Payment service providers and e-money institutions do not follow a single rulebook – which requirements apply to them depends on whether they are regulated under the Financial Services and Markets Act 2000 (FSMA). Payment service providers and e-money institutions authorised under the Payment Services Regulations 2017 or Electronic Money Regulations 2011 (Regulations) – referred to by the FCA as 'non-FSMA firms' – do not currently have to comply with the Principles for Businesses (Principles) or rules about communications in the FCA's Handbook.
The FCA will address this discrepancy through its powers under the Regulations. It will:
- apply its Principles to both FSMA and non-FSMA firms; and
- extend rules on communication to customers to payment services and e-money issuance, including related currency exchange transfer services, which will apply to both FSMA and non-FSMA firms.
The rule changes will affect industry players differently. The FCA acknowledges non-FSMA firms will likely incur "a certain level of costs" to become Principles-compliant, whereas FSMA-regulated e-money institutions will be the most affected by changes to communications (and financial promotions) rules in the FCA's Banking Conduct of Business Sourcebook: Chapter 2 (BCOBS 2).
The status quo: a skewed playing field
The Principles set out in high-level terms how firms should treat clients and run their businesses, providing the FCA with a basis for its supervisory and enforcement actions. FSMA and non-FSMA firms are not treated in the same way. Thus:
- FSMA firms: normally the Principles only apply to payment services which are provided in connection with FSMA-regulated activities. They normally apply to the issuance of e-money, but not to connected activities;
- non-FSMA firms: the Principles do not apply.
BCOBS 2 imposes requirements on communications (and financial promotions) to safeguard customers' information needs. It applies to FSMA firms, but not in respect of communications with payment service and e-money customers. Non-FSMA firms are outside BCOBS 2's scope.
The FCA's proposals: same services, same rules
The FCA's proposals simplify the picture considerably:
- Principles to apply to all firms when providing payment services and issuing e-money, including to connected activities;
- BCOBS 2 to apply to all firm communications with customers regarding payment and e-money services; firms to be subject to new rules and guidance on the communication of currency exchange transfer services in connection with payment and e-money services.
The FCA's response to industry reaction
The FCA acknowledges that broadening the scope of the Principles will provide it with a useful means to start enforcement action against non-FSMA firms, but portrays the move as uncontroversial, despite industry protestations. Similarly, the "beefing up" and increased scope of BCOBS 2 appears inevitable. The FCA has, however, shown openness to the industry's need for specific guidance (preferably industry-generated solutions), in particular on currency exchange transfer services communications. What is clear is that vague disclaimers made in respect of "too-good-to-be-true" exchange rate offers are unlikely to meet the FCA's requirements.
While parts of the industry are asking for a transitional implementation period, the FCA has made clear it will not consider blanket requests for "more time".
The FCA expects to publish the definitive rule changes before the end of January 2019. Firms may want to consider future-proofing their businesses to comply with the new requirements.
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