STOP PRESS 1: An Ireland section has recently been added to our Cross-Border Regulatory Guide - Retail Banking and FinTech (Europe) on Engage. The Guide now provides overviews of the regulatory regimes relevant to retail banking and fintech in Belgium, Ireland, Italy, Luxembourg, the Netherlands, Poland, Spain and the UK, covering topics such as fintech, consumer lending, payment services, anti-money laundering, data protection and cybersecurity.
STOP PRESS 2: Our @HLPayments Twitter account will shortly be closing, but you can still see our latest news and commentary on payments innovation by following @HoganLovellsFIS.
In this Newsletter:
For previous editions of the Global Payments Newsletter, please visit our Financial Services practice page.
Regulatory Developments: Payments
United States: Federal Reserve announces July launch of FedNow Service
On 15 March 2023, the Federal Reserve published a press release announcing that the FedNow Service will start operating in July.
The FedNow Service is a real-time payment and settlement service being developed by the Federal Reserve. The service aims to provide instant access to payment processing, enabling financial institutions to complete transactions in real-time. This would allow for faster, more efficient payments between individuals, businesses, and government entities.
The Federal Reserve has also updated its FAQs to clarify that the FedNow Service is a payments service, not a digital currency.
United Kingdom: FCA publishes portfolio letter to payments and e-money firms
On 16 March 2023, the FCA published a Portfolio letter setting out its priorities for e-money and payments firms and actions it expects them to take to achieve three outcomes:
- ensuring their customers' money is safe;
- ensuring they do not compromise financial system integrity; and
- meeting their customers' needs.
It has also outlined three cross-cutting priorities:
- Governance and leadership;
- Operational resilience; and
- Regulatory reporting.
In addition, the FCA expects payments firms to take action to support the ESG agenda and promote diversity and inclusion.
This Engage article by members of the Hogan Lovells London office sets out more detail on the required actions and the next steps the FCA intends to take.
United Kingdom: PSR policy statement on measures to improve transparency on APP scam data: Measure 1
On 23 March 2023, the Payment Systems Regulator (PSR) published a policy statement (PS23/1) on measures to improve transparency on authorised push payment (APP) scam data across banks and building societies. This follows various consultations, including the most recent February 2023 consultation paper (CP23/1).
In PS23/1, the PSR states that it has issued Specific Direction 18 requiring the 14 largest payment service provider (PSP) groups to collect and report on data on three metrics of performance of their management of APP scams (Metrics A, B and C, referred to collectively as "Measure 1").
Directed PSPs will be required to provide the first set of data by 2 May 2023. The PSR intends to publish this data on its website in October 2023. Future data collections will cover one period at a time. The PSR has published reporting guidance alongside the Specific Direction, and will finalise publication formats ahead of publication to ensure the data accurately portrays patterns as they emerge when it is collected.
United Kingdom: FCA publishes Business Plan 2023/24
On 5 April 2023, the FCA published its Business Plan 2023/24 which sets out how it will deliver the second year of its 2022-25 Strategy, which contains three themes where it is strengthening its focus (reducing and preventing serious harm, setting and testing higher standards and promoting competition and positive change) and 13 commitments to support these themes.
In light of the current uncertain economic and geopolitical landscape, the FCA has decided to accelerate work in relation to four of its commitments over the next year:
- Putting consumers’ needs first: The new Consumer Duty is a particular feature, with plans including creation of an additional Interventions team within Enforcement, which will be ready from day one to enable rapid action where immediate consumer harm is detected.
- Preparing financial services for the future: The FCA acknowledges that implementation of the Future Regulatory Framework review is a ‘very significant programme of work’ with a ‘demanding timetable’ for all stakeholders.
- Strengthening the UK’s position in global wholesale markets: The aim is to help ensure that the UK continues to be seen as one of the leading global markets of choice and to strengthen the FCA’s ability to respond to market volatility.
- Reducing and preventing financial crime: The FCA looks to increase the volume of its proactive assessments of firms’ AML systems and controls.
The FCA expects to increase its headcount steadily throughout 2023 to enable it to deliver key aspects of its ambitious Strategy such as the Future Regulatory Framework and in the growing area of data analytics.
