In this Newsletter:
For previous editions of the Global Payments Newsletter, please visit our Financial Services practice page
Regulatory Developments
Africa: Pan-African Payment and Settlement System launched
On 13 January 2022, it was announced that the Pan-African Payment and Settlement System (PAPSS) had been launched. PAPSS was developed by the African Export-Import Bank (Afreximbank), and it is expected to boost trade by facilitating intra-African payments, clearing and settlement. In particular, the new system will:
- Reduce the cost, duration and time variability of intra-African cross-border payments;
- Decrease the liquidity requirements of commercial banks for these payments; and
- Strengthen central bank oversight of cross-border payments.
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United Kingdom: Payment Systems Regulator consults on remedies relating to market review into card-acquiring services
On 26 January 2022, the Payment Systems Regulator (PSR) published its consultation on remedies in relation to its card-acquiring services market review. The consultation follows on from the PSR’s November 2021 final report on its market review, which found that the card-acquiring services market was not working well for smaller merchants (ie, those merchants with an annual card turnover of up to £50 million). In order to address these issues, the PSR is considering four potential remedies:
- Summary information boxes. These would contain standardised key information (eg, key price points and non-price service elements). This would help merchants to get the best possible deal.
- Stimulating digital comparison tools for merchants. A key PSR priority here is to encourage digital comparison tool providers to start offering comparison tools in this area.
- Trigger messages. These messages would be sent from card acquirers to merchants ahead of initial contract expiry and then annually. This would encourage merchants to reconsider their options more regularly, rather than being stuck in unsuitable agreements through inertia.
- Addressing barriers caused by point-of-sale terminal contracts. The issue here is that lengthy point-of-sale terminal contracts can tie merchants to a specific card-acquirer. The PSR wants to remove this barrier.
The PSR welcomes views on the consultation by 6 April 2022. Once this first stage of consultation is completed, the PSR will issue a provisional decision, including a draft remedies notice. Publication of the provisional decision will give all interested parties an opportunity to comment on its proposals and supporting analysis as well as the draft remedies notice.
The PSR will issue a final remedies notice following completion of consultation on the provisional decision. The final remedies notice will include information on implementation periods for any changes. Timing for both the provisional and final remedies notices is not very specific, with the consultation referring only to publication “in 2022”.
For more on the consultation, take a look at this Engage article by members of Hogan Lovells’ London office.
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United States: Federal Reserve releases discussion paper on CBDC
On 20 January 2022, the US Federal Reserve released a discussion paper examining the pros and cons of a US central bank digital currency (CBDC). The Federal Reserve had previously been reluctant to consider a US CBDC due to concerns that the costs would outweigh the benefits.
The paper notes that while CBDCs can provide certain benefits (eg, support faster, cheaper payments and expand consumer access to the financial system), there are also downsides. In particular, CBDC could affect the structure of the financial sector, the cost and availability of credit, and the efficacy of monetary policy. It also poses anti-money laundering and privacy issues.
The paper then sets out a number of questions relating to the benefits and risks of CBDC and also in relation to CBDC design, and asks for comments on these questions by 20 May 2022.
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European Union: EBA publishes Discussion Paper on selected payment fraud data
On 17 January 2022, the European Banking Authority (EBA) published a Discussion Paper containing its preliminary observations on selected payment fraud data under PSD2, as reported by the industry.
The EBA has analysed the payment fraud data reported to it by industry, and from this it has identified certain preliminary patterns. The EBA has also identified areas where patterns are inconclusive, which should be looked at in more detail.
The paper focuses on the EBA's findings in three key areas: credit transfers, card-based payments and cash withdrawals. Preliminary patterns here suggest that the regulatory requirements relating to payment security are having their desired effect, as the number of fraudulent payments is lower for those payments which are authenticated with strong customer authentication. Relatedly, fraud is also higher in relation to transactions where one of the parties is outside the European Economic Area.
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United Kingdom: Bank of England revises its RTGS renewal programme timetable
On 17 January 2022, the Bank of England published an updated webpage with updated information about the implementation timetable for its Real-Time Gross Settlement (RTGS) Renewal Programme.
Under the revised timetable:
- The Bank of England will launch a new, end-to-end, enhanced ISO 20022-enabled CHAPS Pilot Platform in summer 2022.
- CHAPS will switch from the SWIFT MT to MX (ISO) networks, and support enhanced ISO messaging in April 2023. Previously, the date for the support of enhanced ISO messaging was February 2023.
- The new RTGS core settlement engine will now be introduced in spring 2024. Previously, it was set to be introduced in autumn 2023. This new date is subject to a 3 month variance.
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European Union: European Commission explains view on compatibility of Payment Accounts Directive with negative interest rates
On 17 January 2022, the Danish Financial Supervisory Authority (DFSA) published a letter sent to it by the European Commission, setting out the Commission's view on the compatibility of the EU Payment Accounts Directive (PAD) with charging negative interest rates on payment accounts.
The DFSA's view is that Article 18 of PAD (which sets out the "reasonableness" criteria which apply to fees charged) only regulates fees for the specific services referred to in Article 17 of PAD. These services only relate to the transactions that a basic payment account must include. Therefore, the DFSA is of the view that PAD does not regulate negative interest rates.
