In this Newsletter:
For previous editions of the Global Payments Newsletter, please visit our Financial Services practice page.
Regulatory Developments
United Kingdom: Government announces package of financial services regulatory reforms – the “Edinburgh Reforms”
On 9 December 2022, the Chancellor of the Exchequer announced a package of reforms to drive growth and competitiveness in the financial services sector in the UK. Referred to as the Edinburgh Reforms, the series of measures provides a framework for the government’s ambitions for the UK to be the “world’s most innovative and competitive global financial centre”.
The details of the measures being taken forward by the government have been categorised to meet the following key aims for the UK:
- A competitive marketplace promoting effective use of capital.
- A world leader in sustainable finance.
- A sector at the forefront of technology and innovation.
- Delivering for consumers and businesses.
Key measures under the ‘competitive marketplace’ limb include:
- an HM Treasury (HMT) policy statement ‘Building a smarter financial services framework for the UK’ which builds on the Future Regulatory Framework (FRF) Review to determine how the UK financial services regulatory framework should adapt post-Brexit. The outcome of the FRF is now being delivered through the Financial Services and Markets Bill (FSM Bill) and will, amongst other measures, repeal retained EU law (REUL) and replace it with a new framework tailored for the UK. The policy statement sets out the plan to take forward the implementation of a comprehensive FSMA model of regulation. The government will deliver the programme by splitting REUL into "tranches". Tranche 1 is underway with the outcomes arising from the Wholesale Markets Review, the Listing Review, Securitisation review and the Review into the Solvency II Directive. Tranche 2 will relate to the areas listed at 5.8 of the policy statement including reform of the consumer information rules in the Payment Accounts Regulations 2015. The government states that it "expects to make significant progress on tranches 1 and 2 by the end of 2023"; and
- a related HMT consultation on the information requirements in the Payment Account Regulations 2015 (PARs) which examines proposals to remove unnecessary consumer information requirements related to bank accounts imposed by the EU in the Payment Accounts Regulations, which transposed the EU Payment Accounts Directive. This aims to reduce unnecessary regulations on banks, freeing them up to better meet the needs of UK customers. The consultation closes on 17 February 2023. The government has also published a draft SI to demonstrate how it can use powers within the FSM Bill to make rules to replace REUL for payments. See this Engage article for more on the HMT PARs consultation.
Key measures under the ‘sector at the forefront of technology and innovation’ limb include:
- Financial Market Infrastructure Sandbox: the FSM Bill contains measures to implement a financial market infrastructure sandbox in 2023 to enable firms to test new technology and innovations such as distributed ledger technology (DLT);
- Establishing a regulatory regime for cryptoassets: the FSM Bill will bring a broader range of investment-related cryptoasset activities into the regulatory perimeter. We understand this to be a broader set of crypto activities beyond stablecoins further to recent debate on the FSM Bill.
- Investment Manager Exemption to include cryptoassets: the publication of the consultation response on expanding the Investment Manager Exemption to include cryptoassets which will facilitate their inclusion in the portfolios of overseas funds managed in the UK. This change will be made through HMRC regulations this year.
- UK central bank digital currency (CBDC): the publication of a consultation "in the coming weeks" to explore the case for a central bank digital currency – a sovereign digital pound - and a potential design. The Bank of England will also release a Technology Working Paper setting out cutting-edge technology considerations informing the potential build of a digital pound.
For more on the Edinburgh Reforms, take a look at this Engage article.
United Kingdom: PSR consultation on measures to improve transparency on APP scam data
On 8 December 2022, the Payment Systems Regulator (PSR) published a consultation paper (CP22/5) on measures to improve transparency on authorised push payment (APP) scam data across banks and building societies. This follows on from its November 2021 consultation (CP21/10) setting out three measures to achieve the outcome of preventing APP scams and protecting people who fall victim to them. Under Measure 1, the PSR will require the 14 largest payment service provider (PSP) groups to provide six-monthly data on APP scam performance.
