The what, why and how of the PSR
The Payment Systems Regulator (PSR) has published their plan and budget for 2023/24 – at sixty pages the document provides a useful indication of the regulators intended focus for the coming 12 months.
There is, of course, no substitute to reading the full annual plan document so here’s a link: PSR 2023/24 Annual Plan.
However, here’s a quick read highlighting the key aspects of the 2023/24 annual plan – the what, why and how of the PSR.
The role, remit and powers of the PSR
The PSR’s overarching vision is “…for payment systems that are accessible, reliable and secure, and represent value for money” and their objectives and powers come from sector specific legislation (principally from the Financial Services (Banking Reform) Act 2013 (FSBRA)) and from their role as a concurrent competition authority.
FSBRA sets out the PSR’s three statutory objectives:
- Service-user objective: Ensuring that payment systems are run and developed in a way that takes account of and promotes the interests of those that use, or are likely to use, services provided by them.
- Competition objective: Promoting effective competition in the market for payment systems and markets for services provided by payment systems in the interests of those who use, or are likely to use, services provided by them.
- Innovation objective: Promoting the development of, and innovation in, payment systems in the interests of those who use, or are likely to use, services provided by them.
The PSR will be subject to further regulatory reform
In 2021, the government’s Future Regulatory Framework (FRF) Review put forward proposals on how the financial services regulatory framework should adapt for the future. In particular, it outlined how it wants regulation to adapt to the UK’s exit from the EU. This includes ensuring that financial services regulation in the UK is coherent, agile and internationally respected.
The Financial Services and Markets Bill (FSMB) puts the outcomes of the FRF Review into legislation. It will change the regulatory framework the PSR operates within, in particular by:
- repealing retained EU law in order to enable a UK regulatory regime that is properly tailored to the UK markets; this includes some payments legislation, notably the Payment Services Regulations 2017 and the Interchange Fee Regulation
- introducing new considerations which the PSR must have regard to, notably in respect of the delivery of sustainable growth consistent with the net zero climate target
- adding to the arrangements by which the PSR is accountable to Parliament, including new requirements on us in how the PSR develops proposals
Three priorities for 2023/24
Consistent with the PSR’s five year strategic plan (published in January 2022) the 2023/24 annual plan focuses on the following priorities:
People need to make and receive different kinds of payments safely and confidently. This means stopping scams from happening and better protecting people if they do fall victim.
Competition in payments can improve outcomes for people and businesses by stimulating innovation, improving services and lowering prices. This is one reason we focus on making sure conditions are right for competition – both now and in the future.
Unlocking account-to-account payments:
We’re seeing significant growth in account-to-account payments, including those initiated within open banking. It’s now possible to use these payments to donate to charities, settle your taxes and pay your credit card bill. A number of firms are launching new payment services that use the open banking systems. We see significant potential in account-to-account payments, and open banking in particular, to deliver new payment services that benefit people and businesses.
Access and Choice:
It’s essential that people and businesses can use the payment services they rely on and have an effective choice of payment options, including both cash and digital payments.
Seven key items in the 2023/24 work programme
For 2023/24 the PSR’s overarching strategy and priorities has led to the following work plan:
Authorised Push Payment (APP) Scams
The desired outcome is that APP scams are reduced, victims are protected, and financial fraud is tackled by coordinating efforts and sharing information and the PSR plan to achieve this by:
- Publishing a scorecard showing the UK’s largest PSPs’ performance on APP scams.
- Working with UK Finance and Pay.UK on information-sharing among PSPs, to improve scam detection. Implement rules that will lead to greater reimbursement of APP scam victims.
- Working with other authorities on other measures to prevent fraud in the wider payments ecosystem.
Confirmation of Payee (CoP)
The desired outcome is that the CoP name checking service becomes ubiquitous, reducing money lost through fraud and accidentally misdirected payments and the PSR plan to achieve this by:
- Monitoring and enforce firms’ compliance with our direction to implement CoP.
- Continuing to work and engage with payment system operators to consider different models for accessing CoP.
Account-to-Account payments (A2A)
The desired outcome is that account-to-account payments become a realistic alternative to credit and debit cards. This should mean more competition between systems, giving people more choice and improved services and the PSR plan to achieve this by:
- Publishing plans for reaching our goals in the Joint Regulatory Oversight Committee (JROC) roadmap.
- Overseeing the creation of a new entity to further develop open banking.
