Global Payments Newsletter, May 2021

In this Newsletter:

• Regulatory Developments
• Payment Market Developments
• Surveys and Reports

For previous editions of the Global Payments Newsletter, please visit our Financial Services practice page.

Regulatory Developments

United Kingdom: Financial Services Act 2021 becomes law

On 29 April 2021, the Financial Services Bill 2019-21 received Royal Assent. In a press release, HM Treasury described the Financial Services Act 2021 (the Act) as a ‘major milestone in shaping a regulatory framework for UK financial services outside of the EU.’  The Act makes significant amendments to key legislation, including the Financial Services and Markets Act 2000 (FSMA) and onshored EU financial services regulation.

Sections of particular relevance include the following:

• Section 29 requires the FCA to consult on whether it should make rules providing that authorised persons owe a duty of care to consumers. The consultation was launched on 14 May 2021 (see the separate item below). The FCA must publish the results of its analysis before 1 January 2022 and make final rules by 1 August 2022;
• Section 32 amends provisions in Part 7 of the Proceeds of Crime Act to bring payment and e-money institutions within the threshold amount provisions concerning defence against money laundering suspicious activity reports;
• Section 36 amends the Savings (Government Contributions) Act 2017 to give HM Treasury the power to make regulations that will enable the transfer of the balance in a Help-to-Save account into a standard savings account (a successor account) automatically when the account matures after four years;
• Section 37 gives HM Treasury the ability to bring interest-free buy-now pay-later (BNPL) products into the scope of FCA regulation in a proportionate way, reflecting a commitment given by HM Treasury following the Woolard Review; and
• Section 44 amends Part 2 Schedule 1 of the Payment Services Regulations 2017 (PSRs) to provide that in some circumstances the provision of cash would be included in the list of activities that do not constitute payment services under the PSRs. This is to facilitate the ability to provide cashback services without the need for a purchase.

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Turkey: Central bank prohibits use of cryptoassets for payments for goods and services

On 16 April 2021, the Central Bank of the Republic of Turkey (CBRT) introduced the Regulation on the Disuse of Crypto Assets in Payments (the Regulation). The Regulation prohibits the direct and indirect use of cryptoassets for payments for both goods (Article 3(2)) and services (Article 3(3)).

Article 4 of the Regulation prohibits payment service providers (PSPs) from developing business models that use cryptoassets directly or indirectly for the provision of payment services and e-money issuance, or providing services to firms using such business models. PSPs are also prevented from acting as intermediaries for platforms offering cryptoasset services, including with respect to fund transfers from these platforms.

The CBRT explains that, in its view, cryptoassets pose a significant risk because they are currently unregulated and not subject to any supervisory mechanism or central regulatory authority. Moreover, the market values of cryptoassets can be excessively volatile and cryptoassets can be used for illegal purposes due to their anonymous structures. The CRBT  mentioned a further concern that cryptoassets wallets can be stolen or used unlawfully without the holders’ authorisation and those transactions would be irrevocable.

Further legislation on cryptoassets is expected during the term of the current Turkish Government.

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United Kingdom: BoE and HM Treasury establish CBDC Taskforce and external engagement groups

On 19 April 2021, the Bank of England (BoE) and HM Treasury announced the joint creation of a Central Bank Digital Currency (CBDC) Taskforce to explore a potential UK CBDC.

The CBDC Taskforce aims to:

• Coordinate the exploration of the objectives, use cases, opportunities and risks of a potential UK CBDC;
• Guide the evaluation of the design features a CBDC must display;
• Support a rigorous, coherent and comprehensive assessment of the overall case for a UK CBDC; and
• Monitor international CBDC developments to ensure that the UK remains at the forefront of global innovation.

In addition to the CBDC Taskforce, the BoE has also created a number of external engagement groups:

• The CBDC Engagement Forum will engage senior stakeholders and gather strategic input on all non-technology aspects of CBDC, in particular with respect to the practical challenges of designing, implementing and operating a CBDC. The members will be drawn from financial institutions, civil society groups, merchants, business users and consumers;
• The CBDC Technology Forum will engage stakeholders and gather input on all technology aspects of CBDC. The members will be drawn from financial institutions, academia, fintechs, infrastructure providers and technology firms; and
• The CBDC Unit will be a new division of the BoE, which will lead the BoE’s internal exploration of CBDC.

If implemented, the UK CBDC would exist alongside existing currency forms such as cash and bank deposits.

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United States: Digital Dollar Project announces launch of five pilot programmes to test uses of a US CBDC

On 3 May 2021, the Digital Dollar Project announced the launch of at least five pilot programmes over the next twelve months to measure the value and inform the design of a US CBDC. The Digital Dollar Project is a partnership between Accenture and the Digital Dollar Foundation, dedicated to advancing the exploration of a US CBDC. 

The pilots will analyse and identify the technical and functional requirements of a US CBDC. They will also assess the benefits and outstanding challenges of a project of this kind, in particular by exploring how to incorporate key societal values like privacy rights, financial inclusion and the rule of law. The areas of focus for the pilots are to:

• Gather empirical evidence to inform the public policy decisions that the government sector will need to consider;
• Inform all stakeholders of the proposed benefits and drawbacks of a US CBDC; and
• Evaluate and catalogue emerging standards and policies in respect of global CBDC developments.

The Digital Dollar Project will release the results and insights from the pilots to the public for policy consideration by Congress and for academic study.

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United Kingdom: Law Commission launches call for evidence on digital assets

On 30 April 2021, the Law Commission launched its call for evidence on digital assets, seeking views and evidence on the ways in which digital assets are being used, treated and dealt with by market participants. At this stage, the term ‘digital assets’ is used broadly to cover all assets that are represented either digitally or electronically, including cryptoassets.

