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HM Treasury has removed the requirement for account information service providers (AISPs) needing to comply with UK money laundering regulations, but payment initiation service providers (PISPs) have not been so lucky.
The UK government, following a consultation, has taken the decision to exclude account information service providers (AISPs) from the country's anti-money laundering (AML) regime deeming the money laundering (ML) risk posed by these firms low enough not to warrant this burden.
The government received 29 responses to its consultation, with 65 percent supportive of the measures, arguing that AISPs did not come into contact with customer funds and that there was no evidence that people use AISPs to launder money.
In contrast, the EU has been much slower to consider this issue, with a final report from the European Banking Authority (EBA) in March 2021 only going as far as to recommend further investigation by the European Commission.
A recent Q&A from the EBA shows, as of March 2022, ML requirements are still in place for AISPs for EU-based firms.
The UK consultation last year also sought views on whether PISPs should also be excluded from the AML regime but decided to retain them, alongside bill payments services, as the risks of money laundering are potentially higher due to being “closer to the underlying payments process”.
The paper, however, does not elaborate further despite several responses calling for both AISPs and PISPs to become exempt from the AML regime, arguing PISPs neither hold customer funds nor process transactions themselves.
The fact that PISPs neither hold customer funds or process transactions was also considered in the EBA final report, again recommending further investigation.
Additionally, the majority of consultation respondents called for greater clarity from the AML regime as a whole. Respondents also agreed to use the Financial Action Task Force (FATF) agreement on proliferation financing and applying a travel rule for the crypto sector.
Duplicating compliance costs
One of the reasons AISPs were exempt from the regime was the fact that requirements such as customer due diligence were already done by the banks, meaning the work, and therefore compliance cost, was being duplicated across the system.
However, this fact also applies to PISPs.
Although not mentioned in the report, it may be the case that respondents, particularly banks, were not keen on exempting PISPs, as this would mean banks in the UK would be solely responsible for compliance checks and accompanying risk, without being able to monetise services.
What could potentially change this, however, would be the introduction of premium application programme interfaces (APIs) which would compensate banks when consumers made payments using open banking.
The introduction of premium APIs was one of the major points of a 2019 report, commissioned by the Open Banking Implementation Entity (OBIE), which argued the current arrangement was “all stick and no carrot”, which was “a drag on implementation and made some steps of the process unnecessarily confrontational”.
The paper goes on to argue that premium APIs would be “a pragmatic move, designed to increase cooperation” and “should provide a commercial incentive for banks”.
Premium APIs might, therefore, be able to remove both current obstacles from the consumer experience and compensate banks enough to remove any objections to exempting PISPs from the UK AML regime.
Premium APIs have also been forwarded by the European Payments Council, which has been asked to take up the role of scheme manager by the Euro Retail Payments Board to develop a scheme for premium open banking services, describing it as “a natural evolution of PSD2”.
The UK consultation response notes that although PISPs are to remain in scope, it is “at this time” suggesting there is scope for the rule to be changed at a later date.