- Engaging with people and businesses to discover what changes would help them use account-to-account retail payments.
- Working with account-to-account industry providers and other stakeholders to ensure account-to-account payments develop as quickly as possible.
- Continuing to work with the JROC to clarify the future regulation of open banking.
The desired outcome is that the PSR identifies and addresses any potential harm arising from changes to card fees. Their market reviews focus on interchange fees, and scheme and processing fees and the PSR plan to achieve this by:
- Analysing information from scheme operators, acquirers, issuers and merchants.
- Publishing working papers on scheme and processing fees and invite views from stakeholders.
- Publishing our interim reports, and our final report on cross-border interchange fees, assessing the state of the market and proposing remedies where relevant.
New Payments Architecture (NPA)
The desired outcome is that the NPA provides a resilient way of making account-to- account payments, and facilitates increased competition and innovation in the interests of people and businesses and scheme and processing fees and the PSR plan to achieve this by:
- Reviewing Pay.UK’s proposed NPA design, funding model, business case and infrastructure contract.
- Monitoring Pay.UK’s development of its strategy on the future of Bacs.
- Engaging with Pay.UK and its chosen central infrastructure services provider on how they intend to comply with the PSR’s regulatory framework.
ATM network regulation and digital payments
The desired outcome is that everybody has ways of making payments that meet their needs, people are able to get access to cash if they need it and more people are able to use digital payments. The PSR plan to achieve this by:
- Setting out how they intend to support the take-up of digital payment methods, including exploring how businesses can offer a wider set of variable payment options.
- Working with the FCA to develop our long-term approach to regulating the elements of cash that fall within our own remit.
- Reviewing how well LINK is meeting our requirements to maintain the geographic spread of free-to-use ATMs.
- Building a monitoring capability through our data-led framework to address any gaps in cash availability.
- Engaging with industry to support innovations in cash access.
Digital currencies and cryptoassets
The desired outcome is that any cryptoasset or stablecoin that acts as a payment system is developed in the interests of those using it and the PSR plan to achieve this by:
- Regulating the Sterling Fnality Payment System.
- Playing an active role in the discussions and development of a potential digital pound.
- Continuing to work as part of the Cryptoassets Taskforce, and contribute to the Central Bank Digital Currency Taskforce.
- Monitoring market developments to identify new payment systems that use cryptoassets.
- With other regulators, monitoring developments in cryptoassets markets, and contributing to appropriate policy responses.
The PSR’s Annual Plan takes each of these work programme items in order and provides a summary of the work item, a ‘story so far’ description, a high level explanation of the activity the PSR intends to progress together with how the item supports the overarching PSR strategy.
The PSR has the power to investigate where they think a firm hasn’t followed the rules they oversee. If the PSR find a firm has broken the rules, they can fine it and publish the details of the case as a decision notice.
The PSR’s enforcement work is an effective way of providing value for the payment industry: the PSR believes that it deters firms from acting in a way that gives them unfair advantages – and where they find non-compliance and issue fines, the PSR returns the cost of any enforcement work to the fee payers (with the exception of those that have been fined).
In 2022 the PSR published two decision notices, both for breaches of the rules relating to interchange fees:
- May 2022 the PSR fined several banks in the NatWest Group £1.82 million for overcharging retailers the interchange fees they paid on transactions.
- December 2022 the PSR fined Barclays Bank £8.4 million for failing to provide merchants with transaction information required under the rules.
The PSR are required to pay the fines they collect to the Treasury, after deducting an amount to cover relevant enforcement costs. This is the ‘retained amount’, which the PSR return to fee payers by reducing the fees the PSR charge in the following year (with the exception of any fee payer that has been fined).
Working with other authorities
The PSR work closely with the Bank of England (the Bank) and the Financial Conduct Authority (FCA) to coordinate our regulatory activities.
The PSR’s work fits with the other authorities in the following way:
The cost of the PSR for the current budget year is £26.9 million:
Designated systems and regulated participants
HM Treasury has designated eight payment systems and the PSR also regulates a number of participants in the designated systems.
The designated systems are:
- Cheque and Credit
- Sterling Finality Payment System.
The related participants are:
- System operators: Pay.UK, Visa, Mastercard and LINK.
- Payment Service Providers (PSPs): such as banks, building societies, merchant acquirers and payment institutions.
- Infrastructure providers: VocaLink.