Daily Dash: FedNow Goes Live In The US

July 21, 2023
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US’ instant payments system FedNow has launched, the UK Payment Systems Regulator has published its annual report, and Panama’s Supreme Court has struck down the country’s crypto law.

US Fed Launches Instant Payment System

The Federal Reserve has announced that FedNow, its new system for instant payments, is now live.

The new instant payment service enables individuals and businesses to send and receive payments within seconds 24/7 and 365 days a year.

The service launched with 57 “early participants”, which include 35 banks and credit unions, as well as the US Department of the Treasury and 16 service providers that support payment processing for banks and credit unions.

VIXIO will explore this story further on Monday, discussing with industry experts the challenges that lie ahead for the new payment system and its potential impact on the US payments landscape.

UK PSR Highlights Success Of Its Work

Work done by the UK Payment Systems Regulator (PSR) in the last year is paying off, the regulator said in its latest annual report and accounts.

“In 2022/23, the PSR made extensive use of its regulatory powers to promote innovation and competition, helping to protect people and businesses,” the announcement said.

During the last year, the PSR laid the groundwork for firms to fully reimburse authorised push payment (APP) fraud victims and directed the 14 largest UK payment service providers to publish their fraud statistics.

The PSR also engaged closely with Pay.UK as it progressed with plans to modernise the country’s payments infrastructure via the New Payments Architecture (NPA) and helped to set out plans for the future of open banking as a member of the Joint Regulatory Oversight Committee (JROC).

The regulator also made changes to help merchants get a better deal on card-acquiring services and placed a greater focus on monitoring compliance.

As part of that effort, the PSR took forward market reviews of card fees and completed two enforcement cases resulting in fines totalling more than £10m.

“We’ve made great strides over the last year — the first of our five-year Strategy — bringing about changes which have had a positive impact on people and payments in the UK,” Chris Hemsley, managing director at the PSR, said.

EU Renews Sanctions Against Russia

The Council of the EU has announced that it has decided to prolong the restrictive measures targeting Russia by six months, until January 31, 2024.

The sanctions include a broad spectrum of sectoral measures, including restrictions on trade, finance, technology and dual-use goods, industry, transport and luxury goods, as well as the “de-SWIFTing” of several Russian banks.

Since Russia invaded Ukraine in February 2022, the EU has adopted 11 sanctions packages.

The announcement reiterates the European Council’s “resolute condemnation of Russia’s war of aggression against Ukraine” and emphasises that the bloc will continue to support Ukraine “for as long as it takes”.

Panama Top Court Annuls Crypto Law

Panama’s Supreme Court has struck down a bill that created a legal framework for cryptocurrencies in the country.

Independent lawmaker Gabriel Silva introduced the draft law in 2021, which was passed by Panama’s legislative body in April 2022 despite a presidential veto.

The bill allowed Panamanians to use crypto-assets, tokens and NFTs as a payment method.

However, in January 2023, Panama’s President Laurentino Cortizo challenged the law on the grounds that it violates the constitution’s core principles and is unenforceable.

The highest court has now sided with the President, annulling the crypto law. 

UK Government Set To Legislate After Farage Bank Account Controversy

HM Treasury is set to introduce secondary legislation to parliament that will increase transparency around bank account closures, following revelations related to the closure of Nigel Farage’s Coutts account.

In a 40-page dossier obtained by Farage through a subject access request, Coutts makes clear that Farage “meets the economic contribution criteria for commercial retention” of his account, but his views are “not compatible with Coutts”.

According to Treasury sources that spoke to Sky News, the new rules could be introduced to parliament as early as this week, and will prohibit banks from closing customer accounts without explanation.

They also will require that banks give three months’ notice if an account is to be closed, and that customers are able to appeal against the bank’s decision.

Additionally, Conservative MP David Davis asked the Prime Minister to require that every bank with a UK licence inform the Treasury of all the accounts they have closed in the last decade for non-commercial reasons.