In terms of scope, respondents are asked to:

• consider potential implications of a reform to, and expansion of, the concept of possession to apply to (some) digital assets;
• help in identifying existing practical issues arising from the application of the common law to digital assets and how market practice looks to resolve those issues;
• suggest comparative jurisdictions;
• identify other areas of law that could be affected by such a reform; and
• provide evidence of situations where the law might be inhibiting particular use cases, innovation or development.

The Law Commission invites responses until 30 July 2021. It aims to publish a consultation paper on digital assets at the end of 2021, in which it expects to make proposals for law reform to make (some) digital assets possessable. The consultation will draw on the conclusions of the UK Jurisdiction Taskforce's Legal Statement on cryptoassets and smart contracts (November 2019), as well as the proposals in, and the responses to, the Law Commission’s consultation paper on electronic trade documents (April 2021).

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United Kingdom: FCA launches consultation on new Consumer Duty

On 14 May 2021 and as required by the Financial Services Act 2021 (see the separate item above), the FCA published a consultation (CP21/13) on a new Consumer Duty for financial services firms including payment and e-money institutions.

The proposals relate to products and services sold to ‘retail clients’. This is wider than the traditional definition of ‘consumer’ and includes all clients other than professional clients (such as large corporates and government bodies) and eligible counterparties. The Consumer Duty will apply to financial services offered to SMEs. The proposals extend to firms that are involved in the manufacture or supply of products and services to retail clients, meaning some firms that operate exclusively in wholesale markets will be impacted.

The FCA believes that consumers’ ability to make good decisions can be impaired by factors including lack of understanding, behavioural biases, asymmetries of information or their weaker bargaining position. It wants all firms to be placing their customers' interests at the heart of their business.

The Consumer Duty will have three key elements:

• A new Consumer Principle, which sets a clear tone and uses language that reflects the overall standards of behaviour that the FCA expects from firms. As with the other FCA Principles for Businesses, the Consumer Principle will apply to payment institutions, e-money institutions and registered account information service providers. There are two options put forward for the Consumer Principle:
  • A firm must act to deliver good outcomes for retail clients; or
  • A firm must act in the best interests of retail clients.
• 'Cross-cutting rules', which develop and clarify the Consumer Principle's overarching expectations of firm conduct and set out how it should apply in practice, requiring firms to:
  • Take all reasonable steps to avoid foreseeable harm to consumers;
  • Take all reasonable steps to enable consumers to pursue their financial objectives; and
  • Act in good faith.
• The Four Outcomes, a suite of rules and guidance with more detailed expectations for firms in relation to communications, products and services, customer service, and price and value.

The FCA is also seeking stakeholders’ further views on how a private right of action for breaches of its Principles for Businesses could support or hinder the success of the proposals and their intended impact on firms, consumers and markets.

The FCA’s consultation is open for comment until 31 July 2021. The FCA expects to consult again on proposed rule changes by 31 December 2021 and, to comply with the statutory timetable, make any new rules by 31 July 2022.

Take a look at this Engage article for more on the FCA’s proposals.

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United Kingdom: Access to cash – FCA and PSR statement and FCA and HM Treasury speeches

On 13 May 2021, the FCA and the Payment Systems Regulator (PSR) published a statement giving an update on their joint approach to access to cash. Key points include:

• The FCA and the PSR’s commitment to ensuring that cash (and the supporting infrastructure) remains available for those who need it - particularly vulnerable consumers and SMEs - includes considering new and innovative ways for accessing cash, such as banking hubs that are being piloted;
• They expect individual firms to play their part in protecting the ability of customers to access cash and wider banking services in ways that meet their needs;
• There can be significant benefits from making the most of, and where necessary enhancing, existing services and policies. There will be further scope for firms to use other alternatives and innovations in the longer term;
• The FCA and the PSR intend to publish an updated assessment of the UK's cash infrastructure in the summer, alongside the FCA's recent consumer research into cash use. The PSR will also shortly publish its review of specific direction 8 (SD8) on free-to-use ATMs.

On the same date, the FCA published a speech by Sheldon Mills, FCA Executive Director, Consumers and Competition, on protecting access to cash and banking services. Among other things, Mr Mills reiterated that, while legislation is essential to protect access to cash, the FCA wants individual firms and the wider industry to play a role.

Also on 13 May 2021, HM Treasury published a speech by John Glen, Economic Secretary to HM Treasury, on the government's commitment to protecting access to cash. In the speech, Mr Glen explains that there are two parts to the government's commitment to protect access to cash and ensure that the UK's cash infrastructure is sustainable in the long-term: work on a new model for the wholesale cash network, and a consultation on legislative proposals to protect access to cash which is planned for summer 2021.

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United Kingdom: Chancellor announces UK FinTech and financial services plans

On 19 April 2021, the Chancellor of the Exchequer, Rishi Sunak, set out proposals to enhance the UK's competitive advantage in fintech and confirmed that the UK will be taking forward many of the Kalifa Review recommendations. Speaking at the Innovate Finance Global Summit as part of UK Fintech Week, the Chancellor covered topics ranging from supporting growing firms and fintech hubs across the UK to pushing the boundaries of digital finance and reforms to listing and capital market rules. Key points include:

• confirmation by the Chancellor that the FCA will take forward a Scalebox to enhance its Regulatory Sandbox, and will also launch the second phase of its Digital Sandbox;
• an industry-led Centre for Finance, Innovation and Technology will be created to work closely with regional fintech hubs to identify and address sector challenges in support of fintech growth, and a new visa stream will be implemented to allow skilled people to qualify for a fast-track visa;
• the CBDC Taskforce discussed above in this Newsletter is also part of the Chancellor’s plans to push the boundaries of digital finance;
• firms exploring distributed ledger technologies (DLT) will have access to a new sandbox.

The FCA also confirmed that it will be implementing recommendations from the Kalifa Review in a speech during UK Fintech Week, working to support scaling firms’ entry and growth in other markets and further develop cross-border testing of innovative products and services.

