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HM Treasury has committed to overhauling the oversight frameworks of key payments regulators, but has deferred as to whether payments and e-money firms should be in scope of the Senior Managers' and Certification Regime (SM&CR).
The government has now published its response to its 2022 call for evidence and consultation on Payments Regulation and its Systemic Perimeter.
It received 23 responses from a range of financial services actors operating within the sector.
These included the international card schemes Visa, Mastercard and American Express, trade associations such as the Electronic Money Association (EMA) and the Payments Association (PA), and the Payment Systems Regulator (PSR) itself.
The response document summarises the feedback received in response to the government’s proposals, and also outlines the government’s overall approach to enabling these reforms through primary legislation.
This means that the reforms will be predominantly passed through Acts of Parliament, with HMT saying that this will happen when parliamentary time allows.
Recommendations that the government is taking forward from the consultation include introducing an additional category of “service provider” within Part 5 of the Banking Act.
This would allow for the recognition of payments providers that pose systemic risks in their own right.
In its consultation response, the UK government said it “recognised that significant transformations have taken place across the payments landscape since the Banking Act’s ratification in 2009.”
This, it said, was “facilitated in part by pro-innovation legislation designed to promote competition, and further enabled by wider technological development and evolving user preferences.”
HMT is also set on clarifying the Bank of England's power to set limits on business activity where appropriate to manage financial stability or serious economic risk, and its ability to mandate a firm’s location within the UK.
In addition, HMT has set out the government’s expectations on how the Bank of England and Financial Conduct Authority (FCA) could co-supervise payments firms that pose systemic risk in future.
This includes the need for a clear transition process and a Treasury-held power to dis-apply relevant regulator rules.
HMT has also said that primary legislation will provide the FCA with relevant rule-making powers.
Similarly, the PSR will be given necessary powers of direction in relation to retained EU law covering payment services, which is mostly derived from the second Payment Services Directive (PSD2).
This would enable the regulators to set rules and generally applicable requirements as the government repeals retained EU law.
The government will also bring forward secondary legislation to reform the PSR’s payment system access framework, as consulted on in last year’s consultation.
Senior Managers off the hook?
In this consultation response, the government’s decision on applying the Senior Managers & Certification Regime (SM&CR) to the payments industry remains in the balance.
Launched in 2016, the SM&CR aims to reduce harm to consumers and strengthen market integrity by making individuals more accountable for their conduct and competence.
Initially it applied to banks, building societies, credit unions and investment firms that had been designated by the Prudential Regulation Authority (PRA).
Insurers were brought fully into the regime in December 2018, and a year later it was extended to cover all solo-regulated firms except benchmark administrators, which were included in December 2020.
There had been speculation that payments and e-money firms could come into the scope of the regulation.
The government had already consulted in 2021 on the application of the regime over the Bank of England’s existing perimeter to include payment system operators.
It used its 2022 consultation to confirm that the SM&CR would be expected to apply consistently to any systemic payments entities that were to enter the Bank of England’s perimeter as a consequence of the government revising its scope beyond payment systems and their associated service providers.
In effect, the outcome would be that any systemically recognised payments entity would be subject to conforming with the SM&CR.
However, HMT has now said that any inclusion of payments and e-money firms within the regime now depends on the outcome of a separate SM&CR review, which was unveiled as part of Chancellor Jeremy Hunt’s so-called Edinburgh Reforms. This review ran from March 27 until June 1 this year.
HMT has also confirmed that it will respond to its Payments Services Regulations Review consultation later this year, which included a possible merger of the e-money and payment services regulations.