The Commission's view is that negative interest rates are not "fees" (as defined in Article 2(15) PAD) and therefore that there is no requirement for negative interest rates to comply with the "reasonableness" criteria in Article 18, as these criteria apply to fees.
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Tanzania: Bank of Tanzania prepares for roll-out of new payment system
On 7 January 2022, it was reported that the Bank of Tanzania was expecting to shortly roll-out its new payment system, after running successful trials. The new interoperable system (knows as the Tanzania Instant Payment System) will allow the transfer of payments between participating financial service providers in real time.
The new system is expected to be an improvement on Tanzania’s existing payments infrastructure. Currently, sending money to a different network in Tanzania involves a number of steps and charges but under the new system this can all take place on the same platform.
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Switzerland: Swiss National Bank successfully tests wholesale CBDC
On 13 January 2022, it was announced that the Swiss National Bank, in partnerships with the Bank for International Settlements (BIS), SIX and five commercial banks, had successfully carried out a test relating to the integration of wholesale CBDC settlement with commercial banks. The test was carried out during Q4 2021, and explored the settlement of interbank, monetary policy and cross-border transactions on the test systems of SIX Digital Exchange, the Swiss real-time gross-settlement system and core banking systems.
The BIS stressed that this experiment was exploratory in nature, and should not be interpreted as an indication that the Swiss National Bank plans to issue a wholesale CBDC.
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Belgium: National Bank of Belgium circulars on regulatory reporting by payment and electronic money institutions enter into force
On 1 January 2022, the National Bank of Belgium (NBB) circular NBB_2019_10 entered into force. The circular, which was published on 19 October 2021, defines new rules for periodic reporting by electronic money institutions (EMIs) in accordance with the Law of 11 March 2018 on the status and supervision of payment institutions and electronic money institutions, access to the business of payment service provider and to the activity of issuing electronic money and access to payment systems (the Belgian PSD Law). The circular deals with both periodic reporting on the solvency of the institutions as well as financial periodic reporting. Belgian EMIs must submit to the NBB a detailed financial report and figures which are drawn up in accordance with the rules and guidelines described in the circular. The report must be communicated to the NBB on a quarterly basis, and at the latest by the first working day of the second calendar month following the reporting date.
Also on 1 January 2022, circular NBB_2021_26 entered into force, replacing circular NBB_2020_24 which ceased to apply from that date. Circular NBB_2021_26, which was published on 23 November 2021, determines how payment institutions and EMIs should comply with the reporting obligation imposed by Article 50, section 2 of the Belgian PSD Law.
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United Kingdom: PSR publishes policy statement on phase 2 of Confirmation of Payee
On 10 February 2022, the Payment Systems Regulator (PSR) published a policy statement (PS22/1) on the roll out of Phase 2 of Confirmation of Payee (CoP).
CoP is a service that allows a payer to check that the name linked to an account matches the name of the payment’s intended recipient. Phase 1 was introduced in August 2019, and required the UK’s six largest banks to implement CoP. Phase 1 of CoP only applied to accounts
with a unique sort code and account number, whereas Phase 2 covers a wider range of accounts. This means that there are currently two sets of regulatory environments in operation, so the PSR is looking to phase out Phase 1, and require all firms to operate under the Phase 2 framework.
PS22/1 follows on from the PSR’s December 2021 consultation (see the December 2021 Global Payments Newsletter here for more details), and confirms that the Phase 1 environment will be phased out by 31 May 2022. This means that all payment service providers must migrate across to the Phase 2 environment by this date.
To this end, the PSR has published Specific Direction 11 which, among other things, requires:
- Pay.UK to terminate the terms and conditions for participating in Phase 1, withdraw each PSP’s CoP Phase 1 accreditation, and retire the Phase 1 rules and standards on 31 May 2022;
- Phase 1 payment service providers to only use the Phase 2 technical environment for the CoP service after 31 May 2022;
- Relevant payment service providers to regularly report to Pay.UK on their progress in migrating CoP traffic to the Phase 2 Open Banking environment by 1 May 2022. Pay.UK is also required to pass this information to the PSR.
Specific Direction 11 entered into force on 11 February 2022.
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United Kingdom: FCA publishes final report on strategic review of retail banking business models
On 20 January 2022, the FCA published a final report and supporting annexes on its strategic review of retail banking business models. The report provides an update to the FCA's December 2018 report and the analysis is based on detailed financial information, data and documents from deposit-taking institutions, including the largest banks and building societies and a selection of smaller banks and specialist firms. This is complemented by a detailed analysis of data on consumers and SMEs and their behaviour, including data from the FCA's financial lives survey, to provide a holistic view of the market.
Key findings include:
- Large banks are in a strong position, but face increasing competition, in particular for personal current accounts (PCAs).
- Low levels of consumer engagement have historically contributed to high barriers to entry and expansion. Digital challengers have rapidly gained share in the PCA and business current account (BCA) markets.
- Increased competition and innovation have improved outcomes for some consumers and small businesses. However, others, particularly consumers with heavy branch usage or lower balances, may have had worse outcomes.
