic direction, policies, strategies and business plans;
• consider effective mechanisms for the Future Entity’s Board to provide regular and transparent reporting to the Committee;
• agree a common authorities’ vision and strategic roadmap for further developing open banking beyond the scope of the CMA’s 2017 Retail Banking Market Investigation Order (the CMA Order) and communicate with industry on this;
• agree a common authorities’ view and communicate to industry, on a roadmap, priorities and strategic objectives of the Future Entity;
• where appropriate, encourage the Future Entity to respond and adapt to new developments;
• convene a strategic working group to collate views from stakeholders to bring to the Committee for consideration; and
• work closely with the CMA, and industry and other key stakeholders, on how any continuing obligations under the CMA Order may be maintained.

The Committee will draw up proposals for the design of the Future Entity by the end of 2022. Transition to the Future Entity is expected to take place during Q4 2022/Q1 2023.

Joint Regulatory Oversight Committee - Terms of Reference

Payment Systems Regulator

Market review of card-acquiring services - PSR publishes Consultation Paper on provisional decision - 29 June 2022

The Payment Systems Regulator (PSR) has published a Consultation Paper (CP22/3) on its provisional decision (the Provisional Decision) in relation to remedies for the card-acquiring market review, following its initial consultation in January 2022 (CP22/1). The Provisional Decision follows the PSR’s final report on the review, published in November 2021, which found that the supply of card-acquiring services does not work well for small and medium-sized merchants with annual card turnover up to £50 million.

In light of the responses received to the consultation, the PSR is not proceeding with its proposal for direct measures to encourage Digital Comparison Tools (DCTs) for merchants. It explains that the newly proposed online quotation tools within the ‘Greater transparency’ remedy have the potential to unlock opportunities and stimulate DCTs in the market without further regulatory intervention. The PSR is therefore proceeding with only three of the four proposals it consulted on to improve services and choice for merchants:

• greater transparency: summary boxes containing bespoke key price and non-price information for every merchant will be introduced. These can be used alongside new online quotation tools to help merchants compare prices and other service features more efficiently;
• greater engagement: trigger messages will be sent from providers to merchants to prompt them to shop around, re-negotiate their contract or switch to get the best deal they can; and
• the ability to change providers easily: contractual limits will be placed on Point of Sale (POS) terminal contracts, so merchants are not discouraged from searching for and switching providers. There will be a maximum duration of 18 months on POS terminal lease and rental contracts, and maximum one month notice after any renewal.

The PSR intends to implement these remedies through Specific Directions which will be provided to the most significant providers of card-acquiring services for merchants. These providers are listed in the draft directions and in Chapter 2 of the consultation paper.

The deadline for responses is 3 August 2022. Following completion of the consultation, the PSR intends to issue a final remedies notice.

PSR Consultation paper: Card-acquiring market remedies: Provisional decision (CP22/3)

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Press release