Having consulted in CP21/10 on three metrics for this APP scam data (Metrics A, B and C), the PSR has now decided to reconsult in CP22/5 on the implementation of a specific metric included in Measure 1 (Metric C), proposing that:
- The 14 directed sending PSPs submit Metric C data on receiving PSPs to the PSR.
- Receiving PSPs will have the option to ask sending PSPs for a breakdown of their APP scam data so that they can check it. Sponsor PSPs, where they are able, will have the option to identify APP scam transactions that should be allocated to their indirect PSPs.
- Sending PSPs will resubmit their final data to the PSR (or confirm there are no changes) with any appropriate adjustments.
- The PSR will review the final data submitted by the sending PSPs and publish it six months after the end of the data period.
An amended draft direction reflecting the PSR's revised approach to Metric C is included in Annex 3 to CP22/5. The PSR has also updated other parts of the draft direction relating to Metrics A and B to take account of stakeholders' views following CP21/10 and further policy development. A tracked version of the draft direction showing the changes that have been made since it was included in CP21/10 is in Annex 4.
The PSR will consider issuing guidance to receiving PSPs on the Metric C process in Spring 2023.
The consultation period for CP22/5 closes on 17 January 2023.
The PSR recently consulted on Measure 3, which we reported on in the October 2022 Global Payments Newsletter and this Engage article ‘APP fraud: PSR proposals mean that mandatory reimbursement for scam victims is on the way’.
Europe: EPC releases SEPA Payment Account Access rulebook
On 30 November 2022, the European Payments Council (EPC) published the first version of the Single European Payments Area (SEPA) Payment Account Access scheme rulebook, taking effect from 30 November 2023. The rulebook contains the requirements that any eligible asset holder or broker must adhere to in order to participate in the scheme.
The scheme allows the exchange of payment accounts related data and facilitates the initiation of payment transactions in the context of application programming interface-based services provided by asset holders to asset brokers.
United Kingdom: Bank of England update on RTGS renewal programme
On 5 December 2022, the Bank of England (BoE) updated its webpage on the Real-Time Gross Settlement (RTGS) renewal programme. The BoE has announced that the migration from CHAPS to ISO 20022 messaging has been pushed back from April 2023 and will now occur on 19 June 2023. This is as a result of the European Central Bank moving their TARGET2 ISO 20022 migration date back from November 2022 to March 2023.
In light of the amended timeline, the BoE is reviewing milestones and the indicative migration date for Transition State 3 (the introduction of the new RTGS core ledger and settlement engine), which it expects to announce in February 2023.
European Union: Council of the EU adopts DORA Regulation and related amending Directive
On 28 November 2022, the Council of the EU published a press release announcing its adoption of the proposed Regulation on digital operational resilience for the financial sector (DORA). The Council published the text of DORA, and of the related amending Directive on 18 November 2022. The European Parliament voted to adopt DORA and the amending Directive at first reading on 10 November 2022.
DORA sets out IT security requirements for organisations operating in the financial sector with the stated aim of ensuring that the European financial sector is able to remain resilient in the case of severe operational disruption.
Both pieces of legislation will enter into force 20 days after they are published in the Official Journal of the European Union, following which there will be a 24 month implementation period for member states.
European Union: Amendments to RTS on SCA and CSC under PSD2 published in OJ
On 5 December 2022, Commission Delegated Regulation (EU) 2022/2360 was published in the Official Journal of the European Union. This Delegated Regulation amends the 90-day exemption for account access as set out in the regulatory technical standards (RTS) on strong customer authentication (SCA) and common and secure communication (CSC) under PSD2 contained in Commission Delegated Regulation 2018/389.
The new Delegated Regulation will come into force on 25 December 2022 and apply from 25 July 2023.