The FCA summarises its next steps on a related webpage. It explains that the full impact of the uncertainty caused by COVID-19 will take time to be fully understood. It will continue to monitor developments and use its full array of regulatory tools to ensure the markets work as well as possible, generating good outcomes and fair treatment of consumers. Most immediately, the FCA will be discussing the points raised in the report with firms and consumer organisations. It would also like to hear from other stakeholders, who can send written submissions to a dedicated email address by 31 March 2022.
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United Kingdom: Ring-Fencing and Proprietary Trading (RFPT) Review Panel publishes interim statement
On 19 January 2022, the Ring-Fencing and Proprietary Trading (RFPT) Review Panel (established by HM Treasury) published an interim statement on its review of RFPT, providing an update on the Panel's findings ahead of its final report and recommendations. The interim findings cover:
- Financial stability: The RFPT reforms have contributed to a more resilient UK banking sector. The ring-fencing regime has insulated key retail banking services, such as deposits and overdrafts, from the risks associated with investment banking activities. However, these benefits have not been observed by smaller and less complex banks with limited investment banking activities.
- Competition, competitiveness and customers: The ring-fencing regime has had no significant impact on competition in retail banking or its sub-markets. Commentary about "trapped" liquidity caused by the regime is not supported by evidence. The regime has the potential to constrain the competitiveness of UK banks.
- Operation of the regime: The current rules have resulted in unintended consequences that create unnecessary rigidity for customers, banks and regulators. In particular, absolute restrictions on ring-fenced bodies from servicing financial institutions, operating in some geographical areas and providing a range of banking services, have resulted in a regime that is overly rigid.
- Proprietary trading: This is no longer an activity being systematically undertaken by UK banks. Instead, it is largely being undertaken by the non-bank financial sector.
The Panel is finalising its recommendations based on the findings set out in the statement and remains on track to deliver its report to HM Treasury in early 2022.
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United States: IRS requires mobile money apps to report more transactions
It has been reported that from 1 January 2022 the IRS is requiring mobile payment apps to report commercial transactions of over $600 a year to the Internal Revenue Service (IRS). The reporting obligation is triggered where a person cumulatively makes transactions of over $600 in a year. However, the obligation only applies to commercial payments and not to personal payments.
The change in law was passed as part of the American Rescue Plan Act, which was passed in March 2021.
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United Kingdom: HM Treasury publishes response to consultation on cryptoasset promotions
On 18 January 2022, HM Treasury published its response to its July 2020 consultation on bringing cryptoasset promotions within the scope of the financial promotions regime.
The UK's financial promotions regime prohibits financial promotions in relation to "controlled activities" and/or "controlled investments" which are not made or approved by an FCA-authorised person.
HM Treasury plans to add "qualifying cryptoassets" to the list of "controlled investments", and also to integrate the term into certain "controlled activities", including arranging deals in investments, managing investments, and advising on investments. The definition of
"qualifying cryptoasset" is yet to be finalised, but HM Treasury have said that the final definition will:
- Include an exclusion for transferability. This is designed to exclude tokens such as travel passes and supermarket loyalty schemes (ie, tokens used for payments to a specific vendor only).
- Retain fungibility. This means that non-fungible tokens will be outside the definition's scope.
- Remove the reference to distributed ledger technology in the definition. This is to future-proof the definition if underlying cryptoasset technology changes.
- Not include electronic money or central bank currency within the definition.
The following day (19 January 2022), the FCA published a consultation containing details of how it plans to regulate cryptoasset promotions. The FCA plans to apply its new "Restricted Mass Markets Investments" regime to cryptoassets. This is a regime that has been designed specifically for certain high-risk investments. The consultation states, among other things, that:
- The mass‑marketing of cryptoassets to retail consumers will be permitted, subject to meeting the requirements of the FCA's proposed financial promotion rules (eg, risk warnings and a ban on inducements to invest); and
- "Direct offer" financial promotions (ie, promotions which specify how consumers should respond or includes a form to respond) can only be made if certain requirements are met.
The FCA welcomes feedback on its proposals by 23 March 2022, and intends to publish a Policy Statement and final Handbook rules this summer. In relation to cryptoasset promotions, the FCA proposes that any changes apply from the date that qualifying cryptoassets are brought within the financial promotions regime.
For more information on the HM Treasury consultation, take a look at this HL Engage article, written by members of the Hogan Lovells London office.
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El Salvador: IMF recommends that El Salvador removes Bitcoin’s legal tender status
On 25 January 2022, the IMF concluded its Article IV consultation with El Salvador. In its report, the IMF recognises the importance of boosting financial inclusion and how digital means of payment can help with this (such as through the Chivo e-wallet). However, the IMF also recommends that El Salvador remove Bitcoin’s status as legal tender, stressing that there are high risks associated with the use of Bitcoin (for example, in relation to financial stability and financial inclusion). However, on 31 January 2022 it was reported that El Salvador’s government had rejected this recommendation.
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Thailand: Plans for a 15% crypto tax dropped
On 1 February 2022, it was reported that Thailand had dropped plans for a 15% crypto tax. The plans were announced earlier this year, but had faced strong opposition from supporters of the crypto market, who argued that the tax would suffocate a market that has become increasingly popular over the past 18 months. Regulators in Thailand had already banned non-fungible tokens. It is expected that crypto will still be taxed in some form.
