On 1 August 2018, the FCA published proposals to align the regulatory requirements around communication that are applicable to FSMA-authorised firms (i.e. banks) with those that apply to payment institutions (PIs) and e-money issuers (EMIs).
According to the FCA’s Consultation Paper, extending the application of certain conduct and communication standards across the payment services and e‑money sectors will: (1) clarify expectations in terms of firms’ behaviour and treatment of customers; (2) help the FCA address harm more effectively and directly; and (3) improve confidence and trust in the payment services and e-money markets.
What are the proposals?
The FCA’s proposals affect credit institutions providing payment services and/or issuing e‑money, as well as PIs, EMIs and registered account information service providers (RAISPs).
The FCA summarises the proposals as follows:
|Extending the application of the Principles for Business||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||To PIs, EMIs and RAISPs in addition to credit institutions|
|Extending the application of the rules and guidance in BCOBS 2 concerning communication with retail banking customers||To communication with payment service and e-money customers||To 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||To PIs and EMIs in addition to credit institutions providing such services|
Key points from the proposals include the following:
Principles for Business
- A number of the Principles refer to obligations that relate to “customers”. In the context of PIs and EMIs, the FCA will define “customers” as consumers (including micro-enterprises and charities with an annual income of less than £1 million). The FCA is keen to maintain the distinction between corporate and non-corporate customers, which is consistent with the application of the FCA’s Banking Conduct of Business Sourcebook (BCOBS).
- The FCA proposes to apply the Principles to EEA PIs, EMIs and RAISPs providing payment services or issuing e‑money in the UK. This is subject to the treatment of incoming firms under PRIN 3.1 and in so far as responsibility for the matter in question is not reserved to the home state regulator under PSD2, the Second Electronic Money Directive or another EU instrument.
- The Consultation Paper sets out examples to illustrate how certain of the Principles would be applied.
Communications (including marketing communications) for payment services and e‑money
- At present, rules on communications with clients are set out in BCOBS, which applies to banks. BCOBS 2 is the high-level requirement for communications to be clear, fair and not misleading.
- The FCA is proposing to extend the application of Chapter 2 of BCOBS to PIs and EMIs. If extended, BCOBS 2 will apply to credit institutions, PIs, EMIs and RAISPs with respect to the provision of payment services and issuance of e-money carried on from an establishment maintained by it in the UK, and activities connected with those activities. The FCA also proposes to apply these provisions where activities are carried on from an establishment maintained by an agent in the UK, reflecting the conduct provisions of the Payment Services Regulations 2017 (PSRs).
- The FCA has proposed a new category of promotion, namely a payment service or electronic money promotion, which is defined as an invitation or inducement to enter into an agreement to provide a payment service, initiate a payment order, or acquire electronic money.
- The extension of BCOBS will only apply to communications made to “customers” (in the sense described above).
- For communications that are within scope, firms will need to include the name of the service provider on the communication and ensure that it is accurate, does not emphasise any potential benefits without also giving a fair and prominent indication of any relevant risks, and does not disguise, diminish or obscure important information, statements or warnings.
Misleading communication of currency exchange transfer services
- According to the FCA’s research, customers face challenges in understanding the total cost of a currency exchange transaction and risk being misled by information presented by some firms.
- The FCA proposes to amend BCOBS to provide that a promotion relating to a currency exchange transfer service is likely to be misleading if it presents an exchange rate in a way that gives the impression that the rate is available to consumers, if that rate is unlikely to be available to those consumers in respect of a typical transaction. Importantly, the FCA has indicated that adding a disclaimer that qualifies the exchange rate, by saying that the rate is not available to all, does not prevent the rate from being misleading.
- Where providers compare the costs of their service with other providers, the FCA proposes to introduce a requirement to do so in ways which are meaningful, fair and balanced, and capable of being substantiated.
- The proposals relating to communications will be limited to consumers who are individuals acting outside their trade, business or profession, micro-businesses, and charities with an annual income of less than £1 million.
- Currency exchange services that are not carried out as part of a payment or e‑money service (for example, a ‘bureaux de change’) would be out of scope.
The consultation period closed on 1 November 2018. The FCA expects to publish the new rules in a Policy Statement before 31 January 2019 and, importantly for firms, does not currently intend to provide an implementation period.
Osborne Clarke comment
Through these proposals, the FCA is aiming to achieve better outcomes for consumers by creating a ‘level playing field’ for banks and PIs/EMIs. However, this is likely to come at the cost of adding to the ‘lighter’ regulatory regime currently applicable to PIs and EMIs, and ultimately creating additional barriers to entry to the UK payment services and e-money markets.
EMIs/PIs and banks are fundamentally different in terms of the risk they pose to the market and consumers. Extending the Principles to PIs and EMIs without setting out clear guidance on their scope and practical application, is likely to present a significant challenge for compliance teams.
If, as currently suggested, there is no implementation period, PIs and EMIs will need to be ready to comply as soon as the FCA publishes its Policy Statement, or face possible disciplinary sanctions.