Nigeria: ATM withdrawals capped
On 6 December 2022, the Central Bank of Nigeria published a policy statement limiting access to cash for individuals and businesses. The purpose of this is to encourage the population to move away from using cash and to adopt digital payment methods. The restrictions include:
- weekly over-the-counter withdrawal limited to ₦100,000 (USD $225) for individuals and ₦500,000 (USD $1,125) for corporate entities;
- individual over-the-counter transactions incurring a 5% processing fee, and a 10% processing fee for corporate transactions;
- ATM withdrawals being limited to ₦100,000 per week, with a maximum of ₦20,000 per day; and
- the highest denomination that will be accessible from an ATM will be ₦200.
Kenya: Central Bank restores mobile money transfer fees
On 6 December 2022, the Central Bank of Kenya published a press release stating that it will reintroduce fees for transferring cash between mobile money wallets and bank accounts as of 1 January 2023. These fees had been waived to encourage contactless payments as part of Kenya's response to COVID-19, however the new charges will be "significantly lower" than those that were applied previously, with transfers from bank accounts to mobile wallets capped at 61% of the previous rate, and transfers the other way capped at 47%.
Belgium: Financial Services and Markets Authority clarifies the characterisation of cryptoassets
On 22 November 2022, the Belgian Financial Services and Markets Authority (FSMA) published a communication providing clarification of the most common cases where cryptoassets may fall within the scope of the prospectus rules and/or the MiFID rules of conduct. The FSMA has created a decision tree, which can help with the classification of crypto-assets as securities, investment instruments or financial instruments.
See this Engage article for more on this development.
United Kingdom: Bank of England speech on stablecoin regulation and CBDC
On 21 November 2022, the Bank of England published a speech by Sir Jon Cunliffe, Bank of England (BoE) Deputy Governor, Financial Stability. The speech called for the services and entities operating within the crypto space to be brought within regulatory frameworks to protect investors, encourage innovation, and promote financial stability. Key points included:
- Regulation should operate on a "same risk, same regulatory outcome" basis. This requires reviewing existing frameworks and considering the level of assurance provided, with the aim being to match this in crypto regulation. This is acknowledged to be a difficult task due to the rapid developments in the crypto space, e.g. the question of whether permission-less blockchain can ever provide adequate assurance is raised.
- The Financial Services and Markets Bill 2022-23 will extend the current regulatory regime for e-money and payment systems to include stablecoins and connected services, such as digital wallets that hold stablecoins. The BoE has stated an intention to consult in early 2023 on:
- how owners of stablecoins should be able to claim against issuers and wallet providers to give the same protection as for fiat money;
- what regulation there should be concerning assets holdings required of stablecoin providers; and
- what corporate structure, governance, accountability and transparency requirements should be implemented.
- As previously announced, HM Treasury (HMT) intends to consult shortly on extending the regulatory perimeter to cover activities and entities involving cryptoassets.
- In late 2022, the BoE and HMT plan to issue a consultative report on the potential issuance of a digitally native pound sterling (as to which, see the item on the Edinburgh Reforms, above).
United Kingdom and Singapore: HM Treasury agrees MoU with MAS to improve collaboration on fintech regulation
On 25 November 2022 and following the seventh meeting of the UK-Singapore Financial Dialogue, HM Treasury (HMT) published a joint statement with the Monetary Authority of Singapore (the MAS). At the meeting, the UK and Singapore had renewed their commitment to deepen the UK-Singapore Financial Partnership agreed in 2021, discussed mutual priorities such as sustainable finance, fintech and innovation, and agreed on further co-operation in these areas.
Key points in the statement included:
- A Memorandum of Understanding (MoU) on the UK-Singapore FinTech Bridge has been agreed. The Bridge aims to support continued growth, innovation and investment in FinTech, particularly in relation to payments, RegTech and wealth management. Both countries expressed optimism towards the opportunities the industry presents for promoting financial inclusion and better outcomes for consumers. The MoU was due to come into effect in the week commencing 28 November 2022 and builds on a 2016 Regulatory Cooperation Agreement that enabled UK and Singapore regulation to be closely aligned.
- Singapore provided an update on the progress it has made in its review of e-wallets and an update on the digital banks that have recently launched in Singapore.