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United States: Arizona Senator introduces bill to make Bitcoin lawful state currency
On 28 January 2022, it was reported that an Arizonan senator had introduced a bill to make Bitcoin legal tender in the state of Arizona. It is not clear whether a vote will be held on the bill in the Arizonan Senate. In nearby Texas, one of the candidates for governor has reportedly said that he will seek to make Bitcoin legal tender in the state if he wins election.
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United Kingdom: Parliament launches all party crypto group
On 10 January 2022, it was reported that a cross-party group of MPs and Lords had launched a new All Party Parliamentary Group for Crypto and Digital Assets. All Party Parliamentary Groups are informal groups which have no official status within Parliament, but which commonly allow for engagement on key issues between Parliamentarians and stakeholders. For example, there are already All Party Parliamentary Groups for alternative finance and fintech.
The group plans to look at the state of the UK’s crypto market, with a particular focus on crypto advertising and the need for regulation to keep pace with changes in the sector.
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Belgium: Federal parliament adopts law introducing AML/CFT regulatory framework for Belgian-based virtual currency service providers
On 27 January 2022, the Belgian federal parliament adopted a law on the status and supervision of providers engaged in exchange services between virtual currencies and fiat currencies and custodian wallet providers (the VCSP Law), amending the Law of 18 September 2017 on prevention of money laundering and terrorist financing and restricting the use of cash (the Belgian AML Law), to create a regulatory framework for Belgian-based virtual currency service providers (VCSP). VCSPs include (i) ATMs which are installed on Belgian territory and allow the exchange of virtual currency for fiat currency and (ii) custodian wallet providers.
More specifically, the VCSP Law amends the Belgian AML Law to:
- require VCSPs to be registered with the Belgian Financial Services and Markets Authority (the FSMA);
- empower the FSMA to supervise VCSPs; and
- prohibit third-country persons and entities from providing virtual currency services in Belgium.
Breach of the VCSP Law is a criminal offence. It also provides for administrative sanctions.
The VCSP Law is expected to be published in the Belgian State Gazette in the course of February 2022, along with an implementing Royal Decree.
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European Union: EBA launches AML and CFT central database
On 31 January 2022, the European Banking Authority (EBA) launched its central database for anti-money laundering and counter-terrorist financing (EuReCA). EuReCA will contain information on material weaknesses in individual financial institutions in the EU that competent authorities have identified. Examples of such weaknesses include the absence of transaction monitoring at the group level and the absence of policies and procedures for high-risk customers.
The EBA will also share information from EuReCA with the relevant competent authorities, in particular in instances where it has identified specific AML/CFT trends or risks. In this way, it is hoped that EuReCA can act as an early warning tool and can help competent authorities address risks and trends before they become serious.
EuReCA will not start to collect personal data until the draft Regulatory Technical Standards (RTS) on a central database on AML/CFT in the EU are approved by the European Commission.
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United Kingdom: New FCA webpage on determining competency of heads of compliance and MLRO applicants
On 28 January 2022, the FCA published a new webpage to help firms decide if an individual candidate is suitably competent and capable of effectively performing the role of head of compliance or money laundering reporting officer (MLRO). This is based on the FCA's experience of approved applications. The webpage includes guidance on training, experience, support from third parties, and capacity.
Even if an applicant believes they have sufficient experience or training, the FCA states that it may still request an interview to test this and will also consider the applicant's response to questions asked during the application process.
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United Kingdom: Treasury Committee reports on fraud, scams and economic crime
On 2 February 2022, the House of Commons Treasury Committee published a report on fraud, scams and economic crime. The report comes as the government’s 2019 to 2022 Economic Crime Plan enters its final year, offering an opportunity for thought about the strengths and weaknesses of the plan.
The report makes a number of recommendations, including:
- The government should consider whether a single enforcement agency should be created to fight economic crime.
- The government should consider new measures to address fraud via online advertising, and should ensure that the FCA has sufficient powers to enforce financial promotions rules online. Related to this, the report suggests that online advertisers should be required to perform KYC checks on their advertisers.
- Planned Suspicious Activity Reports reforms are likely to improve AML systems, but it is disappointing that this reform program is not yet complete. Linked to this is the continued poor performance of the Office for Professional Body Anti-Money Laundering Supervision nearly four years after it was set up.
- The FCA should report annually on the number of de-risking decisions being taken and on progress to ensure that banks are not unfairly de-risking customers.
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India: RBI plans to set up new fintech department
On 9 January 2022, it was reported that the Reserve Bank of India (RBI) had set up a fintech department, with a focus on facilitating innovation in the fintech sector. It is expected that the new department will also identify challenges and opportunities for the fintech sector, and provide a framework for further research on effective policy interventions that the RBI could implement.
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United Kingdom: OFSI publishes revised sanctions penalty guidance
On 29 January 2022, the Office for Financial Sanctions (OFSI) published revised guidance on monetary penalties for breaches of financial sanctions.
