At the end of 2015, the Payment Systems Regulator (“PSR”) published a report, ‘Access and governance of payment systems: the operators’ progress and areas for on-going focus’ (“Report”), on direct access to payment systems and the governance of the operators of designated payment systems. In this article we consider the objectives behind the Report and summarise the findings, including areas where the PSR considers operators to have made progress and areas for ongoing focus.
Background to the PSR’s first annual report
The Report is the PSR’s first annual report on how operators of payment systems (“Operators”) are meeting requirements to achieve more open and flexible direct access to payment systems; and inclusive and more transparent governance arrangements. The specific requirements relating to access and governance are set out in the PSR’s March 2015 Policy Statement.
The Report summarises the information received from Operators over the second half of 2015 on how they have complied with the PSR’s requirements.
The Operators in question are those involved with the operation and management of HM Treasury designated payment systems. There are currently six such designated payment systems: Bacs, Cheque and Credit Clearing Company (C&CCC), CHAPS, Faster Payments Scheme Limited (FPSL), LINK, MasterCard and Visa.
Promoting fair and open access to payment systems
The issue of access to payment systems has been a key focus for the PSR since its inception in 2014, as a vital driver of effective competition and innovation in payments.
Whilst the PSR acknowledges that appropriate access criteria are essential to protect the stability, security and resilience of payment systems, it also highlights the risk that some rules could unnecessarily restrict payment service providers (“PSPs”) from accessing payment systems. The PSR has also considered issues around indirect access, highlighting the limited number of indirect access providers (the ‘sponsor banks’).
The PSR’s March 2015 Policy Statement set out the following direction as a means of improving access:
From 30 June 2015, Bacs, C&CCC, CHAPS and FPSL have been required to publish fair, open and risk-based criteria for direct access to their payment systems, while LINK, MasterCard and Visa are subject to a similar obligation under The Payment Services Regulation.
In addition, the PSR also issued a ‘sponsor bank information rule’ requiring each of the current sponsor banks (Barclays, HSBC, Lloyds and RBS) to publish clear and up-to-date information on its indirect access services.
Section 5 of the Report provides a summary of the responses from the six payment system Operators, what they have done so far to deal with the issues identified and what measures they plan to implement to ensure ‘fair and open’ access. Special mention is given to FPSL as the “scheme most actively working to solve the access issues“.
The Report also considers the impact such changes have had on the payments market, noting a growing demand for direct access which is partly attributable to the move toward fairer and more open access. For example, FPSL has implemented a new access model to accommodate smaller PSPs through enhanced technical access solutions provided by aggregators and anticipates three to six new direct participants in 2016.
Promoting fair and transparent governance of Operators
The PSR confirmed its governance directions relating to BACS, C&CCC, CHAPS, FPSL and LINK in its March 2015 Policy Statement (the governance directions do not apply to MasterCard or Visa). These governance directions require Operators to:
- ensure appropriate representation of service users’ (i.e. PSPs’) interests in their governing body’s decision making processes;
- take all reasonable steps to ensure that directors are not also acting as director of a central infrastructure provider to that payment system (to avoid conflicts of interest); and
- publish operator board minutes.
At the core of these obligations are the requirements for Operators to act in the interests of their services users and to be transparent in how they do this. As with access, section 5 of the Report summarises the responses of the relevant respondent Operators as to how they represent service users’ interests. Additionally, the Report sets out the specific ways each Operator approaches the issue of representation, with all five Operators confirming that there are no conflicts of interest of the type envisaged.
Overall, the PSR is “encouraged” by the responses, stating that all Operators have made the information available to potential participants more comprehensive, and have – in some cases – worked toward making direct access more flexible. However, the PSR expects all Operators to continue work to improve access and to ensure that governance (specifically, service user representation) will complement improvements they are making in this area. Section 6 of the Report shows that further work is required in these areas and sets out specific issues of concern that Operators are expected to address.