- There was a discussion on the perspective the UK and Singapore respectively take towards cryptoassets. This includes views concerning market developments, opportunities, and challenges for financial stability and regulation. The two countries shared their progress in strengthening consumer protection and regulating stablecoins. Strong agreement was reached on the topic of developing a digital asset ecosystem with effective risk management.
- Recognition of the need to mobilise capital for sustainable finance to achieve net zero, and that innovative approaches such as blended finance and carbon markets are likely to be necessary.
The next Dialogue is due to take place in London in 2023.
Russia: Legislators working to create a "national crypto exchange"
On 23 November 2022, it was reported (link to article in Russian) that members of the Duma (the Russian lower house of Parliament) are working on legislation that will launch a national crypto exchange. This endeavour is supported by the Russian Ministry of Finance and the Central Bank of Russia. Legislators are currently working on the first step, which is to create a legal framework for the exchange.
The purpose of this is to improve Russia's standing in a growing market, and to bring more crypto activity within the taxable formal market. Regarding the emphasis on tax revenues, it was also reported that a bill introduced to the Duma in early November creates a Russian platform for cryptocurrency sales that requires Russian miners using foreign platforms to report their transaction to the Russian tax authorities.
Israel: Chief Economist sets out crypto regulation recommendations
On 28 November 2022, the chief economist at the Israeli Ministry of Finance published a report with recommendations concerning regulating the market for digital assets. The report calls for a more comprehensive regulatory framework that would improve investor certainty and protection by:
- imposing stricter licensing requirements on trading platforms and currency issuers;
- stricter safeguarding requirements;
- granting the Israel Securities Authority the power to determine whether particular types of digital assets fall within scope of securities laws; and
- monitoring the activity of payment service providers in the crypto space.
Brazil: Congress approve bill to increase crypto oversight
On 29 November 2022, it was reported that the Brazilian Congress has approved a bill seeking to increase government oversight of the cryptocurrency sector. The new rules would see a government-appointed federal agency overseeing most actors within the crypto sphere, applying to entities that exchange non-digital currencies (local or foreign) for virtual currencies, exchange virtual assets or are involved in financial services connected to vendors or issuers of virtual assets. The bill would require all those within its remit to have a physical presence in Brazil, with fines and prison sentences for non-compliance.
The bill has been passed to the outgoing President Bolsonaro for approval.
Europe: EPC publishes payment threats and fraud trends report 2022
On 8 December 2022, the European Payments Council (EPC) published its 2022 report on payment threats and fraud trends, providing an overview of the current most important threats and "fraud enablers" in the payments landscape. These include social engineering, malware, advanced persistent threats (APTs), (distributed) denial of service ((D)DoS), botnets and monetisation channels.
The EPC's conclusions include that the main attack focus during 2022 has continued to be the trend of shifting away from malware to social engineering attacks. Previously, consumers, retailers and SMEs were the main focus, but during 2022 company executives, employees (through CEO fraud), financial institutions and payment infrastructures appear to have become the preferred targets. An increase in authorised push payment (APP) fraud is also noted.
The EPC states that payment service providers must understand the emerging threats and the possible impacts and continue to invest in appropriate security and monitoring technologies and customer awareness campaigns.
United Kingdom: FCA consults on clarificatory amendments to Consumer Duty
On 2 December 2022, the FCA published its quarterly consultation paper no.38 (CP22/26) which includes proposed clarificatory amendments to the Consumer Duty. The proposals are set out in Chapter 8 of CP22/26 and summarised in this FCA communication to firms. They include amendments relating to application of the Duty: to firms approving or communicating financial promotions; and where an exemption applies in a sectoral sourcebook.
The proposed amendments are contained in the Consumer Duty (Amendments) Instrument 2023 in Appendix 8 to CP22/26.
The consultation closes on 9 January 2023.
For more resources on the FCA’s Consumer Duty, take a look at our Consumer Duty hub on Engage Premium.