The updated guidance covers the following areas:
- OFSI’s compliance and enforcement approach;
- Guidance on how OFSI assesses potential breaches of financial sanctions;
- The penalty process, including when OFSI will decide to impose a penalty and how OFSI will then decide on the penalty amount;
- The procedure for imposing a penalty, including the right of a party to make representations; and
The right of ministerial review and the right of appeal.
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European Union: European Parliament adopts Digital Services Act with amendments
On 20 January 2022, it was announced that the European Parliament had agreed to the Digital Services Act, with amendments.
The European Parliament’s amendments include the following:
- Intermediary service providers are prohibited from using nudge techniques to influence service user behaviour. Examples of such practices, which are listed in the new Article 13a of the Act, include giving greater prominence to consent options.
- Online platforms must use best efforts (as opposed to reasonable efforts) to check certain information provided to them by traders that sell via their platform.
- Online platforms must give service users more information about how their data is used (and how it is monetised). Users who refuse to consent to this must still have reasonable access to the platform.
- There are new provisions in relation to processing of the personal data of minors.
The amended text will now be used as a basis for negotiations with the French presidency of the Council of the European Union.
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United Kingdom: DCMS publishes update on National Data Strategy Forum workstreams
On 7 February 2022, the Department for Digital, Culture, Media & Sport (DCMS) published an updated webpage with more information on the National Data Strategy Forum's (Forum) workstreams and confirmation of the Forum's focus of attention for the next six months. The Forum’s purpose is to develop programmes of work to shape and support the delivery of the National Data Strategy (NDS), and champion its goals via participant networks.
Progress to date on the Forum’s five workstreams and next steps include:
- Unlocking the power of data for everyone, everywhere: This workstream will now focus on innovations in data sharing architecture, using a regional "future scenarios" workshop to gather ideas and evidence of best practice.
- Trust in data: The National Data Strategy Forum Trust in Data Working group has begun its work examining public attitudes towards data use and finding examples of data use that deliver societal and economic benefits across sectors. During the next six months, this group will continue to collate positive case studies of responsible data use.
- Data reform: The Forum helped promote the government consultation Data: a new Direction (September 2021) and hosted roundtable discussions on removing data-related barriers to trade and developing a more innovation-friendly data protection regime, that underpins the trustworthy use of data. A response to the consultation will be published in Spring 2022.
- Net Zero: This workstream has highlighted how innovative use of data can help combat climate change and hosted an event at COP26. It will continue to stage events and discussions in 2022 to demonstrate the crucial contribution that data can make to the government's Net Zero goals.
- Measuring the data ecosystem: Mapping how stakeholders interact across the UK's data ecosystem will improve the government’s understanding of how that interaction works and help develop means of making data more widely accessible. The NDS monitoring and evaluation framework and NDS indicator suite were both launched in 2021 to help deliver this workstream. Their development is ongoing.
The DCMS invites contact and participation with the Forum via NDSForumsecretariat@dcms.gov.uk.
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United Kingdom: DCMS announces members of International Data Transfer Expert Council appointed to advise on government global data plans
On 25 January 2022, the Department for Digital, Culture, Media & Sport (DCMS) has announced the members of the International Data Transfer Expert Council. The 20 strong membership is comprised of leading data privacy experts with backgrounds in various representative organisations, industry sectors, legal practice and academia. A full list of the appointees is set out in the announcement.
The Council will meet quarterly to pool ideas and provide guidance in support of the government's goal to unlock international data transfers by developing reforms capable of removing any current barriers to the free flow of data around the world. Realising this ambition is a key component of the government's National Data Strategy.
At its first meeting on 25 January 2022, the Council discussed the global opportunities and challenges for international transfers and how the UK can be a global leader in removing barriers to cross-border data flows. In the months ahead, it will also cover topics including future data adequacy partnerships, the development of new data transfer tools, and how governments can work together to promote greater trust in sharing personal data for law enforcement and national security purposes.
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European Union: European Commission adopts Communication on establishing a Declaration on digital rights and principles
On 26 January 2022 and following a European Commission Roadmap and public consultation in May 2021, the Commission adopted a Communication on establishing a Declaration on digital rights and principles. The Communication was accompanied by a related Commission Staff Working document, a press release and a factsheet.
The (draft) Declaration aims to give everyone a clear reference point about the kind of digital transformation Europe promotes and defends. It will also provide a guide for policy makers and companies when dealing with new technologies.
The Declaration is closely linked to and complements the proposal for the "Path to the Digital Decade" which was adopted in September 2021. As set out in the Path to the Digital Decade proposal, an effective monitoring of the principles enshrined in the Declaration will be presented annually, together with a yearly Eurobarometer on the European citizens' perception of the actions and measures taken.
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European Union: European Parliament to consider proposed Regulation on pilot regime for market infrastructures based on DLT at 23 to 24 March plenary session
On 8 February 2022, the European Parliament updated its procedure file on the proposed Regulation on a pilot regime for market infrastructures based on distributed ledger technology (DLT) (2020/0267(COD)) to indicate that the Parliament will consider the proposed Regulation during its plenary session to be held from 23 to 24 March 2022. This follows its Economic and Monetary Affairs Committee's (ECON) approval on 13 January 2022 of the text agreed at the first reading interinstitutional negotiations.
