FCA Applies More Handbook Rules To E-money and Payment Services

With the prospect of a disorderly Brexit looming large, the FCA is consulting on proposals to extend its Principles for Business and customer communication rules to e-money and payment services, whether they are provided by banks, e-money/payment institutions or registered account information service providers. There are also new rules and guidance for currency exchange transfer services. The consultation closes on 1 November 2018, with a view to publishing the final rules by the end of January 2019, to apply from 1 April.  Some rules will not apply to incoming EEA firms, and it remains to be seen whether the European Commission or other EU member states will view the extension of these rules as infringing the 'maximum harmonisation' approach to the regulation of payment services and/or regulatory divergence by the UK post-Brexit. But with the end of financial services passporting, anyway, perhaps the FCA no longer cares - and most firms seem to have started setting up their EEA passport hubs in other EU member states in any event.

Generally, the supply of e-money services is governed by the Electronic Money Regulations 2011 ("EMRs"), which implement the second E-money Directive; and both e-money and payment services are governed by the Payment Services Regulations 2017 ("PSRs"), which implement the second Payment Services Directive.

While the FCA is the regulator appointed to supervise these regulations, most of its rules in the Handbook do not apply, as the E-Money and Payment Services Directives require 'maximum harmonisation' - consistent implementation in all member states to ensure a level playing field across the European Economic Area. However, the PSRs introduced some scope for the FCA to extend its rules to these services, essentially where they are not within the scope of the directives or inconsistent with the regulations or the principle of 'maximum harmonisation'.

While the PSRs prescribe certain information to be given to e-money and payment service customers, they do not create overriding obligations, or the possibility of regulatory redress, concerning the 'fair treatment' of customers, for example, or that firms' communications must be clear, fair and not misleading.  Some payment service providers have fallen foul of the UK's Advertising Standards codes, however.

Accordingly, the FCA considers there is scope to apply its Principles for Businesses and associated guidance which create general management obligations for payment services firms, including the requirement to 'treat customers fairly'; as well as the rules and guidance in BCOBS 2 set out the FCA's expectations of firms when communicating about, or promoting, their services to customers. The specific application of these rules to e-money and payment services is explained in Chapter 3 of the consultation paper.

In addition, the proposed new rules and guidance concerning currency exchange transfer services are designed to enable the FCA to sanction misleading communications to consumers, the exchange rates they can achieve, the cost of those services and comparing alternative providers’ fees. These proposals are explained in Chapter 4 of the FCA's paper.

It remains to be seen whether the European Commission will view the FCA's proposals as cutting across the principle of maximum harmonisation, and its specific efforts to improve the transparency and fairness around payment services, including currency exchange services.

But with the prospect of a disorderly Brexit looming large, and the end of financial services passporting, perhaps the FCA no longer cares...  Most firms seem to have started setting up their EEA passport hubs in other EU member states in any event.