In this Newsletter:
Regulatory Developments: Payments
Philippines: Central bank publishes guidelines on settlement through the National Retail Payment System
On 31 July 2024, the Bangko Sentral ng Pilipinas (BSP) published guidelines on the ‘Settlement of Electronic Payments under the National Retail Payment System (NRPS) Framework’.
The guidelines enhance operational flexibility for automated clearing houses (ACHs) established under the NRPS. ACHs will now be able to apply to the BSP to make regulated adjustments to the settlement of electronic payments to support faster settlement. For example, an ACH may recommend the use of a BSP-maintained demand deposit account when settling electronic payments instead of separate accounts.
United Kingdom: PSR consults on APP scam guidance
On 18 July 2024, the Payment Systems Regulator (PSR) opened a consultation on guidance to support the identification of authorised push payment (APP) scams and civil disputes.
The guidance, which applies to payments made via Faster Payments and CHAPS, will be used by payment service providers (PSPs) in complying with the mandatory APP scam reimbursement requirement which is due to come into force in October 2024. It follows engagement with PSPs and industry which highlighted the practical challenges in making the distinction between reimbursable APP scams and civil disputes.
The guidance sets out factors that PSPs should consider in their assessments, including:
- The communication and relationship between the consumer and the alleged scammer.
- The trading status of the alleged scammer.
- The alleged scammer's capability to deliver the goods and services related to the claim.
- The extent to which the alleged scammer deceived the consumer as to the purpose of the payment.
- Information held by the receiving PSP(s) about the relevant account(s).
The deadline for responses to the consultation was 8 August 2024.
For more on this development, see our Engage article.
United Kingdom: PSR publishes APP scams consumer communications information for payment service providers
On 1 August 2024, the Payment Systems Regulator (PSR) published APP scams consumer communications information for payment service providers (PSPs). On 12 July 2024, it published its amended legal instrument Specific Direction 20 (SD20) in which it included the requirement for sending PSPs to inform existing consumers of their rights under the Faster Payments Scheme (FPS) reimbursement requirement and reimbursement rules.
The purpose of this latest document is to facilitate compliance with SD20. The PSR is not prescribing how firms should communicate to their consumers. It states that:
- PSPs should have the flexibility to communicate with their consumers in ways which reflect their business model and approach.
- The document does not preclude any additional communications PSPs may wish to provide to their customers in respect of the requirements.
- PSPs should continue to have regard to FCA Consumer Duty requirements and any other relevant regulatory obligations.
European Union: EBA and ECB report on payment fraud
On 1 August 2024, the EBA and the European Central Bank (ECB) published a joint report on payment fraud data. The report assesses payment fraud reported by the industry across the EEA and is based on semi-annual data for three reference periods, namely H1 2022, H2 2022 and H1 2023. The EBA and the ECB will continue to monitor fraud data and publish the aggregate data on an annual basis.
European Union: Eurosystem policy on non-bank PSP access to payment systems
On 19 July 2024, the ECB published a policy on access by non-bank PSPs to central bank-operated payment systems and to central bank accounts. The policy follows on from the adoption of the Instant Payments Regulation ((EU) 2024/886), which entered into force on 8 April 2024. The Eurosystem will monitor the implementation of the policy and may provide further clarification based on its observations. The ECB plans to publish a related ECB legal act in the coming months.
European Union: Commission publishes clarifying Q&As on Instant Payments Regulation
On 23 July 2024, the European Commission published Q&As to clarify the requirements of the Instant Payments Regulation ((EU) 2024/886) (IPR).
To help payment service providers (PSPs) and national authorities implement the IPR, the Commission's Directorate General for Financial Stability, Financial Services and Capital Markets Union (DG FISMA) held two online implementation workshops in April and May 2024 to discuss a number of the IPR provisions. During the workshops, oral clarifications were provided to over 200 questions that had been collected from stakeholders in advance. The Q&As reflect these clarifications, covering a range of topics including:
- Scope.
- Payee verification.
- Sanctions screening.
