STOP PRESS: Hogan Lovells’ Financial Services team have created a ‘Consumer Duty hub’ where you’ll be able to access all of our know-how on the new FCA Consumer Duty. The hub is hosted on our Engage Premium site, where our cross-functional teams have created a number of digital products to help you navigate complex legal developments.
In this Newsletter:
For previous editions of the Global Payments Newsletter, please visit our Financial Services practice page.
Regulatory Developments
United Kingdom: PSR consults on mandatory reimbursement for APP fraud
On 29 September 2022, the Payment Systems Regulator (PSR) published consultation paper CP22/4 with proposals to require payment service providers (PSPs) using Faster Payments to fully reimburse victims of authorised push payment (APP) fraud within 48 hours of the fraud being reported. Exceptions to this would be very limited, such as when the victim was involved in the fraud or acted with gross negligence.
PSPs would be permitted to set a minimum threshold of no more than £100 for a reimbursement claim, apply an excess of no more than £35, and impose a time limit of no less than 13 months to bring the claim.
There is also a proposal to change the allocation of the costs of reimbursement. Currently, under the Contingent Reimbursement Model (CRM) Code, the PSP sending the money covers over 95% of the reimbursement costs, with the receiving PSP covering the rest. The PSR thinks splitting the cost more evenly would give recipient PSPs a greater incentive to prevent APP fraud.
Pay.UK would be made responsible for making, maintaining and enforcing payment system rules to protect consumers and prevent fraud.
The consultation is designed to ensure that the PSR can make the necessary regulatory changes as soon as the law has been changed - in accordance with provisions in the Financial Services and Markets Bill (FSM Bill) that is currently before Parliament - to allow it to act on APP scams.
The consultation closes on 25 November 2022. The PSR is planning to publish a policy statement on mandatory reimbursement ‘early in the new year’, and to publish draft regulatory requirements for consultation consistent with the expected statutory deadline of two months following the relevant legislative provisions coming into force. This timetable assumes that the relevant provisions of the FSM Bill come into force around spring 2023.
The PSR would like to see its core requirements for mandatory reimbursement in place for consumers as soon as possible, and no later than 2024. In the meantime, it emphasises that PSPs should continue to develop their fraud detection and prevention arrangements as quickly as possible.
For more on this development, take a look at this Engage article by members of Hogan Lovells’ London office.
United Kingdom: PSR decision on card-acquiring market remedies
On 6 October 2022, the PSR published policy statement PS22/2 with its final decision on remedies following its card-acquiring services market review. This builds on the PSR’s June 2022 provisional decision (CP22/3).
The three remedies in the final decision are as follows:
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Summaries of key price and non-price information should be sent to each merchant and made available in their online account. Providers must also provide online quotation tools to help merchants in comparing offerings. This will be implemented through Specific Direction 14 and applies from July 2023.
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Messages prompting merchants to switch must be sent by providers at timings determined by minimum contract term expiry dates, or at least once every 30 calendar days for indefinite contracts. This will be implemented through Specific Direction 15 and applies from July 2023.
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Point-of-sale terminal leases and rental contracts are to be capped at 18 months, with a maximum of one month's notice after renewal. This will be implemented through Specific Direction 16 and applies from January 2023.
Advice on the format and content of information required under Specific Directions 14 and 15 has also been published.
The specific directions are given to the 14 most significant providers of card-acquiring services to the merchants that the PSR is looking to protect. All remedies will also apply to the associated companies of the directed providers and any independent sales organisations (ISOs) that they have a contract with to provide services to merchants. The PSR will keep the companies directed under review and may extend the mandate by directing Mastercard and Visa to mandate all acquirers who are members of their schemes to adopt the remedies, if necessary.
The PSR will monitor compliance with the directions and the impact of the remedies to decide whether any further action is required.
For more on this development, take a look at this Engage article by members of Hogan Lovells’ London office.