Alongside the Business Plan, the FCA published a consultation (CP23/7) on its fees and levies for the coming year. In recognition of the pressure firms are under, the FCA is proposing to freeze application fees, and the minimum fees firms pay which affects more than 17,000 FCA-regulated firms. The consultation closes on 11 May 2023.
The FCA’s Annual Report later in the year will report on progress against the activities it set out in its Business Plan 2022/23 and will provide the latest data against its outcomes and metrics.
This Engage article by members of the Hogan Lovells London office provides more detail on the FCA’s Business Plan, and this Engage article focuses on the Consumer Duty related aspects of the Plan.
United Kingdom: LSB update on CRM Code for APP scams
On 17 March 2023, the Lending Standards Board (LSB) published the March 2023 edition of its LSBulletin in which it refers to its recent review and update of sections of the contingent reimbursement model (CRM) Code for authorised push payment (APP) scams, amongst other things.
The LSB has also published the updated version of the CRM Code and a related press release, in which it explains that the updates to the CRM Code require signatory firms to increase their efforts in identifying new and existing accounts at higher risk of being used by scammers. To this end, by no later than December 2023 firms must monitor the payments they are receiving to help them identify suspicious inbound payments and accounts that might be being used by scammers. This should help firms to stop onward transfers of funds that they think are linked to scams and to recover their customers’ lost money.
The LSB also refers to the fact that the Payment Systems Regulator (PSR) has consulted on a proposal for mandatory reimbursement and cost allocation for APP fraud. The LSB will continue to prioritise fraud detection and prevention alongside reimbursement.
United Kingdom: Annual review of specific direction to LINK on maintaining free-to-use ATMs
On 22 March 2023, the Payment Systems Regulator (PSR) issued a call for views on its first annual review of the specific direction issued to Link Scheme Holdings Ltd (LINK) on maintaining free-to-use (FTU) ATMs in the UK (Specific Direction 12 - SD12).
SD12 was issued in March 2022 and it will remain in force until 2 January 2025, subject to any changes made by the PSR.
In the call for views, the PSR asks for stakeholders’ views on the following:
- The effectiveness of SD12 in ensuring appropriate policies and measures are in place to support the maintenance of a broad geographic spread of the FTU ATM LINK network in the UK and to meet service user needs.
- How well the requirements under SD12 have worked in practice in relation to maintaining and replacing protected ATMs.
- Whether the monitoring requirements under section 8 of SD12 have led to sufficient transparency, whether any of it is superfluous, or whether any further aspects require monitoring.
- Whether SD12 should remain in place, given some of the wider initiatives that have been introduced. The PSR explicitly cites the Financial Services and Markets Bill (FSM Bill), which contains provisions aimed at preserving access to cash by supporting the maintenance of a network of ATMs.
The call for views closes to responses at 5pm on 21 April 2023. Following this, the PSR will publish a summary of the responses and findings.
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Regulatory Developments: Digital Assets
European Union: Cryptoassets are key focus of ECON/LIBE Committees’ adopted position on proposed EU AML/CFT Regulation
On 28 March 2023, the European Parliament published a press release announcing that its Economic and Monetary Affairs (ECON) Committee and Civil Liberties, Justice and Home Affairs (LIBE) Committee had voted through their position on the proposed anti-money laundering and countering the financing of terrorism legislative package, which includes the new Regulation on AML/CFT (AMLR).
Regarding the scope of entities that are captured within the AMLR, the original European Commission text sought to bring cryptoasset service providers (CASPs) within scope. The ECON and LIBE Committees have broadened this further and included Non-Fungible Token (NFT) platforms, noting in a recital that NFT platforms are not covered in the current definition of a CASP and in order to close the gap and mitigate associated risks, they should be included within this framework as obliged entities.
In addition, the Committees have included in a recital that Decentralised Autonomous Organisations (DAOs) and other Decentralised Finance (DeFi) arrangements should also be subject to Union AML/CFT rules.
Please refer to this Engage article by members of our European offices if you would like to find out more about the cryptoasset related elements of the Committees’ adopted position on the AMLR.