- Instant credit transfer charges.
- Penalties and reports.
The Commission advises that the Q&As do not purport to express in law, or prejudge, its position on the interpretation or application of the IPR or any other EU law, and are without prejudice to the interpretation that the Court of Justice of the European Union (ECJ) may give to the IPR.
United Kingdom: Bank of England discussion paper on approach to innovation in money and payments
On 30 July 2024, the Bank of England (BoE) published a discussion paper on its approach to innovation in money and payments.
Despite increasing levels of digitalisation, the BoE still sees an important role for central bank money in maintaining both the singleness of money and settlement finality as cornerstones of monetary and financial stability.
However, the BoE recognises that central bank money must keep pace with technological advances in financial markets to avoid a significant increase in the use of private settlement assets. To this end, it proposes two developments – (i) further improvements to the Real Time Gross Settlement (RTGS) system as part of its RTGS Future Roadmap, and (ii) exploring the issuance of a wholesale central bank digital currency (wCBDC).
The BoE's attitude towards innovations in private money is very cautious, but it acknowledges that distributed ledger technology (DLT) has the potential to improve markets and highlights tokenised deposits, stablecoins and use of smart contracts as three use cases of particular interest.
The BoE welcomes views on both the overall proposed approach and a number of specific areas, as outlined in the discussion paper. The deadline for responding is 31 October 2024.
Take a look at our Engage article for more on this development.
South Africa: Central bank publishes statement on change to electronic funds transfer regulations
On 26 July 2024, the South African Reserve Bank published a statement announcing that low-value electronic funds transfers (EFTs), debit and credit payments made between Common Monetary Area (CMA) countries will be treated as cross-border transactions. As a result of this change, the transfers will be subject to greater due diligence requirements.
Previously, such payments were treated as domestic payments and benefitted from a lower cost and efficiencies. However, the change was required in order to comply with the Financial Action Task Force’s (FATF) anti-money laundering, countering the financing of terrorism and combating proliferation financing recommendations.
From 30 September 2024, financial institutions won’t be able to debit account holders in other CMA countries as if they were a domestic customer.
United Kingdom: PSR consultation response on Phase 1 expansion of VRPs
On 15 August 2024, the Payment Systems Regulator (PSR) published a response to its December 2023 consultation (call for views) which set out initial proposals on how the PSR could support the Phase 1 expansion of Variable Recurring Payments (VRPs) to regulated financial services, regulated utilities sectors, and local and central government. Non-confidential stakeholder submissions to the call for views have also been published.
For a reminder of the proposals in the December 2023 consultation, take a look at our previous Engage article.
The PSR received consultation responses from across the open banking ecosystem. The publication summarises stakeholder feedback on key areas around VRP expansion, including:
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Coordinating expansion through a multilateral agreement (MLA): Concerns were raised around the need for an MLA and whether it should include a central price. The PSR will work closely with the VRP implementation group to look at what specific rules an MLA should include and who might be best placed to operate it.
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Mandated participation: The PSR agrees with feedback to the effect that it should not focus only on the CMA9. It will continue to assess the necessity and scope of mandated participation.
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Pricing principles and possible price intervention: There were mixed views on how best to price API access for VRPs in Phase 1. The PSR will evaluate different pricing approaches, as well as considering the potential effectiveness of interventions that do not establish a VRP API access price, such as price transparency or reporting requirements.
At this stage, the PSR still thinks that realising the full benefits of VRPs may require some level of regulatory action. It will continue to seek industry input and support.
Global: FSB recommendations on data flow, regulation and supervision in cross-border payments
On 16 July 2024, the Financial Stability Board (FSB) published two consultation reports on proposed recommendations related to data flows, and regulation and supervision, in cross-border payments. The consultation reports take forward priority actions under the G20 roadmap on enhancing cross-border payments to address legal, supervisory and regulatory frictions in cross-border payments to help achieve quantitative targets in 2027.