United Kingdom: New FCA Consumer Duty webpages and speech by FCA Executive Director, Consumers and Competition
On 27 September 2022, the FCA launched a new Consumer Duty webpage, collating key publications and information on the new Duty. Interested parties can also sign up to receive FCA Consumer Duty email updates. The page also links to information on a series of sector-specific Consumer Duty webinars being run by the FCA in October and November.
On 29 September 2022, the FCA published a speech by Sheldon Mills, FCA Executive Director, Consumers and Competition, on the new Duty and what it means for firms and consumers. He also summarised the FCA’s work on the cost of living crisis and what it expects of firms.
On 5 October 2022, the FCA published another new webpage on the Consumer Duty, providing information for firms on the areas it has been receiving queries on that are relevant for the wider market. The webpage covers:
- Implementation plans: The FCA does not expect firms to have necessarily fully scoped all work required to embed the duty by the 31 October 2022 deadline. However, firms' plans should, by 31 October, be sufficiently developed to provide both firms' governing bodies and the FCA with assurance that the expectations set out in the duty have been carefully considered and will be implemented for new and existing products by 31 July 2023.
- Consumer Duty board champions: Although in FG22/5 the FCA suggests the champion should be an independent non-executive director where possible, it does not have to be. Firms can set the role up in a way that fits with existing roles and responsibilities on their boards.
- Definition of closed products: The Duty comes into effect on 31 July 2024 for closed products and services. The FCA refers to closed products as "those that are no longer marketed or distributed to retail customers or open to renewal". Where existing customers can continue to make payments under the existing product terms, this would still be considered closed, provided the product or service is not open to new customers. It is up to firms to consider each product and determine whether it is closed.
The FCA intends to keep the webpage updated
To learn about how Hogan Lovells’ Financial Services team can help you develop, deliver or implement your Consumer Duty plans, please visit our Consumer Duty hub.
United Kingdom: PSR publishes policy statement on extending Confirmation of Payee service to additional PSPs
On 11 October 2022 and following a May 2022 consultation on its proposals, the Payment Systems Regulator (PSR) published a policy statement (PS22/3) on extending the requirements for participation in the Confirmation of Payee (CoP) service to around a further 400 payment service providers (PSPs). It has also published a new Specific Direction 17: Expanding Confirmation of Payee (SD17), which expands the CoP service.
The objective is to help reduce authorised push payment (APP) fraud and accidentally misdirected payments. The PSR has identified two groups of PSPs that need to implement the system:
- Group 1, focussing on PSPs that will need to use the CoP system after 31 October 2023. The names of the PSPs are listed in Annex 1 to PS22/3.
- Group 2, which refers to all other PSPs that use unique sort codes, or are building societies using alternative reference information, which must use the CoP systems after 31 October 2024.
The PSR has prioritised Group 1 because of the capabilities size of the financial firms and because adopting CoP quickly in these firms is likely to have a greater immediate impact on preventing APP scams overall. By prioritising this group, the PSR intends to increase CoP coverage from 92% to 99% of Faster Payments transactions.
Global: Financial Stability Board outlines next steps for cross-border payments
On 10 October 2022, the Financial Stability Board (FSB) published a note setting out three themes for its next steps under the G20 roadmap for enhancing cross-border payments:
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Extending payment systems and improving interoperability.
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Promoting efficient legal, regulatory and supervisory frameworks for secure cross-border payments.
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Facilitating cross-border data exchange and the standardisation of messaging for cross-border payments.
To achieve these, the FSB has said it will work with the private sector and publicly report progress on measures taken in priority areas. It will also seek to work with public bodies to reduce regulatory frictions.
In November 2022, the FSB will publish an update on its planned framework of monitoring progress towards the G20 targets for cross-border payments, ahead of providing an updated roadmap to the G20 Finance Ministers and Central Bank Governors meeting in 2023.
