The Payment Systems Regulator (“PSR”) clearly intends to hit the ground running when it becomes fully operational on 1 April 2015 with its vision for the UK to become the home of a world class payments system.
The PSR is the UK’s new independent economic regulator of payment systems in the UK, overseeing the UK’s £75 trillion payments industry. While incorporated on 1 April 2014, it becomes fully operational on 1 April 2015. Ahead of this, it has been building its executive team and issuing consultations.
PSR executive team
The PSR’s three new heads of department – Carole Begent as head of legal, Mark Falcon as head of regulatory policy and strategy and Louise Buckley as head of stakeholder engagement and communications – draw on a wide range of experience of economic regulation in network industries, including rail, telecoms and water. Mark’s appointment – he joins from Hutchison 3G UK (Three), the UK mobile network operator, and currently chairs the Mobile Operators Association amongst other duties – is of particular interest given the rise of mobile payments.
PSR consultations and processes
The PSR has issued a number of consultations. Back in November 2014, it published for consultation its vision for the UK to become the home of a world class payments system (we discuss this further below), and more recently (and currently open) it published consultations on its fees and levies for 2015/2016, how these are to be collected from the firms it regulates and which provide its funding, and on how it intends to exercise its concurrent competition powers.
The PSR has powers to carry out market studies, and to make market investigation references to the UK’s Competition and Markets Authority (“CMA”) relating to participation in payment systems. It also has powers to enforce certain prohibitions on anti-competitive behaviour in relation to participation in payment systems.
As these same powers may also be exercised by the CMA with regard to payment systems (and the services they provide) and other sectors of the economy, in respect of participation in payment systems, the CMA and the PSR will have “concurrent powers“. Accordingly, the consultation focuses on how these two bodies will exercise these powers (the FCA has issued a very similar consultation, given it too shares concurrent powers with the CMA). For clarity, these PSR’s powers are additional to those granted to it under the Financial Services (Banking Reform) Act 2013 (“FSBRA”) in pursuit of its competition, innovation and service-user objectives.
Scope of the PSR’s regulatory remit
Once operational, the PSR will regulate Bacs, CHAPS, Faster Payments, LINK, Cheque and Credit Clearing, Northern Ireland Cheque Clearing, and the two largest card systems in the UK, MasterCard and Visa. For each designated payment system, all the participants will fall under the PSR’s remit. Therefore, as well as the payment system operator, the PSR will also have oversight of payment services providers using that system (such as a high street bank), and the infrastructure providers to the payment system (such as VocaLink).
Objectives and approach
The PSR has three statutory objectives:
- To promote effective competition in the markets for payment systems and the services they provide.
- To promote innovation in payment systems.
- To ensure payment systems are operated and developed in the interests of service users.
Its November 2014 consultation set out its proposed regulatory approach. This is essentially a principles-based approach to regulation (like the FCA) based on three key principles:
- Relations with regulators.
- Financial soundness.
The consultation also described the following key components of the PSR’s regulatory approach:
- Ensuring an industry-wide strategy for setting, coordinating and planning. The PSR proposes to set up a Payments Strategy Forum which will be open to a wide range of industry stakeholders and service users, with an independent chair. Participants will include the PSR, the Bank of England and other regulators.
- Addressing issues around ownership, governance and control of payment systems, including requiring all payment system operators to ensure that the interests of service users are appropriately represented in the decision-making process, and ensuring that an individual acting as a director of such an operator cannot also be a director of a provider of payment system infrastructure.
- Improving access to payment systems. The PSR aims at ensuring payment system operators establish more objective, risk-based and open access by introducing transparency of access criteria and regular reporting requirements.
The PSR is expected to publish its final policy statement and enforcement and regulatory tools by the end of March 2015. There is no doubt though that its activities will result in significant changes for the industry.