The first consultation report sets out recommendations to promote alignment and interoperability across data frameworks (ie the range of laws, rules and regulatory requirements for collecting, storing and managing data) related to cross-border payments. The proposed recommendations aim to address identified frictions from data frameworks. The FSB proposes the establishment of a forum of public sector stakeholders covering payments, anti-money laundering (AML) and countering terrorist financing (CFT), sanctions, and data privacy and protection.
The second consultation report contains recommendations for regulating and supervising bank and non-bank PSPs offering cross-border payment services.
Feedback is requested by 9 September 2024.
United Kingdom: FCA publishes final access to cash rules
Following measures introduced under the Financial Services and Markets Act (FSMA) 2023, on 24 July 2024 the FCA published a policy statement setting out the final rules for its new access to cash regime.
In outline, under the new regime, firms designated by HM Treasury (HMT) must:
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Identify gaps or potential gaps in cash access provision.
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Assess a wide range of local needs.
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Provide additional cash access services promptly if the assessments find a significant gap in provision.
A diagram on page 8 of the policy statement shows how the new cash access rules work alongside the FCA’s existing Branch and ATM closures or conversions guidance.
The large banks and building societies and coordination bodies previously designated by HMT as subject to the new regime have until 18 September 2024 to familiarise themselves with the new rules, establish and publish their cash access assessment procedures, prepare to receive cash access requests, and prepare to comply with new reporting requirements.
Take a look at this Engage article for more on this development.
The PSR aims to share a set of updated proposals for stakeholder comment in autumn 2024, along with a draft cost-benefit analysis. Interested stakeholders who would like to get in touch with the PSR ahead of this can email a2a@psr.org.uk.
United Kingdom: PSR publishes Second Annual Review of Specific Direction 12 (SD12) – SD12 to be retired
On 29 July 2024, the Payment Systems Regulator (PSR) published its second Annual Review of SD12, which was designed to make sure LINK continues to maintain a broad geographic spread of free-to-use (FTU) ATMs.
This review was assessed in the context of how SD12 would work alongside changes to the cash access regulatory landscape introduced in the Financial Services and Markets Act (FSMA) 2023, and the FCA's new cash access rules (see the above item).
Given that the FCA’s regulations are more comprehensive in protecting access to cash across all channels, the PSR has concluded that although SD12 was working well, it should be retired when it expires on 2 January 2025.
United Kingdom: PSR policy statement and final guidance on extensions and exemptions regarding specific directions and requirements
On 24 July 2024, the Payment Systems Regulator (PSR) published a policy statement on final guidance on extensions or exemptions from specific directions and requirements, along with its final guidance under section 96 of the Financial Services (Banking Reform) Act (FSBRA) 2013 on extensions and exemptions in relation to specific directions and requirements imposed under FSBRA.
The PSR explains that the guidance maintains a high bar for granting an exemption or extension because of the importance of ensuring firms are incentivised to comply with the PSR's rules and all UK payment system users see greater benefits from PSR policy interventions being delivered as quickly as possible.
European Union: EBA draft implementing technical standards for reporting templates relating to charges for credit transfers under SEPA Regulation
On 31 July 2024, the EBA published a consultation paper on draft implementing technical standards (ITS) on uniform reporting templates relating to the level of charges and share of rejected transactions under the SEPA Regulation ((EU) 260/2012). The EBA proposes that payment service providers (PSPs) report to national competent authorities:
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The level of charges for regular credit transfers and instant credit transfers broken down by type of transfer (domestic or cross-border), type of payment service users, type of payment initiation channels and the party subject to the charge.
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Charges for payment accounts, as well as the share of instant transfers, that were rejected due to the application of EU-wide restrictions.
The consultation closes on 31 October 2024.
Regulatory Developments: Digital Assets
Bahamas: Digital Assets Act is passed into law
On 30 July 2024, the Bahamian Parliament passed the Digital Assets and Registered Exchanges Act 2024 (the Act). As noted in the accompanying press release, the Act follows on from a law of the same name which was passed in 2020 and seeks to align the regulation of digital assets with international best practices.