United Kingdom: Bank of England highlights importance of improving the quality of payments data
On 29 September 2022, the Bank of England (BoE) published a speech by Dave Ramsden, BoE Deputy Governor, Markets and Banking, in which Mr Ramsden noted the importance of obtaining high-quality, real-time payments data so that central banks have better information for making policy decisions. Among other things, Mr Ramsden also referred to the following:
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There is a broad agenda to ensure that the availability of payments data can meet the demands of the modern financial system. A common approach to using payment data globally, harmonising the implementation of payment message standards and tackling potential barriers to sharing payment data across jurisdictions could result in significant benefits.
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The UK payments landscape is being transformed with the renewal of the BoE's real time gross settlement (RTGS) service. The BoE is introducing ISO 20022 messages in the renewed RTGS and in CHAPS. The ISO 20022 message standard could transform the approach to fraud and financial crime, including authorised push payment (APP) fraud.
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The G20 and Financial Stability Board roadmap on cross-border payments (discussed further below) will consider how more effective use of data could improve anti-money laundering activities, be beneficial for countering terrorist financing, and streamline sanctions compliance.
Ireland: Commencement of the Protected Disclosures (Amendment) Act 2022
On 13 October 2022, the Irish government signed the commencement order for the Protected Disclosures (Amendment) Act 2022 (the Amendment Act). The Amendment Act amends the
Protected Disclosures Act 2014 to implement the EU Whistleblowing Directive (Directive (EU) 2019/1937).
The main impact of the Amendment Act is that various private employers must implement and operate internal reporting channels and procedures for receiving and handling protected disclosures, which should comply with the detailed requirements set out in the Amendment Act. The Amendment Act brings all firms authorised under the E-Money Directive (EMD) and the Second Payment Services Directive (PSD2) within scope of these requirements, regardless of the number of employees which they have.
The Amendment Act will commence from 1 January 2023, and all Irish e-money and payment institutions must have a compliant whistleblowing framework in place by that date.
Ireland: Update to Ireland for Finance published
On 3 October 2022, the Irish Department of Finance published an Update to Ireland for Finance (the Update). This is a mid-term update to its 2020 Ireland for Financial Services Strategy 2025 – Ireland for Finance (the Strategy). The Update revises the Strategy and extends its span until the end of 2026.
The Strategy initially set out the Irish government’s strategic framework, underpinned by annual Action Plans, for supporting and developing the international financial services (IFS) sector in Ireland, which focused on four pillars:
- Operating environment - with the objective to ensure the policy, culture and legislative conditions underpinning IFS will support growth.
- Technology and innovation - with the objective to provide a collaborative approach to addressing emerging challenges and opportunities in technological developments.
- Talent - with the objective to ensure that Ireland continues to have skilled people to meet the demands of the international financial services sector, including meeting needs for new and changing skills.
- Communications and promotion - with the objective being focused on ensuring that Ireland’s IFS offering is communicated to all those who are or may be attracted to investing in Ireland.
Following consultation with stakeholders, the Update recognises the need for the four pillars to be reconfigured to reflect the heightened importance of:
- Digital finance and Fintech, due to the digital transformation of financial services with innovations such as AI, blockchain, cloud, data analytics, and technology-enabled outsourcing in financial services reshaping the way firms do business and Sustainable Finance. This has been accelerated by the COVID-19 pandemic.
- Sustainable finance, which seeks to embed environmental, social, and governance (ESG) considerations into the financial system, and lead to more long-term investments in sustainable economic activities, and seeks to provide the capital required to tackle climate change and transform the economy into a sustainable one.
Ireland: Central Bank reviews Consumer Protection Code 2012
On 3 October 2022, the Central Bank of Ireland (CBI) announced that it is carrying out a comprehensive review of the Consumer Protection Code 2012 (the Code) and has issued a discussion paper calling for feedback from consumers and stakeholders on key discussion topics. There has not been a substantive review of the Code since it was introduced in 2012.
