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Monday 9 October 2017

Red Alert: Retailers With Loyalty Progammes

Three years after being announced in the UK and I suspect many retailers are yet to realise that their loyalty/store card programmes will be regulated by the Financial Conduct Authority from 13 January 2018 - likewise across the European Economic Area. 

As the FCA now also warns, retailers who offer such programmes anywhere in the EEA will need to track the annual transaction volumes very carefully, starting with the completely arbitrary and inconvenient date of 13 January 2018. 

If the volume meets or exceeds €1 million (or the GBP or local currency equivalent) in any 12 month period (the first ending on 12 January 2019), the retailer must notify the FCA (or local regulator) within 28 days (by 10 February 2019).  Firms may also choose to register at any time from 13 October 2017.

But be sure of the outcome before you decide whether or not to register!

The regulator must then decide whether the programme is exempt from regulation as an e-money/payment service.  

If the firm fails to notify, it commits an offence under the Payment Services Regulations 2017 (or local equivalent implementing the second Payment Services Directive (PSD2)). 

If the FCA decides the programme is exempt, then it must include the retailer on the FCA's register of 'limited networks', and the name will be added to a central register of all such firms across the EEA.

If the FCA decides the programme is not exempt from regulation the retailer can appeal, but basically this means the firm will have been found to be violating the Electronic Money Regulations 2011 and/or Payment Services Regulations 2017 by issuing e-money and/or offering a payment service without being duly authorised/registered to do so. Major problem!

So retailers really have to decide now whether they should outsource the operation of the programme to an authorised firm (or the agent of one); or seek their own authorisation (or agency registration). Ultimately, they might restructure the scheme to fit the exemption, or shut it down.

Of course, the mere fact that retailers with loyalty schemes have to be mindful of these requirements and go through the process means they are in effect regulated by the FCA. Ignorance, as they say, is no defence.