On January 13th 2018 new regulations came into force – called the Payment Services Regulations – Article 105 of which compels banks to offer bank accounts and payment services to a class of payment service provider called a Payment Institution.
In preparation for this the Payment Systems Regulator issued its guidance as to how it intended to police its responsibilities under the new legislation in its document “The PSR’s approach to monitoring and enforcing the revised Payment Services Directive (PSD2)” published in September 2017 – writes international banking expert Robert Lyddon of Lyddon Consulting.
Under Article 105 banks are not permitted to dismiss Payment Institutions as a category, but must consider each one individually on its merits, and adjudicate it using criteria that are “POND” – Proportionate, Objective and Non-Discriminatory.
Metro Bank made available upon request – as it is required to do under the regulations – its policies about customer acceptance. The policy document – the “High-Risk Industry List” – indicates which applications for services will be subjected to Enhanced Due Diligence, and which will not be accepted at all.
In the document it clearly states, against the criteria for the sector “Financial Services” , that several classes of company are prescribed as Metro Bank clients. The classes include “Banks, Credit Unions and Payment Services Providers”.
But in prescribing Payment Services Providers – or “PSPs”- across the board Metro Bank prescribes the class of Payment Institutions that it is now illegal to so prescribe.
Metro Bank’s policy is a clear breach of the Payment Services Regulations, and this has been brought to the attention of the Payment Systems Regulator.
Metro’s position is the more surprising because it has taken a high profile over recent years in industry initiatives to change the market structure of the payments business. This started with the creation of an organisation called the Payment Strategy Forum, operating under the aegis of the same Payment Systems Regulator that is policing Article 105.
Within the organisation of the Payment Strategy Forum Metro Bank took a leading role as co-chair of the Working Group entitled “Simplifying Access to Markets”: the core role of this Working Group was to improve access to the payments markets for users of all kinds. It is ironic that this position was occupied by a bank whose customer acceptance policies precluded access to markets through Metro for many classes of financial institution.
It is still more ironic that Metro Bank occupies a board seat at the successor organisation to the Payment Strategy Forum, called NPSO or New Payment System Operator, NPSO’s role being to implement one of the main outcomes of the Payment Strategy Forum, called the Blueprint for a New Payments Architecture for the UK.
NPSO has issued a launch Factsheet explaining its mission as being to “maintain and develop the UK’s payments infrastructure to facilitate the delivery of better payment services in the UK”, to which end “we aim to put the people and businesses vital to that mission at its heart. That means the end users and the groups that represent them, and the payment service providers and FinTech companies that offer services and drive innovation”.
NPSO regards “payment service providers” as integral to its mission, but the bank of a board member of NPSO prescribes this class of customer.
This brings into question the validity of the work done within the “Simplifying Access to Markets” Working Group of the Payment Strategy Forum. There has to be a concern that Metro’s involvement may not have pushed the topic as far as it could have been pushed or in the right direction. Market access for Payment Institutions stands no further forward than where it did at the point when the Payment Strategy Forum was convened. If anything, the quality of access has deteriorated.
“Simplifying Access to Markets” fed into both the design of the New Payments Architecture and, where its work touched on Financial Crime, into workstreams that are now being run by the financial services trade body UK Finance. The outputs and recommendations of “Simplifying Access to Markets” are thus feeding directly through into changes to the UK payments landscape being implemented by NPSO and UK Finance.
At the very least the working papers, outputs and recommendations of “Simplifying Access to Markets” must be validated before any further action is taken by NPSO or UK Finance on the back of them.
If this is not done, NPSO and UK Finance will have a credibility gap amongst “Payment Service Providers”, and such a situation cannot end well when a main plank of the government’s policy towards the payments business – expressed directly and through both the Financial Conduct Authority and the Payment Systems Regulator – is to open the business up to new types of payment service provider.
Documents supporting this article and available on request:
- “The PSR’s approach to monitoring and enforcing the revised Payment Services Directive (PSD2)” published in September 2017;
- Metro Bank High-Risk Industry List;
- Proof that Metro Bank was represented on the Payment Strategy Forum stream “Simplifying Access to Markets”;
- NPSO launch Factsheet;
Relevant extracts from the PSR’s document “The PSR’s approach to monitoring and enforcing the revised Payment Services Directive (PSD2)” published in September 2017 are below, in which the term “credit institution” is used where in the article above the term “bank” is used:
|3.6||Regulation 105 requires that credit institutions must grant PSPs access to payment account services on a POND basis|
|3.8||The Treasury states in its consultation paper that ‘the Regulation does not impose an absolute obligation for credit institutions to grant access. The decision to work with a given payment institution is still a commercial one, with credit institutions able to take into account cost and risk.’|
|3.9||We agree with this statement. In our view, the effect of Regulation 105 is to ensure that credit institutions should consider applications from PSPs individually and on their own merits. They should not have policies based on restricting access to those services for certain categories or types of PSPs, without considering the specific risks posed by the business and ways in which an individual PSP might mitigate the risks|
|3.10||This approach means that credit institutions should not deal generically with whole categories of customers or potential customers. Instead, we expect credit institutions to recognise that the costs, risks and potential revenues associated with different business relationships in a single broad category will vary, and to manage those differences appropriately. Regulation 105 reinforces the need to determine applications for banking services by PSPs not simply by reference to membership of a particular category of business, but by taking account of the individual circumstances of the specific applicant. This aligns with the expectations the FCA has set out for an effective risk-based approach to managing money-laundering risk by credit institutions.|