The Council of the EU and the Parliament reached political agreement on the proposed Regulation on 24 November 2021.
The European Commission adopted the proposed Regulation in September 2020 as part of its Digital Finance Strategy.
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European Union: ESAs publish response to European Commission call for advice on digital finance and related issues
On 7 February 2022, the European Supervisory Authorities (ESAs) (that is, the EBA, ESMA and EIOPA) published a report (dated 31 January 2022) containing their response to the European Commission's February 2021 call for advice on technical advice on digital finance and related issues.
In response to the Commission's call for advice, ESMA launched a survey to national competent authorities (NCAs) in February 2021 and a general call for evidence on digital finance in May 2021. ESMA has published reports summarising the responses that it received to the survey (see the report here) and call for evidence (see the report here), which were to inform the findings in the ESAs' report and their recommendations.
The ESAs’ report sets out the findings of an analysis of market developments and the risks and opportunities posed by digitalisation in finance. The ESAs make ten cross-sectoral and two insurance-specific recommendations intended to strengthen EU financial services regulation and enhance supervisory capabilities in line with these developments.
The ESAs' recommendations include that the Commission should:
- Provide further guidance on the definition of cross-border services in a digital context and strengthen cross-border supervisory co-ordination.
- Take specific actions intended to promote a convergent approach to money-laundering and terrorism financing risks in a digital context.
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United Kingdom: Parliamentary committee opens inquiry into the future of retained EU law and government announces intention to introduce “Brexit Freedoms” Bill
On 31 January 2022, the House of Commons European Scrutiny Committee launched an inquiry, Retained EU Law: Where next? This inquiry examines the future of retained EU law in the context of the UK government's reviews into the substance and status of retained EU law as announced in September 2021 (and followed by a December 2021 update). The deadline for submission of evidence is 14 March 2022. The Committee is interested to hear from a broad range of stakeholders, including lawyers, academics, representative bodies and think tanks.
In a related development on 31 January 2022, the UK government also announced its intention to bring forward a “Brexit Freedoms” Bill to ensure that retained EU law can be more easily amended or repealed, to end the special status of EU law in the UK legal framework and to make any further changes recommended by the government's retained EU law status review. This announcement was accompanied by a cross-sector policy paper, “The benefits of Brexit – How the UK is taking advantage of leaving the EU”, which includes sections on financial services, digital economy, digital technology in trade and cyber security, among others.
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United Kingdom: House of Lords European Affairs Committee launches new inquiry into UK-EU financial services relationship
On 4 February 2022, the House of Lords European Affairs Committee announced the launch of a new inquiry into the UK-EU relationship in financial services, with an accompanying webpage. The inquiry will consider matters including:
- The impact so far on the UK financial services sector of the UK's departure from the EU single market.
- The impact of the absence of a functioning framework for UK-EU regulatory co-operation.
- The future of cross-border UK-EU financial services trade in the absence of equivalence.
- The impact of regulatory divergence and agreements with third countries on UK-EU financial services trade.
The Committee expects to report by May 2022.
The press release also refers to the UK-EU trade and co-operation agreement (TCA), which contains limited provisions on the trade in financial services between the UK and the EU. It states that since the signing of the TCA, the EU has so far granted the UK two equivalence decisions for financial services, both of which have been time limited and one of which has now expired. Conversely, the UK has granted equivalence to EEA member states in 28 of the 32 areas identified for the equivalence process.
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United Kingdom: FCA confirms approach to TPR firms not meeting its expectations
On 18 January 2022, the FCA published a new webpage on its approach to firms in the temporary permissions regime (TPR) that do not meet its expectations. The FCA's position is that the TPR should only be used by firms wanting to operate in the UK in the long-term, preparing for full UK authorisation and meeting the required standards.
The FCA will seek to ensure that firms, where appropriate, cannot expand their UK business while in the TPR. If firms do not voluntarily leave the TPR, the FCA will take action to remove them. This may result in the FCA contacting a firm's home state regulator and issuing a final notice in the UK.
The webpage highlights four scenarios where this would apply: FSMA firms (that is, firms in the TPR that previously passported into the UK under Schedule 3 or Schedule 4 to the Financial Services and Markets Act 2000 (FSMA)) that miss their landing slot to apply for full authorisation, firms that fail to respond to mandatory information requests, firms that do not intend to apply for full authorisation and firms whose authorisation application is refused. The actions the FCA will take against such a firm may involve:
- Taking steps to remove them from the TPR.
- Asking the firm to confirm they have voluntarily stopped undertaking new business (that is, onboarding new customers) or, if they do not voluntarily agree to this, seeking to use FCA powers to prevent firms from undertaking new business.
- Directing a FSMA firm to apply in a landing slot sooner than the existing landing slot.
- For payments and e-money firms, requesting the firm specify a date when they will cease to engage in new business. If they fail to do so, the FCA may specify the date.
Firms may avoid these actions if they voluntarily apply to cancel their temporary permission completely and, if eligible, enter the supervised run-off (SRO) mechanism within the financial services contracts regime (FSCR).
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European Union: EDPB publishes guidelines on right of access
On 28 January 2022, the European Data Protection Board (EDPB) published Guidelines 01/2022 on data subject rights – Right of access.