For more on the Kalifa Review, including Hogan Lovells’ involvement, take a look at this Engage article and the March 2021 Global Payments Newsletter.

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United Kingdom: FCA publishes evaluation report of Digital Sandbox pilot

On 4 May 2021, the FCA published an evaluation report setting out the findings of the Digital Sandbox pilot. The pilot involved 28 organisations participating in a digital testing environment with the aim of developing innovative products and solutions within financial services.

Overall, the FCA found that access to the digital testing environment successfully accelerated development times for the vast majority of participants, as well as benefitting other aspects such as improving product design and refining early-stage business models. The FCA’s key findings include:

• There is significant industry demand, particularly from early-stage firms and startups, for a digital testing environment;
• Ongoing evaluation and feedback from pilot participants indicated that the digital testing environment led to accelerated product development, validating and improving AI and machine learning models, refining business plans, and networking within the pilot ecosystem;
• While the pilot covered 3 broad areas exacerbated by the Covid-19 pandemic – namely scams and fraud, consumer vulnerability and SME financing - a narrower focus in the future is advisable for more sustained engagement from a closer-knit ecosystem; and
• Participants would benefit from a more structured journey through the cohort, rather than the Digital Sandbox being a ‘self-service’ platform.

The second phase of the Digital Sandbox pilot, which will focus on sustainable finance, will be launched later this year. 

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China: People’s Bank of China and other departments launch fintech projects focussing on rural communities

On 16 April 2021, the People’s Bank of China (PBC) announced that it is partnering with six other government departments (Ministry of Agriculture and Rural Affairs, Ministry of Industry and Information Technology, Ministry of Human Resources and Social Security, Ministry of Transport, Ministry of Commerce and National Health Commission) to launch a series of fintech projects aimed at creating financial products and services that benefit farmers and other inhabitants of rural areas in nine provinces of China.

One project involves accelerating the integrated development of financial services channels, promoting the construction of new service channels for online and offline connections and establishing a comprehensive service platform that benefits farmers through a "one point, multiple capabilities, one network, multiple uses" system.

Another project will see an increase in the supply of financial services in the supply chain, and embed new technologies such as the internet and blockchain into the production, transaction, processing, logistics, and warehousing links of seed and agricultural products.

Other projects similarly revolve around increasing access to modern financial services in the agricultural and farming sector.

Take a look at our Regulatory Heatmap for Retail Banking and Fintech in Asia Pacific for more on the regulatory frameworks in the retail banking and financial industry in China.

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United Kingdom: Draft Payment and Electronic Money Institution Insolvency Regulations 2021 laid before Parliament

On 26 April 2021, HM Treasury laid the draft Payment and Electronic Money Institution Insolvency Regulations 2021 before Parliament, together with a draft Explanatory Memorandum. If made, the draft Regulations will create a new special administration regime for payment and e-money institutions.

The draft Explanatory Memorandum states that the new regime will give insolvency practitioners administering the insolvencies of payment or electronic money institutions an expanded toolkit. This will allow the insolvency practitioner to keep an insolvent institution operational with the aim of ensuring continuity for consumers and prioritising the return of their funds.

The draft Regulations will also extend the full suite of Financial Services and Markets Act 2000 Part 24 provisions to all payment and electronic money institutions entering the standard insolvency process. This will provide the FCA with specific powers to participate and protect consumers in the event of an insolvency of a payment or electronic money institution as it does for other FCA supervised firms.

The draft Regulations follow HM Treasury’s consultation on the insolvency of payment institutions and e-money institutions in December 2020. On 26 April 2021, HM Treasury published a response to that consultation in which it explains that progress should be made even before the publication of the conclusion to the Payments Landscape Review because the proposed insolvency changes can be delivered relatively quickly and could mitigate harms from any future insolvencies.

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China: People’s Bank of China and other regulatory agencies ask fintech firms to stop providing financial services other than payments via apps

On 29 April 2021, it was reported that the People’s Bank of China and four other regulatory agencies have informed major fintech firms, including WeChat operator Tencent Holdings Ltd and ride-hailing company Didi Chuxing Technology Co, that their apps should stop providing financial services other than payments.

The regulators are reported to have told the fintech firms that the bundling of several financial services within a single platform creates risk for the Chinese financial system as a whole, because the apps could hide how much money is flowing into each of the financial products.

The fintechs will now have to set up financial holding companies separating their various financial services. Alibaba’s fintech affiliate Ant Group recently had to make a similar move. The new policy is thought to be part of the Chinese Government’s efforts to more strictly regulate China’s growing internet platform economy.

Take a look at our Regulatory Heatmap for Retail Banking and Fintech in Asia Pacific for more on the regulatory frameworks in the retail banking and financial industry in China.

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United Kingdom: DRCF publishes policy paper on coherence in regulatory approaches across digital services

On 4 May 2021, the Digital Regulatory Cooperation Forum (DRCF) published a policy paper on coherence in regulatory approaches across digital services. This is in response to a November 2020 request from the Department for Digital, Culture, Media and Sport (DCMS) for views on the challenges of delivering effective digital regulation and whether further measures may be needed to support co-operation between digital regulators.

The policy paper focuses on a number of areas where barriers to cooperation need to be addressed:

• Supporting appropriate information sharing: Existing information sharing gateways do provide for the disclosure of information for the purposes of joint or co-ordinated activities. The DRCF recommends that the government reviews the information sharing gateways between digital regulators to ensure that they are suitable for future expected cross-regulatory engagement;
• Embedding cooperation in the statutory framework for digital services: The current statutory framework, imposing a range of different statutory duties on the regulators, may impede digital regulators’ ability to co-operate effectively. The DRCF recommends embedding the aims of cooperation into the statutory framework; and
• Enhancing transparency and accountability: The DRCF considers that its recommendations for formalising regulatory objectives and duties could also enhance transparency and accountability, for example by setting out a clear articulation of the government’s view of digital regulatory cooperation.