The key changes implemented by the Act include:
- Broader scope which now addresses a wider range of digital asset-related activities, such as advisory or management services. The Securities Commission has authority to add additional activities to this list.
- Increased digital asset exchange investor and consumer protection requirements.
- New provisions on custody of digital assets or custodial wallet services.
- The introduction of a disclosure regime for staking digital assets belonging to clients or the operation or management of a staking pool as a business.
- Establishing clear definitions for stablecoins.
- A system for the registration of existing stablecoins.
- Specifying acceptable forms of reserve assets.
- New requirements for custody and management of stablecoins.
- Prohibition of the issuance of algorithmic stablecoins.
- New fit and proper standards for digital asset issuers, disclosure and financial reporting requirements.
The Act will come into force on the date appointed by Ministers upon publication in the Gazette.
Luxembourg: Proposal for Blockchain Law IV introduced to Parliament
On 24 July 2024, the Luxembourg Ministry of Finance introduced a proposed Distributed Ledger Technology Bill (the Bill) to Parliament. The Bill aims to build on and improve Blockchain Laws I, II and III and seeks to improve the legal framework for dematerialised securities.
A key change proposed by the Bill is the introduction of a Control Agent, who will be in charge of the issuance of dematerialised securities and can be an EU investment firm or credit institution. The Control Agent will also be in charge of monitoring the holding chain of the securities and of verifying the integrity of issuance accounts. Currently, the Central Securities Depositary (CSD) is responsible for the issuance of digital securities and record keeping.
Switzerland: FINMA publishes stablecoin guidance
On 26 July 2024, the Swiss Financial Market Supervisory Authority (FINMA) published guidance on risks and challenges for issuers of stablecoins and banks providing guarantees. The guidance follows the Financial Action Task Force’s (FATF) finding in 2020 that stablecoins raise similar money laundering and terrorist financing risks as cryptocurrencies.
FINMA addresses the practice of stablecoin issuers in Switzerland of using default guarantees from banks. This means that often banks do not obtain a licence from FINMA that would otherwise be required, and accordingly expose both the stablecoin holders and guarantee providers to risk. In order to protect depositors, FINMA provides information on its minimum requirements for default guarantees.
Hong Kong: HKMA releases conclusions following stablecoin issuer consultation and announces sandbox participants
Stablecoin issuer consultation conclusions
On 17 July 2024, the Hong Kong Monetary Authority (HKMA) published the consultation conclusions to its legislative proposal to implement a regulatory regime for stablecoin issuers in Hong Kong. The proposals related to:
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Putting in place safeguards to address potential monetary and financial stability risks posed by fiat-referenced stablecoin (FRS).
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Providing adequate protection to FRS users.
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Maintaining a regulatory regime that aligns with international regulatory recommendations.
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Fostering the development of the virtual asset ecosystem in Hong Kong.
The HKMA’s conclusions document suggests an intention to present a bill on FRS to the Legislative Council later this year.
HKMA stablecoin issuer sandbox
On 18 July 2024, the HKMA announced the list of participants in its stablecoin issuer sandbox. According to the HKMA, the participants were selected on the basis of their interest in developing a stablecoin issuance business in Hong Kong. The participants will not handle the general public’s funds initially or solicit funding from the public.
Italy: Bank of Italy issues MiCA communication
On 25 July 2024, the Bank of Italy issued a communication on the Regulation on markets in cryptoassets ((EU) 2023/1114) (MiCA). The communication illustrates the Bank’s supervisory powers and outlines certain aspects of MiCA and the impact on market players.
Significantly, the Bank of Italy announced that it is open for dialogue with market players on MiCA, with the publication of a new communication inviting engagement pending.
For more information, see our Engage article on this update here.
European Union: ESMA publishes opinion on risks presented by global crypto firms seeking limited authorisation under MiCA
On 31 July 2024, ESMA published an opinion addressing the risks presented by global crypto firms seeking authorisation under the Regulation on markets in cryptoassets ((EU) 2023/1114) (MiCA) for part of their activities (crypto brokerage) while keeping a large part of their group activities (intra-group execution venues) outside the EU regulatory scope.