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Payment Market Developments
India: Paytm enables mobile payments to all UPI apps
On 21 November 2022, it was reported that Paytm has implemented a feature enabling users to make payments to mobiles registered with third-party Unified Payments Interface (UPI) apps. Paytm users are now able to transfer money to any mobile number with a registered UPI, allowing them to better use the interoperability of UPIs facilitated by the National Payments Corporation of India granting all payment service providers access to its universal database.
UAE: Jingle Pay partners with Mastercard to increase services
On 1 December 2022, it was reported that UAE-based fast money transfer app Jingle Pay will collaborate with Mastercard to increase the breadth of its services. This agreement gives Jingle Pay access to the Mastercard network, which is currently used by over 90 million merchants worldwide.
The partnership also enables Jingle Pay to offer virtual bank cards for customers who do not have bank accounts, thereby promoting financial inclusion in the region. This is in line with Mastercard's stated aim of working to bring a billion people into the digital economy by 2025.
Global: Adyen and Mirakl launch new connector to help launch and scale marketplaces
On 6 December 2022, Ayden, a global technology platform for businesses, announced it has partnered with Mirakl, a leading software as a service provider, to facilitate frictionless large-scale buying and selling. This has been achieved by the launch of a new connector between Ayden's platform and Mirakl's enterprise marketplace, which will automate payment flows and compliance processes, thereby allowing businesses to scale their operations.
The new partnership will enable customers in the Europe, North America and Asia-Pacific regions to adapt payment methods to local preferences, using Ayden's global system of payments; screen and onboard sellers quickly, by speeding up the verification and KYC processes; and provide a unified shopping experience for online and in-store purchases.
Nordic Countries: Finaro partners with Ginger to offer PSP services
On 5 December 2022, Malta-based payments company Finaro announced a partnership with online payments solutions provider Ginger Payments to provide payment service provider (PSP) services to Nordic countries. This partnership will initially target fintechs and financial institutions in the region, providing a complete ecosystem of PSP solutions. Users will be able to:
- accept card payments;
- accept Alternative Payment Method (APM) transactions;
- access data analytics on customer payment journeys;
- access payment gateways and a merchant dashboard; and
- access AML-compliant onboarding tools.
United Kingdom and South Korea: SentBe partners with Currencycloud
On 7 December 2022, Currencycloud announced a partnership with South Korean global remittance and payment provider SentBe, to improve its financial exchange capacities. Currencycloud will aid SentBe in increasing its payment scope and provide a more customised experience for users sending money internationally.
United Kingdom: BVNK acquires UK-licensed EMI
On 29 November 2022, BVNK announced its acquisition of System Pay Services Ltd, a UK fintech registered as an electronic money institution (EMI) in the UK. System Pay Services offers e-money services, e-wallets, and multi-currency accounts.
This acquisition is part of BVNK's expansion of its global offering of digital finance and enables BVNK to increase the range of countries served by its multi-currency account.
Saudi Arabia: Tweeq receives central bank e-money licence
On 22 November 2022, the Saudi Central Bank announced that it had granted an e-money licence to fintech Tweeq. This is part of the Central Bank's plan to meet its target of 70% of transactions in the country being cashless by 2025. Now licensed, Tweeq intends to launch a "mobile-first super-app", which will be targeted at millennials and Gen Z. This aims to provide them with an e-wallet tailored to their needs, enabling them to spend, send and save money efficiently.
United States: ACI Worldwide partners with Vendo Services to facilitate crypto payments
On 29 November 2022, payments enabler ACI Worldwide announced a partnership agreement with payment services provider Vendo Services to enable merchants served by Vendo to process payments in over 120 cryptocurrencies, including Bitcoin. Vendo has acknowledged an increase in demand for cryptocurrency facilities in its customer base, so has entered this partnership to future-proof its business and increase its attractiveness to potential customers.
South Africa: Be Mobile Africa introduces crypto payments
On 5 December 2022, it was reported that digital-only bank Be Mobile Africa has launched a crypto payment gateway to give customers the ability to convert digital currencies (including Bitcoin, Ethereum and stablecoins) to fiat currency. Be Mobile Africa customers can keep crypto payments received as crypto, or convert them into South African rand, U.S. dollars, or euros.