The policy paper sits alongside the DRCF’s 2021-2022 plan of work.

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Europe: European Commission publishes AI Regulation proposals

On 21 April 2021, the European Commission published its proposals for the regulation of artificial intelligence (AI). The proposals include a legal framework on AI, a new Coordinated Plan with Member States and new rules on machinery products.

The aim of the proposals is to guarantee the safety and fundamental rights of people and businesses, while strengthening AI uptake, investment and innovation across the EU. The new rules will apply directly and uniformly across the EU Member States and will involve a future-proof definition of AI.

The rules will follow a risk-based approach:

• Unacceptable risk – AI systems considered a clear threat to the safety, livelihoods and right of people will be banned (e.g. AI systems that manipulate human behaviour to circumvent users' free will and systems that allow government social scoring);
• High risk – AI systems used in critical infrastructures, educational or vocational training, essential private and public services and others, will be subject to strict obligations before they can be put on the market, including implementing adequate risk assessment and mitigation systems and maintaining high quality datasets;
• Limited risk – AI systems with specific transparency obligations (e.g. chatbots) will have to inform users that they are interacting with a machine; and
• Minimal risk - applications such as AI-enabled video games or spam filters will be free to use.

For further information see this Engage article and this press release from the European Commission.

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South Korea: Government consults on regulation of overseas remittances and banks with ties to cryptocurrency exchanges

On 19 April 2021, it was reported that the Financial Supervisory Service and the Ministry of Economy and Finance are reviewing a plan to formulate new guidelines regarding overseas remittances of virtual assets.

This results from an increase in the number of domestic investors who send fiat abroad in the form of remittances in exchange for cryptocurrency from foreign sellers. The cryptocurrency is then resold domestically for an increased price, a practice referred to as the ‘kimchi premium’.

The Financial Supervisory Service hopes that banks will be in charge of implementing the new guidelines, as they currently do with their anti-money laundering (AML) duties. Banks will monitor suspicious transactions, such as sudden requests for large sums to be remitted abroad from customers with no prior history of making overseas remittances or unexplained remittances made to foreign citizens overseas.

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United Kingdom: PRA publishes policy statement on approach to new and growing banks

On 15 April 2021, the PRA published Policy Statement PS8/21 on its approach to new and growing non-systemic UK banks. The policy statement provides feedback to Consultation Paper CP9/20 and contains the PRA’s final policy on this topic.

Among other issues, the policy statement envisages that:

• As banks grow and mature following authorisation, they should have greater clarity over the path to profitability, including how they will meet all relevant loss absorbing capital requirements;
• The PRA buffer for new banks would be calculated on the basis of six months’ projected operating expenses;
• Firms must demonstrate on an ongoing basis how the preferred resolution strategy set for them could be carried out in an orderly way; and
• The key determinant when deciding whether a firm is eligible for Simplified Obligations is whether the firm performs a critical function.

The policy statement is relevant to banks in their first few years (typically less than five) of being authorised by the PRA as deposit takers and to prospective banks interested in and currently applying for authorisation to be deposit takers.

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Europe: ECB publishes Regulation and Decisions on systemically important payment systems

On 5 May 2021, the ECB published Regulation (EU) 2021/728, which amends the Regulation on oversight requirements for systemically important payment systems (SIPS Regulation), in the Official Journal of the EU (OJ).
The amendments to the SIPS Regulation include:

• Introducing an additional methodology that allows the ECB Governing Council to identify certain payment systems that fall outside the criteria in the Regulation as SIPSs;
• Allowing for both the ECB and a national central bank to be designated as competent authorities in exceptional circumstances;
• Requiring the ECB to follow process procedures concerning the identification of SIPSs; and
• Clarifying the circumstances in which the ECB will consider that a payment system is no longer a SIPS.

On the same date, the ECB also published two Decisions (Decision (EU) 2021/729 and Decision (EU) 2021/730) relating to SIPS in the OJ. The Decisions amend Decision (EU) 2017/2098 on procedural aspects concerning the imposition of corrective measures for non-compliance with the SIPS Regulation and Decision (EU) 2019/1349 on the procedure and conditions for exercise by a competent authority of certain powers in relation to oversight of SIPS, in light of the amendments to the SIPS Regulation described above.

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United Kingdom: PRA publishes discussion paper on a prudential framework for non-systemic banks and building societies

On 29 April 2021, the PRA published Discussion Paper DP1/21 on the options for developing a simpler prudential framework for non-systemic, domestic PRA-regulated banks and building societies.

Steps to simplify prudential regulation would build on a number of recent PRA actions such as the simplified prudential regime for credit unions introduced in 2020 and the recent policy statement about the PRA’s approach to new and growing banks (see above). The PRA recognises that the wide range of sizes and business models of smaller banks and building societies means that it may not be possible to have a unitary prudential regime. The PRA’s long-term vision is for a strong and simple framework in which requirements expand and become more sophisticated as the size and/or complexity of firms increase.

Comments can be made until 9 July 2021. A consultation paper on proposed prudential rules for defining whether a firm is in scope of the simpler regime and the proposed regime requirements will follow.

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United Kingdom: BoE publishes speech on operational resilience

On 5 May 2021, the Bank of England (BoE) published a speech by Lyndon Nelson, PRA Deputy CEO  and Executive Director of Regulatory Operations and Supervisory Risk Specialists, at a UK Finance Operational Resilience webinar on operational resilience outcomes in practice.

Key points from the speech include:

• The most significant change in the BoE’s take on operational resilience is that it will now take a principle and outcomes-based approach. As a result, it is expected that two upcoming challenges for the BoE’s operational resilience policy will be:
  • Impact tolerances and whether the FPC and FCA decide to set their own tolerance levels, independent from the PRA; and
  • Maintaining an operational resilience policy that is fit for purpose for modern business models, shaped by factors such as the COVID-19 pandemic and an increasing migration towards cloud-based systems. 
• There was an acknowledgement of criticism that the BoE has been asking firms to make significant changes to their operational resilience policies in a short amount of time – by 31 March 2022. In response, Mr Nelson explained that  by 31 March 2022, they expect to be able to set out a compelling gap analysis and to know where major shortcomings are and therefore which areas need more work. The BoE has also removed the requirement for all firms to have set impact tolerances with regard to financial stability, and only the largest firms will be asked to do this for now.