In the opinion, ESMA provides clarification - addressed primarily to national competent authorities (NCAs) - on the risk of regulatory and supervisory arbitrage arising from multifunction cryptoasset intermediaries (MCIs) that structure their business in a way that enables them to only seek authorisation under MiCA for brokerage services but where they would leave a large part of their group activities (in particular the operation of a trading platform for cryptoassets) outside the scope of MiCA.
ESMA requires NCAs to make case-by-case assessments and outlines specific requirements that should be met.
Global: BCBS publishes disclosure framework for cryptoasset exposure
On 17 July 2024, the Basel Committee on Banking Supervision (BCBS) published its final disclosure framework for banks’ cryptoasset exposures. The framework includes a set of standardised tables and templates which cover banks’ cryptoasset exposures and require banks to disclose information on their activities.
The framework contemplates the disclosure of qualitative information on banks’ cryptoasset related activities and quantitative information on the capital and liquidity requirements for their cryptoasset exposures.
The guidance aims to enhance information availability and support market discipline by standardising disclosure requirements.
European Union: EBA consultation on guidelines on reporting templates under MiCA
On 15 July 2024, the EBA published a consultation paper on draft guidelines on templates to assist competent authorities in performing their supervisory duties regarding issuers' compliance under Titles III and IV of the Regulation on markets in cryptoassets ((EU) 2023/1114) (MiCA). Annexes to the consultation paper, containing templates, instructions and validation rules, have also been published.
The EBA plans to hold a public hearing on the draft guidelines on 20 September 2024. Comments can be made on the draft guidelines until 15 October 2024.
Global: GLEIF and Global Digital Finance partner to support development of standards for digital assets industry
On 16 July 2024, the Global LEI Foundation (GLEIF) announced a partnership with Global Digital Finance (GDF) to support the development of a system of standards for the digital assets industry.
The press release states that, together, GLEIF and GDF ‘will advocate and accelerate the adoption of best practices for digital assets, ultimately paving the way for a more integrated and efficient financial system for all market participants’.
United Kingdom: Law Commission publishes draft Property (Digital Assets etc) Bill and supplemental report
On 29 July 2024, the Law Commission published a draft Property (Digital Assets etc) Bill and supplemental report. This follows a February 2024 consultation. If implemented, the draft legislation would confirm the existence of a third category of personal property, which is neither a thing in possession or a thing in action and can include "a thing that is digital or electronic in nature". Some points from the report include:
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The exact parameters of the third category, and the legal treatment afforded to things that fall within it, would be a matter for the courts to develop through the common law, assisted by a panel of experts.
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The three categories of property are likely to be mutually exclusive, although a third category thing could represent or be associated with another category of thing (for example, a crypto-token could be a third category thing but also represent a legal right, or be legally linked to a physical thing such as land).
United Kingdom: FCA publishes findings from review of firms’ compliance with ‘back end’ cryptoasset financial promotions rules
On 7 August 2024, the FCA published the findings from its review of firms’ compliance with ‘back end’ cryptoasset financial promotions rules (personalised risk warnings, the 24-hour cooling off period, client categorisation and appropriateness assessments) which came into force on 8 October 2023 (see our previous Engage article).
The FCA found some examples of firms demonstrating good practice which it has shared to help firms get their compliance with the rules right. However, it also found multiple instances where firms did not meet the required standards. It states that more work needs to be done to improve compliance. It will continue to work with industry on this and other parts of the current and upcoming crypto regime.
Market Developments
Latin America: LemFi expands international payment services to Brazil and Mexico
On 31 July 2024, LemFi, a financial technology platform operating primarily in the U.S., UK and Canada, announced it would now offer its payment services in Brazil and Mexico, its first expansion into Latin America. Users from Brazil and Mexico who currently live outside of these countries will now be able to transfer money there via the LemFi app without a transaction fee.