European Union: EBA consultation on changes to guidelines on risk-based supervision under MLD4 to include cryptoassets
On 29 March 2023, the EBA published a consultation paper on proposed changes to the guidelines on the risk-based supervision of credit and financial institutions' compliance with anti-money laundering (AML) and counter-terrorist financing (CTF) obligations under MLD4. The consultation proposes the extension of the scope of the guidelines to AML/CTF supervisors of cryptoasset service providers (CASPs). It closes on 29 June 2023.
United Kingdom: Economic Crime Plan 2023-2026 aims to combat illicit use of cryptoassets
On 30 March 2023, HM Treasury and the Home Office published Economic Crime Plan 2: 2023-2026, setting out measures for the private and public sectors in order to tackle economic crime.
The plan seeks to build on the first Economic Crime Plan and has four explicit policy areas:
- Reducing money laundering and recovering more criminal assets;
- Combatting kleptocracy and driving down sanctions evasion;
- Cutting fraud; and
- Reducing the threat of illicit international finance.
The plan sets out the intention to “robustly” regulate cryptoassets to combat their criminal abuse. Planned actions include coordination between various agencies to close vulnerabilities that enable the illicit use of crypto-virtual assets through improvements to the legislative and regulatory regimes, with key milestones to be achieved by Q4 2023 including implementation of the Financial Action Task Force’s (FATF) Travel Rule requirement as well as the passing of the Economic Crime and Corporate Transparency Bill.
Belgium: New FSMA rules regulating cryptocurrency financial promotions
On 5 January 2023, the Belgian Financial Services and Markets Authority (FSMA) issued a regulation that imposes restrictive conditions on the marketing of virtual currencies to consumers (the Regulation). On 2o March 2023, after the approval of the Regulation by the Federal Government, the FSMA issued a press release outlining this new cryptocurrency financial promotion legislation. The Regulation was published on 17 March 2023 in the Belgian Official Gazette (Moniteur belge/Belgisch Staatsblad) and will enter into force on 17 May 2023.
The obligations in the new FSMA Regulation are structured around three key principles:
- The information contained in marketing materials must be transparent, balanced and drafted in non-technical terms.
- The marketing materials must contain mandatory statements drawing attention to the involved risks.
- Any marketing materials to be used for ‘Mass campaigns’ (ie those disseminated to at least 25,000 consumers) must be notified to the FSMA ten days prior to the commencement of the campaign.
Mandatory statements include: (i) a ‘short and punchy’ warning: "Virtual currencies, real risks. The only guarantee in crypto is risk." and (ii) a broader warning using the wording set out in the Regulation or a link or reference to such a warning. The broader warning sums up the various risks in greater detail.
In addition to its new supervisory power relating to cryptocurrency financial promotions, the FSMA is also investing in providing more financial education about cryptocurrencies.
United Kingdom: Draft Financial Services and Markets Act 2000 (Financial Promotion) Amendment Order 2023 expands scope of financial promotion restriction to include “qualifying cryptoassets”
On 27 March 2023, a draft version of the Financial Services and Markets Act 2000 (Financial Promotion) Amendment Order 2023 (the draft SI) was published alongside a draft explanatory memorandum.
Following on from HM Treasury’s consultation and call for evidence on the regulation of cryptoassets, the draft SI expands the scope of the financial promotion restriction in section 21 of Financial Services and Markets Act 2000 (FSMA) by amending the Financial Services and Markets Act 2000 (Financial Promotion) Amendment Order 2023 (FPO) to include financial promotions in respect of “qualifying cryptoassets”. To ensure that activities involving cryptoassets are covered by the FPO, the draft SI amends certain existing controlled activities to include reference to qualifying cryptoassets.
The FPO already covers cryptoassets such as security tokens. The aim of the draft SI is to bring the majority of cryptoassets that are not yet in-scope within the FPO’s remit. Notably, the definition of “qualifying cryptoassets” will not cover NFTs as these have so far tended to be used in a way more akin to digital collectibles than financial investments.
The draft SI also applies and modifies certain existing exemptions in the FPO to qualifying cryptoassets and creates a bespoke temporary exemption to the financial promotion restriction under FSMA for cryptoasset businesses (which are not otherwise authorised persons) on the FCA’s anti-money laundering register. The government intends that this exemption will be temporary.