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Europe: ECB publishes report on the use of DLT in post-trade processes

On 12 April 2021, the ECB published a report on the use of DLT in post-trade processes. The report describes different types of securities issuance and post-trade processes categorised according to how DLT is used in each instance. It also assesses the implications of using DLT on the basis of identified market practices.

Some of the main conclusions of the report include:

• DLT-based solutions could be driven by projected cost savings and efficiency gains;
• The use of DLT would entail similar challenges to those faced by solutions relying on conventional technology and would potentially create new ones, for example relating to the legal validity of tokens;
• DLT-based solutions should be underpinned by strong governance, with interests aligned and properly monitored; and
• As industry participants are presently building their own DLT-based systems, there is a risk of incompatibility between the different systems. Market standards will be especially important to ensure interoperability.

The report was prepared on the basis of an initial assessment of the potential impact of the use of DLT in a post-trade environment by the Fintech Task Force, as well as input from other work from the Advisory Groups on Market Infrastructures.

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Thailand and Singapore: Faster payment systems linked in world first

On 29 April 2021, it was announced that Thailand and Singapore’s national faster payment systems, PromptPay and PayNow respectively, have been successfully linked, enabling retail customers of participating banks from both countries to securely perform cross-border fund transfers using only mobile numbers. The linkage is the first of its kind globally.

The project began in 2018 with an agreement between the Monetary Authority of Singapore and the Bank of Thailand. At the moment, the linkage involves three banks in Singapore (DBS, OCBC and UOB) and four banks in Thailand (Bangkok Bank, Kasikorn Bank, Krung Thai Bank and Siam Commercial Bank) and caters for small P2P transactions of less than S$ 1,000 or THB 25,000. The scale of the project is expected to increase in the future.

For further information on the background to the project, see the April 2021 Global Payments Newsletter.

Take a look at our Regulatory Heatmap for Retail Banking and Fintech in Asia Pacific for more on the regulatory frameworks in the retail banking and financial industry in Singapore.

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United Kingdom: BoE publishes press release on omnibus accounts in its RTGS service

On 19 April 2021, the Bank of England (BoE) published a press release regarding omnibus accounts. Omnibus accounts are a new type of account available through the BoE’s Real-Time Gross Settlement (RTGS) service, in which the funds of different entities are co-mingled in a single account.

Payment system operators can use omnibus accounts to fund their participants’ balances with central bank money. This allows them to offer innovative payment services, including DLT, while having the security of central bank money. The BoE expects these accounts to be used for a range of transactions, from a commercial bank buying government bonds to a small business paying their suppliers.

Operators of new and existing payment systems can now apply to the BoE to open an omnibus account by emailing rtgschapsaccess@bankofengland.co.uk. For a detailed description of how omnibus accounts work, see the BoE's omnibus account policy.

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Nigeria: Central bank extends diaspora remittances scheme indefinitely

On 8 May 2021, the Central Bank of Nigeria announced that it is extending the ‘Naira 4 dollar scheme’ until further notice. The scheme was initially scheduled to end on that date.

The ‘Naira 4 dollar scheme’ was first introduced on 5 March 2021 to encourage the increase of diaspora remittances into Nigeria by providing incentives for senders and recipients of international money transfers. For every USD 1 received in remittances, recipients are paid an additional NGN 5 from the Central Bank of Nigeria. The incentive can be collected by remittances recipients either through a cash withdrawal or a transfer of the remittances into the recipient’s domestic bank account. 

In March 2021, the Central Bank of Nigeria published a forecast from PwC suggesting that Nigeria’s remittance flows could reach USD 34.89 billion by 2023 if the remittance infrastructure improves and the right policies are put in place.

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Europe: European Commission publishes speech on making financial services work for citizens

On 20 April 2021, the European Commission published a speech delivered by Commissioner Mairead McGuinness at the Florence School of Banking and Finance on increasing the accessibility of financial services. Points from the speech include:

• On the topic of financial literacy, the European Commission will be working closely with the OECD to develop a joint EU/OECD financial competence framework;
• The EU Payment Accounts Directive, which gives everyone legally resident in the EU the right to a basic bank account at no or only a reasonable cost, is currently being reviewed; and
• The European Commission is monitoring the rise in electronic payments and, if necessary, will take steps to protect the availability of cash towards the end of 2021.

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United Kingdom: House of Lords Liaison Committee publishes follow-up report on financial exclusion

On 24 April 2021, the House of Lords Liaison Committee published a report on financial exclusion in the UK. The report is the third in a series examining the progress made by the Government and key stakeholders on tackling financial exclusion.

The report makes several  recommendations, including:

• The FCA should have overall responsibility to meet the cash needs of consumers and SMEs as part of a statutory duty of care;
• Non-digital access to financial services should remain possible;
• Analysis on the basic bank accounts annual report should include evidence of how banks are ensuring access to basic bank accounts for their customers;
• The Government should formally review the powers available to the FCA to mitigate the negative effects of bank branch and free ATM closures; and
• Legislation on the regulation of BNPL products should be brought forward without delay.

The previous report on financial exclusion, to which this report is a follow-up, can be accessed here.

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United Kingdom: PSR consults on updating guidance on Interchange Fee Regulation

On 22 April 2021, the Payment Systems Regulator (PSR) published Consultation Paper CP21/5 on the PSR’s guidance on the Interchange Fee Regulation (IFR) following the UK’s withdrawal from the EU.