“In the short term, having consulted on the Payment Service Regulations, we do intend to crack down on this practice by toughening rules around account closure,” the prime minister said.

El Salvador Links Transfer365 With Central American Payment Systems

The Central Bank of El Salvador (BCR) has announced the launch of Transfer365 CA-RD, which allows its citizens to make payments to other countries in the region, including Guatemala, Honduras, Nicaragua, Costa Rica and the Dominican Republic.

Unlike existing arrangements, Transfer365 CA-RD will enable El Salvadorians to initiate cross-border payments any time of day and any day of the year. Payments will then be settled according to the schedules of the participating central banks.

The new service will reduce the costs of cross-border payments significantly. Its maximum cost is capped at US$ $1 per transaction, while current fees can be as high as US$35 to US$70 plus VAT.

According to data from the BCR, Central America and the Dominican Republic are the main trading partners of El Salvador, which accounted for nearly half of its export, or US$3.3bn, in 2022.

Transfer365 CA-RD is hence expected to represent significant savings for businesses that carry out regional transactions, as well as savings for families that send remittances to any of the participating countries.

Transfer365 CA-RD will be interconnected with the Payment Interconnection System (SIPA) whose members include the central banks of the six Central American countries, as well as 73 financial institutions.

Fraud Losses Reached Almost €85m In 2022, Irish Payments Lobby Finds

Fraud losses came to €84.6m for Ireland in 2022, according to a new report published by FraudSMART, the fraud awareness initiative led by Banking & Payments Federation Ireland (BPFI).

The FraudSMART Payment Fraud Report H2 2022 found that card fraud accounted for more than 95 percent of fraudulent payment transactions by volume but only 40 percent of fraud losses at €33.4m, with card not present fraud up by 24 percent in value year-on-year to €27.1m in 2022.

Meanwhile, there was a 19 percent decrease in authorised push payment (APP) fraud in 2022 compared with 2021. APP fraud losses dropped by 41 percent to €9.9m, the lowest value since the data became available in 2019.

“The decrease in this type of fraud might be attributed to increased consumer awareness or a post-COVID shift, as we have gradually returned to meeting in-person with decreased dependency on online communication,” said Niamh Davenport, head of financial crime at BPFI. 

“However, figures across all types of financial fraud can fluctuate as fraudsters continually adapt their behaviours and methods.”

The report comes as FraudSMART warns consumers to be on high alert as text message fraud, known as smishing, continues to become more prevalent. 

A recent survey by FraudSMART revealed that this type of fraud is now the dominant channel for fraud attempts in Ireland, with one in two adults having received a fraudulent text message in the previous 12 months. 

MONEYVAL Calls On Romania To Step Up AML Efforts

A new report from the Council of Europe’s anti-money laundering (AML) body MONEYVAL calls on the Romanian authorities to further strengthen measures to combat money laundering and the financing of terrorism.

MONEYVAL says that the Eastern European country has achieved “moderate levels of effectiveness” to strengthen its legal and institutional framework to tackle money laundering and “a substantial level of effectiveness” in international cooperation since the country was last evaluated in 2014.

However, Romanian authorities have to do more to pursue the investigation and prosecution of money laundering as a priority and to ensure more consistency in investigations and prosecutions.

Romania  is now required to report back to the body on its progress by May 2025.

India And UAE To Link Payment And Messaging Systems

The Reserve Bank of India (RBI) and the Central Bank of the United Arab Emirates have signed two memoranda of understanding (MoUs) on promoting the use of local currencies for cross-border transactions and interlinking their payment and messaging systems.

Under the MoU on payments and messaging systems, the two central banks agreed to link their fast payment systems — India’s Unified Payments Interface (UPI) and the Instant Payment Platform (IPP) of UAE. 

They will also work to link the respective card switches — RuPay switch and UAESWITCH — and to explore the linking of payments messaging systems.