HM Treasury also published a Keeling schedule (ie a redline) to show the changes made to the FPO through the draft SI.
The draft SI provides for an implementation period of four months from the day after the SI is made before it enters into force. The draft SI will likely be made at the same time as Royal Assent of the Financial Services and Markets Bill which is expected shortly.
This Engage article provides more information on the new regime.
Switzerland: SNB outlines Swiss payments vision
On 30 March 2023, the Swiss National Bank (SNB) outlined its Swiss payments vision in a speech made by SNB board members. The SNB plans to temporarily issue a real wholesale central bank digital currency (CBDC) on the SIX Digital Exchange (SDX) as part of Project Helvetia. Project Helvetia aims to test the integration of SIX into Switzerland's real-time gross settlement system.
SNB also announced that it plans to explore using private money as a settlement means for tokenized transactions. This private token would be backed by one-to-one deposits at the SNB with the aim of achieving a comparable risk profile to central bank money.
The SNB highlighted that its payments vision projects are underpinned by three principles:
- Strong correspondence between private money and central bank money;
- Use of central bank money for important payments; and
- Integration of payment systems, payment solutions and different forms of money.
France: Economics Committee of National Assembly proposes ban on cryptoasset promotions by influencers
On 22 March 2023, the Economics Committee of the National Assembly proposed legislation (Bill no. 790) to prevent social media influencers from directly or indirectly promoting cryptoasset-related services from unlicensed providers by placing cryptoassets in the same category as risky financial products, gambling, aesthetic surgery and pharmaceuticals.
The penalties for violations include two years in jail and a fine of EUR30,000, and an additional penalty of prohibition from exercising the activity of commercial influence may also be pronounced by the courts. The amendment was adopted by the National Assembly on 30 March 2023, and submitted to the Senate for review and voting.
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United States: Kyriba partners with US Bank enabling real-time payments
On 6 April 2023, it was reported that Kyriba, a US-based provider of cloud-based finance solutions, has partnered with US Bank to enable real-time payments and reporting for businesses. Through new API-powered payment connectors, clients of both companies can now make instant payments to vendors, customers, and employees from their US Bank accounts within their Kyriba dashboard.
Sweden: Payer launches open banking payments for B2B
On 10 April 2023, it was reported that Payer, a Swedish fintech that specialises in European B2B payments, had launched its open banking payments system for business-to-business customers in Sweden. The new product aims to provide cost savings and efficiency gains through the integration of open banking APIs.
United States: Seattle Bank moves into BNPL
On 29 March 2023, Seattle Bank announced a new collaboration with LoanStar Technologies, a fintech enterprise that enables vendors and service providers to provide customer loans at the point of sale. The partnership will enable consumers to quickly access loans from Seattle Bank for high-value transactions, directly through the merchant.
Global: Stripe integrates GPT-4 into its payment processing
On 15 March 2023, Stripe announced that it has started integrating OpenAI's latest GPT-4 artificial intelligence model into its digital payment processing and other products. Stripe intends to use GPT-4 to enhance its user experience and the speed with which its products operate.
APAC: National Australia Bank (NAB) has completed its first intra-bank cross-border transaction using own stablecoin
On 14 March 2023, NAB announced that it had completed its first intra-bank cross-border transaction using its own stablecoin via the Ethereum blockchain. NAB collaborated with Blockfold and Fireblocks to issue its stablecoins on the Ethereum blockchain.
APAC: Launch of cross-border QR code payments connectivity between Singapore and Malaysia
On 31 March 2023, the Monetary Authority of Singapore (MAS) announced the launch of a cross-border QR code payment linkage between Singapore and Malaysia. The payment linkage will allow customers of participating financial institutions to make retail payments by scanning NETS QR and DuitNow QR codes. In the next phase, MAS and Bank Negara Malaysia plan to expand the payment linkage to enable real-time cross-border account-to-account fund transfers and remittances.
United States: JP Morgan is set to pilot biometric payments with retailers
On 23 March 2023, JP Morgan announced that it will begin testing biometric-based payments at some U.S. retailers. After a short enrolment process, customers will be able to pay for their items by scanning their palm or face. The aim of the new technology is to increase the speed and security for customers in processing payments during checkouts.
