New Payments Architecture Could Be Pivotal To Digital Pound, Suggests Pay.UK

July 25, 2023
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Pay.UK has said the New Payments Architecture should be the "point of contact" between commercial bank money and the digital pound in its response to a joint consultation on retail central bank digital currency.

Pay.UK has said the New Payments Architecture (NPA) should be the "point of contact" between commercial bank money and the digital pound in its response to a joint consultation on retail central bank digital currency (CBDC).

"The NPA is a highly capable architecture and we anticipate it would have the potential to play a powerful role in enabling account to account in retail payments in both digital pounds and commercial bank money,” said Pay.UK.

Pay.UK added that it expects this will be the case “if further work identifies this as the best way to meet the shared objectives and interests of the regulators, ourselves, the industry, and end users”.

The NPA, the UK’s planned payments infrastructure modernisation, is being developed by Pay.UK, the operator and payment scheme body for the UK’s interbank retail payment systems.

Pay.UK has said the NPA will be the biggest shift in how payments are processed since the 1960s, when the first centralised interbank payment system was launched in the country.

To realise the benefits that a digital pound can offer, the Bank of England (BoE) will need to ensure that payments that flow through Pay.UK's systems allow all parties to comply with relevant legislation and regulation, it said.

This includes know your customer (KYC) and anti-money laundering (AML) rules, as well as measures to detect and prevent fraud and scams.

"This will require us and our participants to have sufficient visibility of relevant data to meet those legal obligations," said Pay.UK.

"This data is likely to call for a significant degree of detail and specificity in particular in the fight against fraud, including payment information at the transaction level."

Whatever the ultimate decision is taken on the visibility of payments data to the central bank, Pay.UK added that the design should accommodate sufficiently data-rich payments information.

In turn, this should allow the organisation to play its "full and proper role in the fight against financial crime".

Elsewhere in its response, Pay.UK also shared its views on privacy in the context of a digital pound.

This has been a major issue for CBDC both in the UK and Europe, where politicians and campaigners have pushed for users to enjoy similar levels of privacy as they would when paying with cash.

As noted by Pay.UK, however, in an electronic context, this would conflict with both AML and KYC rules.

"Past experience in areas such as cookies and standard form contracts contained in ‘terms and conditions’ suggests that individuals will not generally have sufficient understanding and inclination to engage with complex privacy issues transaction by transaction," said Pay.UK.

If embedded techniques to provide choice are deployed, these should be constructed with the higher levels of privacy as default, requiring meaningful consent from individuals to “turn on” enhanced use of data.

Further, Pay.UK suggested that the Financial Conduct Authority’s (FCA) Consumer Duty rules, which are set to go live this month, could be used to set standards for clarity of information in a CBDC context.

They could also allow market participants and regulators to assess whether the ways that opt-outs are worded and framed are "sufficiently likely to elicit meaningful consent based on genuine understanding", Pay.UK added.

The digital pound consultation closed on June 30 and gathered responses from the Payment Systems Regulator (PSR), UK Finance and the Payments Association.

Members of the public also responded to the consultation in large numbers, taking the total responses received by the BoE to more than 50,000, as covered by VIXIO.

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