The discussion paper focuses on the themes of: (i) securing consumers’ best interests through availability and choice and (ii) firms acting in consumers’ best interests. Topics discussed as part of the first theme include:
- Switching;
- The impact of change in retail financial services (including the withdrawal of a number of retail banks from Ireland, branch closures and the emergence of new entrants in spaces such as buy-now pay-later (BNPL));
- New delivery channels;
- Regulation and competition; and
- Regulation and innovation.
The second theme explores how firms operating within an effective financial services market must balance shareholders’ and customers’ interests. The discussion paper suggests that the CBI may develop guidance on what it means (and does not mean) for a firm to act in the best interests of its (potential) customers.
The deadline for feedback on the discussion paper is 5.00pm on 31 March 2023 and the CBI intends to publish a summary of the feedback in Q2 2023. The public consultation phase will see the publication of a consultation paper setting out specific proposals on how the Code should be updated and improved. This will be accompanied by draft regulations. It is likely that the revised Code will be issued as a new set of regulations under section 48 of the Central Bank (Supervision and Enforcement) Act 2013.
For more on this development, take a look at this Engage article by members of Hogan Lovells’ Dublin office.
European Union: ESMA Report on DLT Pilot Regime Regulation
On 27 September 2022, ESMA published report ESMA70-460-111 following its January 2022 call for evidence on the Regulation on a pilot regime for market infrastructures based on distributed ledger technology (DLT) ((EU) 2022/858) (DLT Pilot Regime Regulation).
In summary, the report notes that, based on the feedback received from the call for evidence, ESMA does not consider it necessary to amend the transparency and reporting requirements for the purposes of the DLT Pilot Regime Regulation. However, for consistency ESMA will issue guidance to ensure that the DLT Pilot Regime Regulation is applied as expected.
ESMA also notes that it will produce recommendations on compensatory measures that national competent authorities should request to ensure the supervisory data from DLT market infrastructures is appropriate and usable.
The DLT Pilot Regime Regulation aims to develop the trading and settlement for "tokenised" securities. It entered into force on 23 June 2022 and will apply from 23 March 2023.
European Union: Draft agreed text of proposed Regulation on markets in cryptoassets (MiCA) published
On 5 October 2022, the Council of the EU published information note 13198/22 attaching a letter sent to the Chair of the European Parliament Economic and Monetary Affairs Committee (ECON) relating to the proposed Regulation on markets in cryptoassets (MiCA).
The Council states in the letter that, following informal negotiations between the Council, the Parliament and the European Commission, a draft overall compromise package has been agreed by the Council's Permanent Representative Committee (COREPER). Therefore, the Council confirms that if the Parliament adopts its position at first reading in the form set out in the Annex to the letter, the Council will approve the Parliament's position and adopt the act in wording corresponding to the Parliament's position.
The Council and the Parliament reached political agreement on MiCA in June 2022.
European Union: Agreed text of proposed Regulation on information accompanying transfers of funds and certain cryptoassets
On 5 October 2022, the Council of the EU published an information note (13215/22) attaching a letter sent to the Chair of the European Parliament Economic and Monetary Affairs Committee (ECON) relating to the proposed Regulation on information accompanying transfers of funds and certain cryptoassets (recast revised WTR).
The Council states in the letter that, following informal negotiations between the Council, the Parliament and the European Commission, a draft overall compromise package has been agreed by the Council's Permanent Representative Committee (COREPER). As a result, the Council confirms that if the Parliament adopts its position at first reading in the form set out in the Annex to the letter, the Council will approve the Parliament's position and adopt the act in wording corresponding to the Parliament's position.
The Council and the Parliament reached political agreement on the recast revised WTR in June 2022. This is part of a package of legislative proposals designed to strengthen and modernise the EU anti-money laundering and counter-terrorist financing framework, which the European Commission adopted in July 2021.