APAC: Mastercard partners with Stables to advance stablecoin adoption
On 21 March 2023, the Australian fintech start-up Stables announced that it has entered into a strategic partnership with Mastercard. Stables’ digital solution will give customers the ability to convert stablecoins into fiat currency which can then be spent anywhere that Mastercard is accepted.
Global: RemotePass launch debit card for remote workers in emerging markets
On 6 April 2023, it was reported that RemotePass, a remote work platform, has launched a physical debit card. The card enables remote workers with an active contract on RemotePass to receive instant payments without incurring any fees, thereby avoiding SWIFT fees and international transfer delays that are typically encountered.
Global: International central bank digital currency (CBDC) launched
On 10 April 2023, it was reported that the Digital Currency Monetary Authority, a membership body of states, central banks, commercial and retail banks, and other financial institutions, had confirmed its intention to launch an international CBDC at the International Monetary Fund Spring Meetings 2023. The international CBDC - the Universal Monetary Unit - functions like a CBDC to increase the speed of cross-border payments, while enforcing banking regulations and protecting the financial integrity of the international banking system.
Global: Mastercard transitions to sustainable materials
On 5 April 2023, Mastercard announced that it has committed to ending the use of single use plastics in its payment cards by 2028. Mastercard also announced that it will support its issuers in transitioning away from single use plastics to sustainable options such as biodegradable or recycled plastics.
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Surveys and Reports
Global: Report on payment preferences and challenges faced by business-to-business cross-border focused companies
On 21 March 2023, Rapyd, a global payment processing provider, published a report summarising its findings from a survey of 715 medium-to-large cross-border businesses across seven global markets: Brazil, Canada, Germany, Mexico, Singapore, UK and the U.S.
Key findings in the report include:
- Respondents struggled with long delays in payments, with 39% of respondents experiencing delays of five days or more when sending or receiving cross-border payments to other businesses, with businesses in Germany and Singapore reporting the longest delays. At least 1-3% of respondents in each jurisdiction experienced delays of more than 15 days.
- When deciding on a payments solution provider, B2B cross-border businesses valued the following characteristics the most: speed (23%), ease of integration (18%), and fraud management capabilities (17%).
- Cross-border fees for transactions remain high, with 23% of large businesses reporting that they are paying over USD50 more in fees per transaction. Only 5% of the businesses reported fees that are on average less than USD5 per transaction.
- 61% of respondents have made digitising payments a top priority for their business, while another third have already automated their payments systems. While almost half of the Canadian businesses report that their payments are already digitised, only 10% of UK businesses had digitised their payments.
United Kingdom: Report on recent trends in Open Banking
On 30 March 2023, Open Banking Limited published its March Impact Report on how Open Banking-enabled products are being used by over seven million consumers and small businesses.
According to the report:
- About 750,000 small to medium-sized businesses (SMBs) use Open Banking products today, representing a penetration rate of 16% which is higher than the 11% recorded for consumers.
- The three most common outcome areas remain: improved financial decision-making (31%), expanded payments choice (28%), and better borrowing (17%).
- There has been an increase in Open Banking payments in the U.K., up from 25.2 million in 2021 to 68.2 million in 2022.
- The primary target audience for most providers are both consumers and small businesses (48%), whereas 30% focus exclusively on consumers, and 22% focus on small businesses only.
United States: Report on consumer attitudes towards bank transfers
On 6 April 2023, PYMNTS released a report in collaboration with Nuvei on consumer attitudes towards bank transfers. The findings are based on a survey of 2,056 United States consumers. Notable insights in the report are:
Paying by bank transfers was found to be the third most popular means for paying bills amongst consumers, after debit cards and credit cards.
The most important reasons for consumers in using bank transfers when making online purchases were found to be ease and convenience (42%) and speed (23%).
Consumers who used bank transfers in their most recent payment had various security concerns such as concerns about fraud and theft (75%) and difficulties in resolving security issues (42.1%).
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Authored by Virginia Montgomery and Grace Wyatt
Hogan Lovells (Luxembourg) LLP is registered with the Luxembourg bar.