Following the withdrawal, the IFR is now retained EU law (the UK IFR) and the PSR is proposing amendments to its IFR guidance to reflect the changing regulatory framework. The guidance in its current form has not been updated since 2016. Some of the proposed changes include:

• updates to highlight that  consumer cross-border card payments between the UK and EU where either the acquirer or issuer is based outside the UK’s jurisdiction are no longer subject to the interchange fee caps established under either the UK IFR or the EU IFR;
• removing the term ‘competent authority’  as is not used in the UK IFR; and
• replacing references to the EU Regulatory Technical Standards (RTS) Regulation (Commission Delegated Regulation (EU) 2018/72) with references to the UK RTS Regulation.

The PSR believes the consultation is likely to be of interest to card scheme operators subject to the UK IFR, parties contracting with card schemes and/or processing entities, third party card payment processors and merchants that accept card payments.

The consultation closed on 21 May 2021.

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South Korea: Financial Services Commission could shut down all cryptocurrency exchanges following lack of AML registrations

On 27 April 2021, it was reported that the chair of the Financial Services Commission had declared that all cryptocurrency exchanges could be shut down in September if they fail to register as virtual asset service providers (VASP) and comply with the new AML rules.

Requirements under the new AML rules include VASP registrations, implementing anti-money laundering strategies, having partnerships with local banks, becoming information security management certified and tracking real names of customers. Despite the VASP registration window opening on 25 March 2021, no cryptocurrency exchanges have submitted applications to date. Exchanges must be approved by 24 September 2021 to remain operational.

For further details on the new AML registration requirements, see the April 2021 Global Payments Newsletter.

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France: ACPR and Banque de France publish document on unauthorised payment transactions (PSD2)

On 26 April 2021, the Autorité de contrôle prudentiel et de résolution (ACPR) and the Banque de France published a press release about a document that reminds PSPs about their obligations to reimburse unauthorised payment transactions, in particular concerning payment card transactions.

The ACPR and the Banque de France also require PSPs to further justify their decisions to refuse reimbursements and to strengthen customer information concerning the ways in which they can make a claim in relation to unauthorised payment transactions.

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United Kingdom: LSB updates CRM Code for APP scams

On 20 April 2021, the Lending Standards Board (LSB) published an updated version of the Contingent Reimbursement Model (CRM) Code for Authorised Push Payment (APP) Scams.

Some of the changes include the introduction of governance and oversight requirements to support embedding and ongoing oversight of the Code’s requirements, effective from 14 June 2021, and amendments to the Code in respect of the no-blame funding pot, effective immediately.

This version follows the LSB’s full review of the Code earlier this year and forms part of the LSB’s roadmap for the 2021 CRM Code Review. Other elements of the roadmap include a Call for Input and a review of provision R2(1)(c) on the approach to reimbursement of customers.

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United Kingdom: Government publishes statement of progress on the Economic Crime Plan 2019/22

On 5 May 2021, the government published a statement of progress on the Economic Crime Plan 2019/22, focusing on the period from July 2019 to February 2021. The statement of progress sets out how the government has worked through the COVID-19 pandemic to tackle economic criminals and disrupt hostile actors.

Highlights from the statement of progress include:

• Under the Financial Services Act 2021 (see the separate item above), payment and electronic money institutions are now within scope of existing Defence Against Money Laundering (DAML) threshold amount provisions, which is likely to reduce the number of DAMLs submitted for low value transactions and decrease the resource burden on law enforcement;
• Current activity is focused on the determination of how Pay.UK can support the implementation of future financial crime capabilities under the New Payments Architecture (NPA);
• The new digital service for SARs reporting and analysis, including search, data visualisation and analytics, will be completed in March 2022; and
• UK Finance convened a cross-sector meeting to test the readiness of financial crime compliance for the end of EU transition, including representatives of banks, asset management, digital payments, the legal and accountancy sectors.

At the February 2021 Economic Crime Strategic Board meeting, Board members agreed the need to further develop an ambitious vision that would deliver a comprehensive economic crime response. This would be underpinned by seven actions, focusing on joint public and private delivery to target public and private resources over the remainder of the Economic Crime Plan. One of these actions is to design and deliver a comprehensive fraud action plan. The statement of progress confirmed that a fraud action plan will be developed by the government, private sector and law enforcement and will be published following the 2021 spending review.

For further information, see this press release.

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Europe: EBA publishes consultation on draft RTS establishing an AML and CFT central database

On 6 May 2021, the EBA published a consultation paper on draft regulatory technical standards (RTS) establishing an anti-money laundering (AML) and countering financing of terrorism (CFT) central database, together with a summary of the draft data protection impact assessment on the database.

Among other things, the draft RTS set out rules to ensure the effectiveness of the database, the confidentiality of the data contained in the database, and how the database will interact with other notifications that competent authorities are required to provide to the EBA and provisions to ensure the protection of personal data.

The EBA plans to use the database in particular to gain information on money laundering and terrorism financing risk affecting the EU's financial sector in order to inform its AML and CFT policy.

In accordance with Article 42(1) of the EU Institutions' Data Protection Regulation ((EU) 2018/1725), the EBA is also seeking the view of the European Data Protection Supervisor (EDPS) on the draft RTS.

The consultation closes on 17 June 2021.

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United States: Government pushes for cryptocurrency regulation to fight ransomware increase

On 28 April 2021, it was reported that the Department of Justice has established a new government group on ransomware, following a surge in ransomware involving hackers freezing computers and demanding payoffs. The task force includes representatives from the FBI and the United States Secret Service as well as major tech and security companies.

The report also indicates that the new government group is focusing on cryptocurrency regulation as a key element to combatting ransomware, due to the popularity of cryptocurrencies among ransomware collectors. Future rules are said to be primarily focused on piercing the anonymity of cryptocurrency transactions.

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United Kingdom: Global Anti-Corruption Sanctions Regulations 2021 enter into force

On 26 April 2021, the Global Anti-Corruption Sanctions Regulations 2021 brought into force a new sanctions regime against individuals and organisations responsible for serious international corruption.

