Consumer Duty Grey Lines - FCA Discusses Acquirers And Open Banking Firms

April 3, 2023
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The UK's Financial Conduct Authority (FCA) has emphasised there is no one size fits all solution when it comes to Consumer Duty and firms, including merchant acquirers and open banking firms, may be in scope to the extent they influence good consumer outcomes.

The UK's Financial Conduct Authority (FCA) has emphasised there is no one size fits all solution when it comes to Consumer Duty and firms, including merchant acquirers and open banking firms, may be in scope to the extent they influence good consumer outcomes.

In the latest webinar on the controversial new duty, the FCA gave specific guidance to payment firms on how to approach their new responsibility to ensure compliance by the July deadline.

Largely reiterating messages previously covered by VIXIO, the FCA said it acknowledges that the implementation of the Consumer Duty comes at a challenging time and encouraged firms to engage with the regulator.

In a Q&A at the end of the session, however, the regulator provided additional guidance to firms that do not directly deal with individual consumers, such as merchant acquirers. It also offered advice to firms that have limited influence on good consumer outcomes, such as account information service providers (AISPs) and payment initiation service providers (PISPs).

Merchant acquirers are in scope

As discussed in the FCA Consumer Duty guide, the duty applies to all firms that have “a material influence over, or determine, retail customer outcomes”.

It means that firms not directly dealing with individual consumers may be in scope if they can influence material aspects of design, such as price and value, or consumer support and communications.

However, the definition of the consumer is widened to include small businesses and organisations.

At the webinar, Ross Studholme, technical specialist in payments policy at the FCA, said “broadly, the duty applies to merchant acquirers with respect to their customers being micro-enterprises or small charities, with a turnover of less than £1m”.

Additionally, merchant acquirers' responsibility under the Consumer Duty will depend on their ability to influence outcomes for those end-consumers. That would depend on each acquirer's business model on a case-by-case basis, Studholme added.

For instance, when looking at whether or not a firm has a material influence on that, firms should consider questions such as: “Am I designing the product or service? Am I influencing or setting its price or determining its value? Am I designing communications that end up in the hands of the consumer or am I providing support that the consumer can access?”, Richard Wilson, manager of the FCA Consumer Duty policy team, explained.

The question is particularly relevant for merchant acquirers following the Payment Systems Regulator's (PSR) investigation into merchant acquiring. It found the five largest UK acquirers provided little or no pass-through of savings from interchange fee caps to merchants with annual card turnover of between £15,000 and £50m.

To increase competition and enable merchants to switch acquirers more easily, the PSR directed 14 firms to implement a remedy around point of sale (POS) terminal contracts from January 2023, as well as enable trigger messages and summary boxes from July 2023.

Open banking

The case is somewhat different for AISPs and PISPs, which typically have no influence on price or value.

They are “primarily responsible for consumer support”, Studholme stated.

That said, when an open banking firm identifies risks, such as fraud, specific to an individual transaction, “we would expect that firm to take action to protect the customer and avoid causing foreseeable harm”, he added.

PISPs that provide back-office services to firms and do not directly deal with end-consumers could also be in scope depending on the extent to which they can materially influence outcomes, noted Studholme.

For instance, these PISPs may consider the duty to the extent it has an influence on how consumer data is used and stored.

Outcomes based

FCA officials have stressed that there is no template that firms can use to implement the duty.

This is partly because the regulator believes firms are in the best position to know their data and business model, but also because the FCA wants to avoid a “click-the-box” approach by firms.

Although the officials urged firms to proactively reach out to the regulator if they have any questions, Paul Roe, head of department, market interventions - payments, assured that the FCA will take “a proportional and pragmatic approach” to supervising the implementation of the Consumer Duty and its “top priority is to identify serious misconduct”.

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