Global: Financial Stability Board proposes framework for regulation of cryptoasset activities
On 11 October 2022, the Financial Stability Board (FSB) published a proposed framework for the international regulation of cryptoasset activities consisting of:
- A consultative document on nine recommendations that promote the consistency and comprehensiveness of regulatory, supervisory and oversight approaches to cryptoasset activities and markets and strengthen international co-operation, co-ordination and information sharing.
- A consultative document on revised high-level recommendations for the regulation, supervision and oversight of "global stablecoin" (GSC) arrangements to address associated financial stability risks more effectively.
The FSB has also published a further consultation document covering the general international cryptoasset framework.
The consultations follow a July 2022 FSB statement on cryptoassets.
Comments can be made on all consultations until 15 December 2022. The FSB aims to finalise the recommendations by mid-2023.
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Payment Market Developments
Global: Mastercard launches Crypto Secure
On 4 October 2022, Mastercard launched a new crypto security platform, "Crypto Secure" to help card issuers combat crypto fraud by improving their ability to assess the risk profiles of virtual asset service providers such as crypto exchanges. The card issuer will have access to a dashboard showing where cardholders are purchasing crypto and the associated level of fraud risk.
This platform has been designed by CipherTrace, which uses AI and data from public blockchains to assess the prevalence of financial crime on virtual asset platforms.
Global: SWIFT sets out blueprint for global central bank digital currency
On 5 October 2022, financial messaging system SWIFT released findings from two experiments concerning central bank digital currency (CBDC) after an 8-month trial that included the French and German central banks, as well as global lenders HSBC and UBS.
Based on these results, SWIFT has set out a blueprint for a global CBDC, with a single global hub that all CBDCs are connected to. This would avoid the need for central banks to have a huge number of individual connections with other institutions, which is important as reducing the number of connections makes the currency more efficient and secure.
Egypt: Geidea partners with Visa to improve access to digital payments
On 10 October 2022, it was reported that Geidea, one of the largest fintech companies in North Africa, announced a partnership with Visa to implement its digital payment solutions across Egypt, with Visa adding new payment solutions to Geidea's point-of-sale terminals.
Both parties have committed to a long-term partnership which will see them provide innovative services to Egyptian merchants and SMEs, including payment by phone services and electronic trading services.
Global: Samsung Wallet to be rolled out in more countries
On 14 October 2022, Samsung Electronics announced plans to expand the Samsung Wallet to a further 13 countries. It is currently available in six countries (France, Germany, Italy, Spain, the UK and the U.S.) and will be rolled out in Bahrain, Denmark, Finland, Kazakhstan, Kuwait, Norway, Oman, Qatar, South Africa, Sweden, Switzerland, Vietnam, and the UAE. The exact date of implementation has not yet been confirmed, but Samsung have said it will be before the end of 2022.
The Samsung Wallet allows users to make contactless payments and manage their cryptocurrency wallets. It also enables access to digital versions of membership cards and boarding passes, which can include government-issued documents, where digital versions are offered.
Canada: Remitly brings Visa Direct to Canadian customers
On 14 October 2022, U.S. remittance processor Remitly announced that its Canadian customers will have access to Visa Direct, giving them the ability to make real-time payments to over 100 countries.
This continues Remitly's expansion of its collaboration with Visa and Canada is the eighteenth country that Visa Direct payments can be made from using Remitly.
Australia: NAB launches mobile payment platform
On 14 October 2022, National Australia Bank (NAB) announced that it had rolled out its "Easy Pay" system to enable small businesses to accept contactless payments using a smartphone or tablet. This provides merchants with a quick and convenient payment solution as well as giving them access to more information by providing real-time sales data.
United Arab Emirates: Jingle Pay announces partnership with MoneyGram
On 6 October 2022, Jingle Pay, a UAE-based finance app, announced a strategic partnership, and minority investment from, MoneyGram. This partnership gives Jingle Pay access to MoneyGram's global payment rails, meaning users of the Jingle Pay app can now send money to over 200 countries and territories in near real-time.