The Guidelines set out general principles and an explanation of the right of access, and they also cover topics such as confirming whether the data is held, providing a copy, limitations on the right and identifying the data subject. More specialist topics such as requests made via third parties and on behalf of children are also covered and the Guidelines look at key concepts such as manifestly unfounded and excessive requests and timescales.
The Guidelines were adopted on 18 January 2022 at its 59th Plenary and are open for public consultation until 11 March 2022.
For more on this development, take a look at this Engage article by members of Hogan Lovells’ Madrid office.
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United Kingdom: UK financial regulatory bodies establish Wider Implications Framework
On 25 January 2022, the Financial Ombudsman Service (FOS) published a press release on the establishment of the Wider Implications Framework, together with a webpage on the Framework and the terms of reference for the Framework.
The Framework has been agreed by the FOS, the FCA, the Pensions Regulator, the Financial Services Compensation Scheme (FSCS) and the Money and Pensions Service (MaPS). It is a formal agreement that sets out a structure for its members to collaborate on matters of common interest with the aim of achieving a better outcome for consumers, small businesses and the financial services industry.
The Framework’s purpose is to establish a procedure consistent with each member's independent role and statutory functions to discuss risks and issues that may have wider implications as soon as the members become aware of them and agree the most appropriate approach to managing risks and issues, including which member(s) should lead on that approach.
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European Union: ESRB publishes recommendation on establishing pan-European systemic cyber incident co-ordination framework
On 27 January 2022, the European Systemic Risk Board (ESRB) published a recommendation (ESRB/2021/17) on the establishment of a pan-European systemic cyber incident co-ordination framework (EU-SCICF). The key aim is to build on one of the envisaged roles of the European Supervisory Authorities (ESAs) under the proposed EU Regulation on digital operational resilience for the financial sector (DORA) of gradually enabling an effective EU-level co-ordinated response in the event of a major cross-border information and communication technologies (ICT) related incident or related threat having a systemic impact on the EU's financial sector. This process will lead to the creation of the EU-SCICF for relevant authorities. The recommendation was adopted by the ESRB Board on 2 December 2021.
The ESRB has also published a report on mitigating systemic cyber risk, building on a February 2020 ESRB report on systemic cyber risk. It explains how the EU-SCICF would facilitate an effective response to a major cyber incident and assesses the ability of the current macroprudential framework to address the risks and vulnerabilities stemming from systemic cyber risk. The ESRB concludes that the macroprudential mandate and toolkits of financial authorities need to be expanded to include cyber resilience.
The ESAs have issued a statement welcoming the recommendation and noting that it sets out some concrete steps for them.
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United Kingdom: Cyber security incentives and regulation review 2022 and two consultations on improving cyber resilience published
On 19 January 2022, the government published a review detailing the progress made in improving cyber resilience between 2016 and 2021 and what action is needed to further enhance cyber resilience in the UK.
The review:
- Assesses improvements in cyber resilience in the UK since 2016, including the positive impact of recent legislation (UK GDPR, Data Protection Act 2018 (DPA 2018) and Network and Information Systems Regulations 2018 (SI 2018/506)) in the management of cyber risk.
- Sets out further actions that the government intends to take to ensure that businesses and organisations across the digital economy are sufficiently protected against cyber threats.
- Concludes that the market has failed to improve its security practices at a sufficiently rapid rate to keep pace with cyber threats and the impact these have on an increasingly connected society. The government therefore intends to take a more interventionist approach to encourage organisations to reduce their cyber risks.
The key outcomes the government seeks to achieve are to:
- Understand why government advice is not reaching or being acted upon by the target audience.
- Increase cyber resilience within organisations by increased uptake of the Cyber Essentials scheme.
- Improve resilience within essential services and digital services.
- Increase accountability for cyber security in business.
- Clarify skills and qualifications within the cyber security profession.
At the same time as publishing this review, the government announced two consultations for new laws to improve the cyber resilience of organisations which are important to the UK economy (closing 10 April 2022), and embedding standards and career pathways across the cyber profession by 2025 (closing 20 March 2022).
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United Kingdom: HM Treasury announces interim FCA and PSR Chair appointments
On 4 February 2022, HM Treasury published a press release announcing that:
- Richard Lloyd, FCA Senior Independent Director, will be the interim Chair of the FCA from 1 June 2022 until the next permanent Chair takes up their post. This follows his recent reappointment for a second three-year term on the FCA board, commencing on 1 April 2022.
- The FCA has appointed Aidene Walsh as interim Chair of the Payment Systems Regulator (PSR) from 1 April 2022 until the next permanent PSR Chair takes up their post. Ms Walsh has been a non-executive director on the PSR board since June 2020.
It was announced in October 2021 that Charles Randell was stepping down as Chair of the FCA and the PSR.
HM Treasury has launched a recruitment campaign to appoint the next Chair of the FCA. It will launch a separate campaign for the appointment of the next PSR Chair in due course.
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Payment Market Developments
United States: Ford picks Stripe to enhance e-commerce capabilities
On 17 January 2022, it was announced that Ford and Stripe had entered into a five year agreement, pursuant to which Stripe will be the premier payment service provider for Ford and its dealers across North America and Europe. Together, the two companies plan to grow the online payments infrastructure serving customers and dealers in Europe and North America. One example of this is through the use of Stripe Connect, which facilitates payments between third-party buyers and sellers.
