Consumer Panel responds to HM Treasury Payment Services Regulations Call for Evidence

The Financial Services Consumer Panel submitted its response to HM Treasury's Payment Services Regulations Call for Evidence on 14 April 2023¹. The Panel describes itself as an independent statutory body that represents the interests of individual and small business consumers in the development of policy and regulation of financial services in the UK, with a focus predominantly on the work of the FCA¹. The response is signed by Helen Charlton, Chair of the Financial Services Consumer Panel¹.

The Panel argues that the regulatory gateway for payments must be toughened as a matter of priority, and that payment firms should be required to receive full authorisation and be subject to the usual basics of FCA regulation¹. It says the consumer duty should sit at the centre of this and should unambiguously apply¹. It also encourages HM Treasury to revisit the Safeguarding regime, questioning whether a regime it calls complex and risky is appropriate for backing accounts promoted to the most vulnerable and likely poorest consumers as the most basic and accessible payment accounts¹.

On fraud, the Panel says robust and effective fraud controls should be a condition of operating in UK payment systems, and that while work by the FCA and the Payment Systems Regulator, including the proposal to make reimbursements mandatory for victims of authorised push payment fraud, is welcome, protections for consumers making interbank payments are insufficient and improvements need to be implemented¹. It adds that the same protections should apply to consumers irrespective of the size, maturity or legal nature of the provider¹.

The response also covers cash, saying all consumers should be given the choice of using cash as a method of payment and that those who depend on cash should be able to continue to access essential services¹. On Open Banking, it says Open Banking payments must offer a competitive alternative to card payments, in particular in terms of charges paid by merchants and businesses, if they are to deliver meaningful change¹. It cites Bank of England figures that the average merchant service charge for card payments was 0.6% of each transaction in 2018, and that the smallest merchants paid over four times more on average than very large ones¹.

The Panel quotes the FCA's portfolio letter on priorities for payments firms of 16 March 2023, saying it shares the FCA's concern that many payments firms do not have sufficiently robust controls and that some firms present an unacceptable risk of harm to their customers and to financial system integrity¹. It also notes its disappointment that the Call for Evidence's questions for stakeholders are largely directed at industry providers rather than consumers¹.

Why it matters for households

Payments are the part of financial services most people use every day, and the Panel's argument is that the rules governing the firms behind them should be set with consumers in mind. Its specific asks would affect who can operate in the UK payments market and on what terms: full authorisation and the application of FCA rules such as PRINC, SYSC, DISP and SMCR would change the requirements firms face¹. Its call to revisit safeguarding concerns how customer money is protected when a payment firm holds it, which matters to anyone whose balance sits with an e-money or payments firm rather than a bank¹.

On fraud, the Panel's position is that existing protections for people making interbank payments are insufficient, even with mandatory reimbursement for APP fraud victims in prospect¹. Its points on cash concern people who rely on notes and coins for essential services, and its points on Open Banking concern whether merchants and businesses face lower charges, which can feed through to what consumers pay¹. The response is a submission to a consultation, not a decision, and no changes to the rules have been announced as a result.

What happens next

HM Treasury ran the Call for Evidence and received the Panel's response on 14 April 2023¹. No date for the government's response or for any resulting changes to the Payment Services Regulations has been reported¹.