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Payments fraud, how to manage interchange fees and whether the Payment Systems Regulator (PSR) needs a standalone chair all came up during a hearing with the UK’s members of parliament (MPs).
Chris Hemsley, the PSR managing director, and its outgoing chair, Charles Randell, have taken questions from a cross-party group of backbench MPs on the role that the PSR has to play in shaping UK payments.
When setting out the PSR’s top priorities, Hemsley said that fraud came top of the list.
“Payment fraud is a significant issue, we need to get on top of that, and we need to make sure that our systems are as secure as they can be and that people are protected,” he said.
However, Hemsley admitted that the confirmation of payee (CoP) protocol is not a “silver bullet” when tackling fraud, having been asked by Anthony Browne, a Conservative MP, about what progress had been made with CoP.
“It makes it harder for criminals to commit certain frauds, and it makes it much harder for certain types of fraud that involve impersonation,” he said.
Commenting on the announcement this week regarding extending the scheme, Hemsley said that the regulator wants to make it a standard part of the payment journey.
However, when probed by Browne on why it is not a silver bullet, the payments regulator conceded that the PSR and financial institutions are dealing with very sophisticated criminals.
Hemsley also touted the need for payments to be treated differently by firms, in particular when it comes to the speed at which transactions are cleared.
For example, slowing down large sums to new payees, even if only by a few minutes, could have a positive impact on fraud reduction.
“It is not in everyone’s interest to treat every payment the same,” he said. “The growing differentiation between the higher risk and the lower risk is a place where we can take another step.”
The Faster Payments scheme rules do allow for payments to be delayed.
For example, the scheme says that although payments are usually made available almost immediately, payments can arrive up to two hours after being sent. However, these delays are not fraud prevention measures, but due to circumstances where the sending or receiving institution is not a direct participant of the scheme.
Conservative MP Kevin Hollinrake also noted recent remarks from US senator, Dick Durbin, asking the PSR chief whether his criticisms of the card giants, MasterCard and Visa, were fair.
Earlier this month, Durbin called on US legislators to increase transparency around interchange fees, stressing that “the credit and debit card systems are not competitive market places”.
“There are questions to be answered there,” Hemsley conceded, justifying last year’s launch of an investigation into card fees.
Reflecting on the importance of that, Hemsley continued to say that the PSR has already received “significant documentation” from the relevant parties.
“I’d also add that I think we’re moving very quickly and very clearly and doing that where, if you look around the world, other regulators aren’t yet grappling with these issues.
“Yes they’re complicated and we will take some time to work through these issues, but we are moving at a speed to understand them and take action.”
Hemsley was unable to provide a timeline as to when the PSR’s position will be published, but confirmed to Hollinrake that it is introducing more documentation related to the investigation next month.
“This will set out more information and more precisely what we’re looking at and also provide more information about our next steps,” he said.
Hollinrake also took issue with the PSR’s actions regarding interchange fee caps between the UK and EU, mulling on whether the regulator should simply reintroduce the cap in the short term considering that its investigation into the issue could take years to conclude.
In particular, the parliamentarian expressed concern about the impact on small and medium sized businesses.
Hemsley said that it would be hard for the PSR to reinstate the caps, but did say that the regulator is looking for explanations as to why they have been introduced by the card schemes.
“It was a commercial decision for them, they didn’t have to increase those fees,” he acknowledged. “As a result of those increases, we are at the stage that we are at at the moment and investigating them.”
The chief executive admitted that the regulator has the powers to reintroduce the cap, but that certain processes need to be followed. “There isn’t a very quick fix to this issue.”
“It is a frustrating process at one level, but it is also important that we follow the laws.”
Randell’s Departure
As well as probing questions about the role of the PSR as an authority, committee chair Mel Stride also touched upon Randell’s departure from his role as chair of the PSR, as well as the FCA.
Randell said that his reasoning for standing down prior to the end of his five-year term related to the amount of change that has occurred in recent years, whether that be Britain’s withdrawal from the EU, the COVID-19 pandemic, or now the Russia-Ukraine conflict.
Commenting on his departure, and the future mandate for the chairperson of the two regulators, Randell advised that the PSR needs more autonomy.
“I’ve always been worried about the amount of attention and time that I can devote to the PSR is in danger of suffering from the very urgent demands of the FCA. I feel that the organisation would benefit from having a much more focused chair of its own.”
There should be a connection between the two organisations, he added, however, suggesting that the chair of the PSR could serve on the FCA board.
“It is my view and the advice of the PSR and FCA boards to the Treasury that there should be that relationship.”
Discussing his advice for the next PSR chair, Randell said that it is a competition and access regulator — but that is only true up to a point.
“There are always issues with being a competition regulator, in that the tools that you reach for can be quite slow,” he said, using data gathering and market studies as examples. “There are very legalistic procedures and interventions.”
The world is moving far too fast for that to be the only tool that you reach for, he suggested. “It is also moving far too fast to react to incoming complaints. So, we’ve been trying to move the organisation in a way to make it really well connected, and one that gathers intelligence about what is going on and thinks about how it can intervene and affect events rapidly.”