As part of the agreement, MoneyGram has acquired a 12% stake in Jingle Pay and MoneyGram's CEO has become the Chair of the Jingle Pay board.
United Kingdom: Deliveroo and Klarna announce "Eat Now, Pay Later"
On 12 October 2022, food delivery company Deliveroo was reported to have announced a partnership with Klarna to offer UK customers the option of purchasing takeaways and groceries using credit. Research by Klarna found that 1 in 7 people in the UK have used their overdraft to pay for a takeaway, indicating a demand for a 'buy-now, pay-later' service.
Two payment options are offered for purchased made on credit, "Pay in 30" where customers are required to pay off their borrowing within 30 days, and "Pay in 3" where customers pay in three equal instalments over a 60 day period.
Europe: Worldline acquires stake in Online Payment Platform
On 29 September 2022, Worldline announced it had reached an agreement to acquire a 40% stake in Dutch payment services provider, Online Payment Platform B.V. (OPP). This deal includes a call option to purchase the remaining 60% of OPP in 2026. Subject to the approval of the Dutch Central Bank, this deal is expected to close towards the end of 2022.
For Worldline, this partnership continues its drive to increase its presence in the ecommerce space as OPP focuses on servicing C2C transactions. For OPP, this provides an opportunity to expand into the European markets that Worldline is established in, and to grow its B2B and B2C operations.
Japan: Alipay+ partners with Japanese merchants
On 11 October 2022, Ant Group, the owner of Alipay+, announced it had partnered with over one million merchants in Japan to provide a seamless cross-border digital payments experience for international tourists from countries including China, the Philippines, Malaysia, Singapore, South Korea and Thailand. This is part of the Japanese government's plan to rebuild the tourism sector after two and a half years of strict international quarantine rules. It is hoped that enabling tourists to pay with their local payment method will encourage greater spending in Japan.
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Surveys and Reports
Global: Largest year-on-year crypto market growth reported in MENA
On 5 October 2022, Reuters reported that blockchain analysis researcher Chainalysis had found that the Middle East and North Africa was the fastest growing geographic cryptocurrency market, with the volume traded increasing 48% between July 2021 and June 2022. This included a growth of 222% in Egypt, and 195% in Saudi Arabia. This is thought to be, at least in part, due to traditional currencies losing value in the region.
Significant market growth was also recorded in Latin America (40%), North America (36%) and Central and Southern Asia and Oceania (35%).
United Kingdom: Strong Customer Authentication reduces online fraud
On 30 September 2022, Barclaycard reported that 73% of UK retailers have experienced a reduction in online payment fraud, 200 days after the implementation of mandatory Strong Customer Authentication (SCA). The average firm reported a reduction in fraud of 25% since the process was rolled out. Additional positive news came in the form that British consumers are becoming used to two-factor authentication, as demonstrated by the rate of "basket abandonment" (customers getting to the point of sale with items but not finishing the purchase) falling from 32.4% to 28.9% since SCA was introduced.
However, 28% of businesses are still not fully compliant with the regulations, and £2.07 million of sales is declined every day due to payments being routed through non-secure channels and thereby failing security checks.
Australia: A quarter of payments are being made with a mobile wallet
On 3 October 2022, the Reserve Bank of Australia reported that in March 2022, one in four credit and debit card payments in Australia were made using a mobile wallet, compared to 10% in March 2020.
The majority of transactions in Australia are made using electronic payment methods, with the use of cash continuing its long-term decline. The use of electronic payments was accelerated by the pandemic as online and contactless options became a stronger preference for both customers and businesses. A quarter of Australians surveyed by the Reserve Bank stated their reduction in cash usage caused by the pandemic was likely to be permanent.
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Authored by Virginia Montgomery and Grace Wyatt.
Hogan Lovells (Luxembourg) LLP is registered with the Luxembourg bar.
