In December 2021 the Payment Systems Regulator (PSR) published their regulatory framework for the New Payments Architecture (NPA) central infrastructure services (CIS).
In this blog we provide a quick summary of the regulatory framework and the associated Specific Directions together with relevant links to the PSR’s website.
What is the New Payments Architecture (NPA) and why is it important?
This is how the PSR describe the NPA and their responsibility:
The NPA is one of the biggest changes happening in UK payments. It is the payment industry’s proposed way of organising the clearing and settlement of most UK interbank payments in the future. Whether paying employee wages, or transferring money to a friend using internet banking, interbank payments are a key part of everyday life for businesses and consumers alike.
Delivered well, the NPA can help realise the outcomes we want to bring about in payments and facilitate our proposed long-term strategy. By strengthening competition and innovation in payment services and between payment systems, the NPA can help provide better value and effective choice of payment options for people and businesses. The NPA can also improve the resilience of payments and, by enabling more data to be included in payment messages, help reduce fraud.
Pay.UK, the operator of Bacs and Faster Payments, is responsible for delivery of the NPA.
Our role is to monitor Pay.UK’s work to deliver the NPA and, where appropriate, use our powers to assure an outcome that supports our statutory objectives to promote competition, innovation and the interest of service users.
Lowering risks to the New Payments Architecture (NPA) delivery – regulatory framework
In early 2021 the PSR consulted on reducing risks to competition and innovationrelating to when the NPA is operational. If these risks materialise, the PSR believe that, competition in payments services or between payment systems could be distorted or dampened, leading to higher prices, lower quality of service and less innovation.
In December 2021, the PSR published their regulatory framework for the New Payments Architecture (NPA) central infrastructure services (CIS) following the 2021 consultation on the delivery and regulation of the NPA.
The NPA regulatory framework has been developed taking account of responses to that consultation and aims to address risks to competition and innovation in the NPA ecosystem arising from the behaviour of a provider appointed to deliver the NPA CIS.
The PSRs framework aims to address these risks by requiring that Pay.UK must:
- be the primary interface and decision-maker for CIS provision
- set CIS user prices and do so using a methodology that adheres to certain pricing principles and is subject to our non-objection
- set the rules and standards for the NPA CIS and ensure that these facilitate competition and innovation
- ensure that the CIS facilitates innovation and competition
- ensure that a CIS provider does not use, or disclose to any other party including its affiliates, information and data for anything other than CIS provision
- in a timely manner, make available to the market, information and data concerning the provision of CIS that would help facilitate competition and innovation.
The framework also requires that:
- If a CIS provider or an affiliate participates in a payment system that competes, or can be expected to compete, with the NPA payment system or is active in NPA overlay services, the CIS provider functions must be operationally separate from other parts of its (or an affiliate’s) business.
- If a CIS provider has no such interests, it must notify us if this might change due to any proposed action or change in circumstances and in any event report annually on its position.
Alongside the regulatory framework, the PSR have also published illustrative directions to illustrate to stakeholders – particularly Pay.UK and bidders participating in any CIS procurement – how the directions the PSR plans to give to implement the regulatory framework could look.
The PSR are not seeking comments on the illustrative directions. They plan to publish and consult on draft directions closer to the go-live date for the NPA before giving them to Pay.UK and any relevant CIS provider.
In parallel to the NPA CIS procurement process, the PSR also plans to engage with Pay.UK and bidders to understand how they intend to comply with the regulatory framework and to make their expectations clear.
Regulatory framework downloads:
- NPA Regulatory Framework.
- Annexes and illustrative directions.
- Stakeholder submissions to consultation CP21/8.
Lowering risks to the New Payments Architecture (NPA) delivery – final changes to Specific Directions 2 and 3
To exercise its powers the PSR issues decisions, specific directions and requirements.
In the case of the NPA the PSR has published two Specific Directions – the PSR defines these as: ‘Specific directions and requirements’ are the decisions that the PSR adopts under FSBRA which relate to individual named industry participants.’
You can find more on definitions and a list of the latest specific directions and requirements here.
Having published the NPA regulatory framework the PSR then published their decision on the variations of Specific Directions 2 and 3. (SD2 and SD3). The revised directions come following the 2021 consultation earlier on the changes the PSR proposed to make to these directions to implement its decisions on lowering risks to successful delivery of the New Payments Architecture (NPA) (CP21/8).
In CP21/8, the PSR proposed to give directions (SDs 2a and 3a) varying SDs 2 and 3. The PSR has now given SDs 2a and 3a to Pay.UK.
There are three substantive changes from the draft versions of SDs 2a and 3a consulted on:
- changes to the SD2 reporting requirements so that Pay.UK must submit a plan for developing the Bacs strategy to the PSR by 31 March 2023 and then submit subsequent reports on progress within nine months of the previous report
- moving the SD3 compliance deadline to 1 July 2026 (rather than 1 April as originally proposed) to provide for some additional contingency given there is less certainty about the baseline plan upon which the deadline is based
- reinstating provisions in SDs 2 and 3 that allow the PSR to amend the compliance deadlines for those directions recognise that with a programme of the size and scale of the NPA, factors outside of Pay.UK’s direct control could arise that mean it is unable to meet these deadlines.