The new regime allows the UK to impose sanctions on individuals and organisations unilaterally, not just alongside the United Nations or the EU. Prior to the UK’s withdrawal from the EU, the UK had to act with the EU with regards to sanctions.

The first sanctions under the new Global Anti-Corruption regime were announced by the Foreign Secretary on 26 April 2021 and include 22 individuals involved in notorious corruption cases in Russia, South Africa, South Sudan, and Latin America. The full list of designated persons is accessible here.

For further information see this Engage article.

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Europe: EBA consults on draft guidelines on delineation and reporting of available financial means of deposit guarantee schemes

On 28 April 2021, the EBA launched a consultation on draft guidelines on delineation and reporting of available financial means (AFM) of deposit guarantee schemes (DGS).

The draft guidelines clarify the two subtypes of AFM:

• Qualified AFM (QAFM) - funds stemming directly or indirectly from contributions of DGS member institutions, which qualify towards reaching the target level of the DGS fund; and
• Other AFM – funds which are not QAFM, such as borrowed funds stemming from liabilities such as loans, and which do not count towards reaching the target level of the DGS fund.

The EBA is also proposing to extend the reporting requirements from DGSs to the EBA  to reflect the clarified concept of AFM, QAFM and other AFM. That information would be published on the EBA website annually and should provide more transparency and comparability of the financial position of DGSs across the EU.

A public hearing will take place via conference call on 28 June 2021. The consultation closes on 28 July 2021.

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United Kingdom: PRA and FCA publish joint Dear CEO letter on obtaining deposits through deposit aggregators

On 14 April 2021, the PRA and the FCA published a joint Dear CEO letter on obtaining deposits via deposit aggregators. The letter highlights the risks associated with the increasing number of deposits made through deposit aggregators and suggests ways to mitigate them.

The letter focuses on depositor protection, managing data to permit orderly failure, managing liquidity risks and enhancing senior management oversight. Firms are now expected to consider the extent to which their deposit book relies on business sourced via deposit aggregators and whether this requires them to take any action.

Financial promotions are also discussed, on the basis that customers may not fully understand how deposit aggregator relationships work and how they differ from direct-depositor relationships with firms. In particular, the letter makes clear that where a deposit aggregator undertakes financial promotions as a firm’s agent, it is the firm’s responsibility to ensure that the promotions comply with the FCA Handbook and especially BCOBS 2 (Communications with banking customers and financial promotions).

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Europe: ECB publishes response to European Commission consultation on review of crisis management and deposit insurance framework

On 6 May 2021, the ECB published its response to the European Commission's consultation on the review of the crisis management and deposit insurance framework, which consists of the Bank Recovery and Resolution Directive (2014/59/EU) (BRRD); the Single Resolution Mechanism (SRM) Regulation ((EU) 806/2014); and the Deposit Guarantee Schemes Directive (2014/49/EU) (DGSD).

Among its comments, the ECB made the point that improving the crisis management framework and completing the banking union need to be achieved in parallel. The introduction of a European Deposit Insurance Scheme (EDIS) should be an essential element of the review.

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United Kingdom: Dormant Assets Bill introduced to Parliament and receives first reading

On 12 May 2021, the Dormant Assets Bill was introduced to the House of Lords and had its first reading. Explanatory notes to the Bill and two HM Treasury (HMT) factsheets on it (Bill overview and Policy context and background) were also published.

Among other things, the Bill:

• amends the Dormant Bank and Building Society Accounts Act 2008 to expand the existing UK Dormant Assets Scheme so that a wider range of dormant assets, including assets in the insurance and pensions, investment, wealth management and securities sectors, can be transferred into the scheme;
• enables Reclaim Fund Ltd (RFL), which administers the scheme, to accept transfers of certain unwanted assets and improves the operation of the scheme;
• gives the Secretary of State or HMT the power to make regulations further expanding the scheme’s future scope and introduces a new power for HMT to establish other reclaim funds in the future, either in addition to RFL or in replacement of it;
• amends the approach for distributing dormant assets funding in England to align it with the model used for Scotland, Wales and Northern Ireland.

Second reading of the Bill is scheduled to take place on 26 May 2021.

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United Kingdom: FSCS confirms updated levy forecast for 2021/22

On 13 May 2021, the Financial Services Compensation Scheme (FSCS) published the latest edition of its Outlook newsletter, in which it confirms its updated levy forecast for 2021/22.

In its 2021/22 plan and budget (January 2021), the FSCS initially forecasted a levy for the year of £1.04 billion. This has now been revised to the lower figure of £833 million.

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Payment Market Developments  

United States: Sotheby’s accepts cryptocurrencies for artwork in world first

On 4 May 2021, it was announced that Sotheby’s would accept Bitcoin and Ethereum as payment for “Love is in the Air”, a Banksy artwork. This is the first ever report of an auction house allowing payments for art in cryptocurrency. Sotheby’s has partnered with cryptocurrency exchange Coinbase Global Inc for the auction.

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Singapore: DBS, Temasek and JPMorgan partner on DLT-based payments JV

On 28 April 2021, it was reported that DBS Bank, Temasek and JPMorgan have set up a joint venture company that will use DLT to innovate cross-border payments. The new venture, Partior, will start by focussing primarily on payments between Singapore-based banks in both USD and SGD. It is envisaged that operations will soon expand to other markets and currencies. 

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South Korea: Klaytn partners with ConsenSys on CBDC project

On 26 April 2021, it was reported that public blockchain Klaytn has teamed up with Ethereum developer ConsenSys to advance its CBDC project. The project involves developing a private blockchain to enable the data protection that financial institutions demand, and providing scalability and interoperability bridges with other blockchains.