European Union: Stables announces European expansion of stablecoin virtual card
On 22 July 2024, it was reported that Australian stablecoin payment startup, Stables, and Mastercard have entered a partnership as part of Stables’ expansion into Europe, where it has a Polish virtual asset service provider (VASP) licence. The partnership will lead to the launch of a virtual stablecoin card.
Slovenia: First digital bond issued
On 25 July 2024, the Republic of Slovenia announced that it had issued a €30 million short-dated digital bond on the BNP Paribas Neobonds platform, marking the first sovereign digital bond issuance in the EMEA region. Settlement utilised the Banque de France’s wholesale central bank digital currency (CBDC) as part of the Eurosystem’s wholesale Distributed Ledger Technology (DLT) settlement trials.
Europe: Ferrari to accept crypto payments
On 24 July 2024, Ferrari announced that it will extend its cryptocurrency payment system to its European dealers. This development follows last year’s launch of the cryptocurrency payment system in the United States. Ferrari plans to continue the expansion of the alternative payment system to other countries in its international dealer network.
United States: equipifi introduces pre-purchase BNPL
On 30 July 2024, equipifi, a buy now, pay later (BNPL) platform provider for banks and credit unions, announced that it has launched a pre-purchase BNPL solution. The feature will allow financial institutions to provide users with flexible financing prior to making a purchase.
Mexico: Interledger Foundation to provide payments pathway for rural community banks
On 1 August 2024, it was reported that the Interledger Foundation and the People’s Clearinghouse will work together to provide a new cross-border payments infrastructure. The project seeks to enable U.S.-Mexico remittances through community banks in rural areas.
Europe: BNP Paribas partners with Ant International
On 15 July 2024, it was reported that BNP Paribas has partnered with Ant International to offer cross-border payment services for European clients and merchants. The companies have agreed to develop several initiatives in the digital payment sector.
Somalia: Salaam Bank to offer contactless payment
On 1 August 2024, it was announced that Salaam Bank’s Waafi platform will work with Paymentology to offer contactless payment in Somalia. Waafi will launch a tokenised tap-to-pay digital companion card and physical cards. According to the announcement, this will be the first offering of its kind in the region.
Middle East: Dubai-based firm invests in fintech to offer cross-border payment services
On 1 August 2024, it was reported that National Pulse, a state-backed investor based in Dubai, will back Aleta Planet, a Singaporean fintech, to promote open finance in the region.
Europe: MetaMask pilots MetaMask Card in partnership with Mastercard and Baanx
On 14 August 2024, it was reported that MetaMask, a self-custodial crypto wallet for the Ethereum network, has partnered with Mastercard and Baanx on a pilot of a MetaMask Card. This is a Mastercard payment card that enables direct spending from MetaMask crypto wallets. The pilot is only available to a limited group of users in the EU and UK.
Surveys and Reports
Australia, United Kingdom and United States: Marqueta consumer report published
On 23 July 2024, Marqeta, a card issuing platform, announced the results of its report into the future of financial solutions.
Marqeta surveyed 4,000 consumers in Australia, the UK and the U.S. with the aim of understanding changing consumer purchase preferences.
The report found that 79% of respondents had used contactless payments in the last 90 days, 70% had used peer to peer (P2P) payment apps and 75% of consumers use more than one financial provider.
Factors driving the demand for digital payments include the ease of modern payment methods, digital curiosity and the consumer friendly nature of the digital platforms. Consumers are also exposed to a wider variety of financial providers. The findings noted this is a transition period for consumers and how they interact with financial providers.
United Kingdom: UK Finance publishes UK Payment Markets Summary
In July 2024, UK Finance published its 2024 UK Payment Markets Summary.
The report highlights trends arising from the 48 billion payments made in the last year, such as the continuing popularity of debit cards and contactless payments.
Almost 4 out of 10 payments in this period were made using contactless payments, with 85% of consumers using this payment method regularly.
The report also found that cash is the second most frequently used method of payment in the UK.