As part of the MoU on promoting local currencies, the two countries will work to set up a Local Currency Settlement System (LCSS) to encourage the use of Indian rupee (INR) and the UAE dirham (AED) in bilateral cross-border transactions.

The settlement system will enable exporters and importers to invoice and pay in their respective domestic currencies, which in turn would enable the development of an INR-AED foreign exchange market.

The use of local currencies “would optimise transaction costs and settlement time for transactions, including for remittances from Indians residing in UAE”, the RBI said in the press release.

It is estimated that around 3.5m Indian expats live in the UAE, or 30 percent of the total population of the UAE.

UK Regulator Consults On Social Media Guidance 

The UK’s Financial Conduct Authority (FCA) is planning to revamp its social media guidance in a bid to further crackdown on illegal and non-compliant financial promotions. 

The new guidance will be consulted on over the next eight weeks and references issues such as the incoming Consumer Duty rules. 

“We’ve seen a growing number of ads falling short of the guidance we have in place to stop consumer harm,” said Lucy Castledine, consumer investments director at the FCA.

“We want people to stay on the right side of our rules, so we’re updating our guidance to clarify what we expect of firms when marketing financial products online.

“And for those touting products illegally, we will be taking action against you.”

From October 8, 2023, the FCA will ban incentives to invest in crypto, such as "refer a friend" bonuses. 

Firms will also need to introduce clear risk warnings and a 24-hour cooling period to give first-time investors the time to consider their investment decision. 

FSB Finalises Global Regulatory Framework For Crypto-Asset Activities

The Financial Stability Board (FSB) has finalised its global regulatory framework for crypto-asset activities in a bid to promote “comprehensiveness” and “international consistency” in regulatory and supervisory approaches.

The framework is based on the principle of “same activity, same risk, same regulation” and provides a basis for ensuring that crypto-asset activities are fully regulated, while supporting “responsible innovation”.

It consists of two distinct sets of recommendations: 

  1. High-level recommendations for the regulation, supervision and oversight of crypto-asset activities and markets.
  2. Revised high-level recommendations for the regulation, supervision, and oversight of “global stablecoin” arrangements.

In September this year, the FSB and the International Monetary Fund (IMF) will deliver a joint report to the G20 that will “synthesise” the FSB’s framework on crypto-assets and the IMF’s work on macroeconomic and monetary risks associated with crypto-assets.

Argentina And Uruguay Sign Agreement To Link Payment Systems

The central banks of Argentina and Uruguay have signed a letter of intent to link their low-value payment systems.

The linkage will enable the two countries to pay for goods and services either in Uruguayan or Argentine pesos. It will also enable certain cross-border retirement and pension payments.

The central banks are working on the linkage with the view to reducing transaction costs in local currency trade and encouraging foreign trade operations.

Diego Labat, president of the Central Bank of Uruguay (BCU), said the central banks will be working on the legal aspects of the linkage in the coming months. He added his office will work together with the private sector "case by case" to resolve the difficulties that may arise during the operation.

Apple's Taps Into UK With New Way To Pay

Apple’s Tap To Pay product has launched in the UK, with NatWest and Revolut being the first to offer it. 

“We’ve seen Tap to Pay on iPhone transform the checkout experience for so many different types of businesses, and we’re thrilled to now support merchants across the UK by offering an easy, secure, and private way to accept contactless payments using the power, security, and convenience of iPhone, with no additional hardware needed,” said Jennifer Bailey, Apple’s vice president of Apple Pay and Apple Wallet. 

The product was first unveiled in February 2022 by the tech giant, and as well as NatWest and Revolut, Apple says that Adyen, Dojo, myPOS, Stripe, SumUp, Viva Wallet, Worldline, and Zettle by PayPal will soon be offering the product in the UK. 

“With Tap to Pay on iPhone, we expect to see all kinds of businesses, from freelancers and sole traders to retail shops and barbershops, food stands, and more, quickly start accepting contactless payments with only an iPhone,” said Alex Codina, Revolut’s general manager of merchant acquiring.

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