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Maldives: Pomelo Pay launches payments initiative to help struggling tourism sector

On 19 April 2021, it was announced that Pomelo Pay has partnered with the Bank of Maldives to expand its Covid-19 proof payment support to the tourism industry in the Maldives. The new technology will allow Bank of Maldives customers to increase revenues from international transactions by upgrading their compliance systems and processes, accessing enhanced analytics and taking pre-authorisation payments through payment requests.

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Russia: Fidesmo introduces wearable payment devices

On 14 April 2021, it was reported that Swedish tech company Fidesmo has launched wearable payment devices in Russia, in a partnership with ISBC. The wearable devices enable customers to tokenize their payment card onto a wearable device of their own choice.

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United Kingdom: MoneyTO enables remittances through Open Banking

On 20 April 2021, it was announced that MoneyTO customers can now make remittance payments directly from their bank accounts using bank cards as a result of Open Banking. The service is available online and through the MoneyTO app and transfers can be made in GBP.

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France: Mobile services providers launch mobile identity services

On 21 April 2021, it was reported that mobile payment and identity solutions provider Boku Inc has partnered with the French mobile services providers SFR, Orange and Bouygues Telecom to launch mobile identity products. The products are aimed at protecting customers from cyber attacks, account takeovers and other forms of digital fraud.

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South Africa: Nedbank launches WhatsApp money service

On 25 April 2021, it was reported that Nedbank has unveiled Money Message which is a service that allows customers to make payments through WhatsApp. Money Message allows WhatsApp users to create and send bills, link bank accounts to make and receive payments and make QR-based payments. To begin using the service, WhatsApp users will have to upload a photo of themselves for verification purposes.

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Hong Kong: Financial Secretary chooses e-payment platforms for digital voucher scheme

On 11 April 2021, it was reported that Hong Kong’s Financial Secretary selected four e-payment platforms (Alipay Hong Kong, Octopus, Tap & Go and WeChat Pay Hong Kong) to operate Hong Kong’s digital voucher scheme over the summer. The scheme will give each Hong Kong resident aged 18 and above a HK$ 5,000 digital consumption voucher to stimulate Hong Kong’s economy.

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Germany: Lidl introduces new digital payments option in Lidl Plus app

On 26 April 2021, it was announced that Lidl has developed a new feature in the Lidl Plus app which allows Lidl customers to make payments directly through the app and which introduces personalised product offers. Payments are made through direct debit from the user’s bank account.

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United States: Amazon launches pay-by-palm at Whole Foods

On 21 April 2021, it was reported that Amazon has launched contactless payments using handprints at a Whole Foods store in Seattle, WA. The technology is being trialled for now, with the intention of rolling it out more widely in the future. Amazon identifies handprints by analysing the lines, creases, veins, bones, soft tissue or other structures beneath the epidermis of the user’s palm.

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Sweden: Returpack digitises pay-outs in national recycling scheme

On 19 April 2021, it was announced that Returpack, a company that facilitates reverse vending machines for recyclable PET bottles and cans in Sweden, has partnered with fintech startup Payer to develop new technology to create an easy digital pay-out feature for consumers. 88% of bottles and cans sold in Sweden are recycled through this scheme.

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Surveys and Reports

United Kingdom: FCA insights from 2020 Cyber Coordination Group meetings

On 29 April 2021, the FCA published a summary report on the discussions held at its quarterly Cyber Coordination Group meetings in 2020. The aim of the meetings is to help firms share knowledge and discuss good practices in protecting themselves from cyber threats.

The main outcomes from the meetings were that:

• The COVID-19 pandemic made 2020 an unprecedented year for cyber threats. The main areas of cyber threats have been ransomware attacks, denial of service attacks, cloud security, insider threats and inadequate supply chain oversight and security;
• Cyber Coordination Group members have identified Zero Trust Security models and Artificial Intelligence as some of the emerging fields within cyber security;
• Remote working due to the COVID-19 pandemic has significantly increased the challenges of cyber security, with attackers exploiting the vulnerabilities in employees’ home networks;
• The risks associated with supply chains and third parties are a major cyber and operational resilience priority; and
• Shared assurance models are potentially promising improvements to the way firms assess supply chain risk.

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France: Kantar study on mobile payments usage in France

On 19 April 2021, Kantar released its annual study for Paylib on the use of mobile payments in France. The study shows that mobile payments have increased and are expected to continue to increase in France. Whereas in 2018 only 18% of the French population had used a mobile payment solution, the share in 2020 was significantly higher at 38%.

While younger people account for the lion’s share of mobile payments users, people over the age of 55 reported the highest increase in mobile payments usage in 2020. Also, 49% of study participants indicated an interest in using contactless payments in-store and 42% were interested in using apps enabling payments between individuals.

The study also revealed that mobile payments solutions are diversifying. In particular, transferring money to mobile phone numbers, without the need for bank or personal details,  has become a popular solution.

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Global: The Paypers Financial Crime and Fraud Report 2021

On 27 April 2021, The Paypers published its global Financial Crime and Fraud Report 2021. The report looks at financial crime and fraud in 2020, and centres on three main areas: fraud prevention, digital onboarding and monitoring transactions.

Key findings from the report include:

• PSPs could share information for fraud checking purposes by including it in the actual payment transaction through an optional field in the inter-PSP payment message dataset. This could be of particular benefit for instant payments, where checks for fraud and anti-money laundering need to be executed quickly;
• More people, especially elderly citizens, have been forced to learn about and adopt digital payments. This is a positive thing but could lead to additional risks for people not used to the technology;
• Increasing digitalisation and less direct interaction with customers highlights the need for strong know-your-customer (KYC) processes, as weakened KYC regimes increase the vulnerability of financial services to being used for various criminal activities including online banking fraud; and
• Digital identity should be at the forefront of payments innovation. The report recommends building services based on identity first, as opposed to traditional ways which centre on payments. With identity secured, certain payments can become automated or even dynamic.

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Authored by Virginia Montgomery and Julie Patient