Global: Stripe launches widget to smooth crypto wallet transfers for Web3
On 1 December 2022, Stripe announced the launch of a new facility for making fiat-to-crypto payments, which will be available in dozens of countries. The facility takes the form of a widget that can be embedded into a decentralised exchange, decentralised app, NFT platform or digital wallet. It will enable users to make instant purchases of cryptocurrencies in Web3 apps.
This aims to remove the complexity that Web3 developers currently face concerning fraud, KYC requirements, and other compliance issues by having Stripe handle KYC, fraud, compliance and payments, enabling a seamless transfer of money into the user's Web3 wallets without needing to engage multiple third-party services.
United States: Galileo launches customisable BNPL
On 6 December 2022, U.S. fintech Galileo announced a new buy-now, pay-later solution enabling banks and other fintechs easy entry into the BNPL space. Galileo's service allows real-time offers to be made to individual customers on the app they are currently using by having their request for BNPL financed by their bank or a sponsoring bank. The financing institution will be in a better position to assess the non-repayment risk of that particular customer than the merchant as the user's bank has access to a more detailed financial history for that individual. Galileo then issues a single-use virtual card to facilitate the transaction and manages the loan, including overseeing the repayment schedule.
Global: Klarna adds carbon footprint tracking for fashion purchases
On 6 December 2022, it was reported that Swedish fintech Klarna has partnered with automated carbon calculations provider Vaayu to provide users of the Klarna app with information about the carbon emission of fashion products available for purchase. The data provided breaks down carbon emissions throughout the product's lifecycle, including raw material extraction, manufacturing and delivery. This feature has been launched after Klarna research found that 58% of shoppers would like more information about the environmental impact of the products they buy.
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Surveys and Reports
United States: The rise of mobile e-commerce
On 27 November 2022, PYMNTS published its report "Digital Economy Payments: the Rise of Mobile eCommerce". This surveyed 2,730 US consumers, to assess recent changes and current trends in the payments space.
Key findings include:
- E-commerce made up 14.5 % of all retail sales in 2022, down from a high of 16.4% in 2020, but significantly higher than the 11.1% recorded before the pandemic.
- A projection that 44% of all digital sales will come from mobile devices by 2025.
- BNPL for non-grocery retail goods quadrupled to 4.5% of all purchases in Q3 2022 compared to 1% in Q4 2021.
- Consumers are more likely to use a debit card than a credit card when making online purchases of groceries, but are more likely to use a credit card for non-grocery purchases.
Global: Digital Payment Market forecast to reach $274 billion by 2029
On 7 December 2022, Meticulous Market Research published a report entitled "Digital Payment Market by Offering, Payment Mode, End User, Organization Size and Geography – Global Forecasts to 2029". Key insights include:
- The compound annual growth rate of the whole global payment market is predicted to be 16.6% between 2022 and 2029.
- Digital wallets are forecast to be the market segment accounting for the most growth in the global payments market, due to the increased capabilities and prevalence of mobile devices and shift to QR code transactions.
- The Asia-Pacific region is expected to be the most significant driver of growth, with cashless transactions predicted to grow by 109% until 2025, and then 76% between 2025 and 2030.
Global: Increase in consumer digital engagement in Q2 2022
On 8 December 2022, PYMNTS published its Q2 2022 report "How the World Does Digital: the impact of payments on digital transformation". This surveyed 15,000 consumers across 11 developed countries to better understand how many people use digital methods, how many activities they engage in, and how frequently they engage in those activities. Significant findings were:
- Overall digital engagement increased by 1.2% over the quarter. Brazil was the single country with the largest increase, experiencing growth in digital engagement of 8.2%.
- There was a 3% increase in consumers’ use of digital payment methods.
The use of mobile wallets when making in-store purchases increased by 9%.
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Authored by Virginia Montgomery and Grace Wyatt.
Hogan Lovells (Luxembourg) LLP is registered with the Luxembourg bar.