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United States: Visa launches cloud-based payments
On 13 January 2022, Visa announced the launch of a new platform called Visa Acceptance Cloud. The new platform will allow acquirers, payment service providers and point of sale providers (among others) to move payment processing software to the cloud from hardware devices.
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Philippines: Mocasa launches Buy Now Pay Later services
On 26 January 2022, it was reported that Mocasa had launched its Buy Now Pay Later services in the Philippines. Through Mocasa’s app, users can pay for products instantly from thousands of offline and online merchants and repay this amount with no interest.
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India: City Union Bank launches payment solution for smartwatches
On 24 January 2022, it was reported that City Union Bank had launched a contactless debit card in a fitness watch. This is the second wearable payment product launched by the bank, following the launch of its wearable key chain in December 2021. One safety feature of the device is that a text message is sent to the registered mobile number every time a payment is made.
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Spain: Square launches in Spain
On 25 January 2022, it was announced that Square, the software payments and hardware solutions company, had launched in Spain. Businesses in Spain will now have access to Square’s products, which include support in accepting physical and online card payments. Square also offers three point of sale software products and three types of payment terminal.
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United States: Facebook and Instagram reportedly developing NFT capabilities
On 20 January 2022, it was reported that Facebook and Instagram were developing non-fungible token (NFT) development and selling capabilities. According to the reports, Meta is developing ways to create, display and sell NFTs on Facebook and Instagram.
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South America: Paysafe completes acquisition of SafetyPay
On 31 January 2022, it was announced that the payments platform Paysafe had completed its acquisition of SafetyPay, a leading South American payments platform. The acquisition follows on from Paysafe’s recent purchase of Peruvian payments platform PagoEfectivo.
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Europe: Modulr and Ripple partner to boost payments in the UK and Europe
On 1 February 2022, it was announced that payment platform Modulr is partnering with Ripple, a crypto solutions firm. It is hoped that the partnership will offer an alternative to the correspondent banking model of cross-border payments, and will allow for faster, more reliable and cost-effective payments between European countries, including the UK.
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United Arab Emirates: Accenture selected by UAE’s central bank to execute National Payment Systems Strategy
On 2 February 2022, it was announced that Accenture had been selected by UAE’s central bank to execute its National Payment Systems Strategy. Over the next five years, Accenture will build and operate the National Instant Payment Platform, which it is hoped will transform the financial services ecosystem in the UAE.
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Russia: Sberbank launches money transfer service to China
On 1 February 2022, it was announced that Sberbank has launched a money transfer service to China. Customers can use the new service by providing the phone number and full name of the intended recipient. The service has been launched in partnership with Western Union and a transfer fee of 1% will be charged on payments.
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United Kingdom: Verto partners with Acquired on multi-currency digital payments
On 8 February 2022, it was announced that forex firm Verto has partnered with the payments firm Acquired to deliver a multi-currency digital wallet solution. The collaboration will allow instant top-up payments and payment collections worldwide.
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India: Revolut acquires Arvog Forex
On 12 February 2022, it was reported that Revolut India had acquired international money transfer firm Arvog Forex. It is thought that the acquisition will strengthen Revolut’s presence in India and accelerate its plans to offer remittance and forex services to Indian customers.
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Surveys and Reports
United States: 61% of consumers are considering buying crypto in 2022
On 20 January 2022, cryptocurrency platform Voyager Digital published the findings of its first Crypto Confidence Survey.
Of US consumers surveyed:
- 64% believed that cryptocurrency will gain value in 2022.
- 37% say that it is moderately or very likely that they will buy crypto in 2022.
- Men are twice as likely as women to own crypto currently (30% versus 15%).
- 48% believe that cryptocurrencies will be widely accepted in the next three years.
- 50% would own more cryptocurrency if they understood it better.
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United Kingdom: Steady rise in contactless payments
On 26 January 2022, it was reported that new data from Barclaycard showed that 91.1% of card transactions in the UK in 2021 were made using contactless payment methods. Year-on-year, the total value of contactless payments increased 40.2%.
At the individual level, the average contactless user made 180 contactless payments in 2021, worth a total of £2,293. This is an increase on the 2020 figures, which indicated that the average user made 140 payments worth £1,640.
It is thought that a significant factor in these increases is the rise in the contactless limit in October 2021 from £45 to £100.
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Global: Small businesses and consumers expect shift to digital payments
On 12 January 2022, Visa published the sixth edition of its Global Back to Business Study. A key theme of this edition was the rise of digital payments. In particular, the study found that:
- 73% of small businesses surveyed said that new forms of digital payments are fundamental to their growth.
- 59% of small businesses said that they are either already cashless, or plan to be within the next two years. However, 16% say that they will never make the shift to digital payments only.
- 41% of consumers plan to shift to digital only payments in the next two years, or are already cashless. However, 23% say that they will never make this shift.
Authored by Virginia Montgomery and Julie Patient
Hogan Lovells (Luxembourg) LLP is registered with the Luxembourg bar.
