The FCA is consulting on a proposal to apply its Principles for Businesses and certain of its conduct of business rules to the payment services sector. Assuming that the proposals are adopted (which is likely) this will be the first time that these provisions will be applied across payment services. The proposal is said to be a response to specific concerns that the FCA has regarding its ability to address potential consumer detriment in the sector and in order to bring about a degree of harmonisation across UK financial services firms dealing with payment services. There is no doubt that the proposals also reflect recognition by the FCA of the growing importance of payment services to UK consumers. The consultation is open for responses until 1 November 2018 and the FCA expects to publish its final rules before 31 January 2019.
The FCA describes its Principles for Businesses (the Principles) as "fundamental obligations" that it expects all FCA authorised firms to comply with. As practitioners will be aware, they are also often at the core of FCA enforcement activity. As matters stand, FCA authorised credit institutions (Banks and building societies) that supply payment services as an ancillary service to their FCA regulated activities, also have to adhere to the Principles in respect of their payment services activity. However, Payment Institutions (authorised under the Payment Services Regulations) or E-money Institutions (authorised under the Electronic Money Regulations), are not subject to the FCA's Principles. This includes, for example, the requirement to treat customers fairly (Principle 6) and to provide information that is "clear, fair and not misleading" (Principle 7). The FCA says that this makes it more difficult for it to meaningfully supervise and (where appropriate) to take enforcement action against these providers, for example in relation to a recent spate of potentially misleading communications which it refers to.
In addition to seeking to apply the Principles, the FCA also proposes that the provisions in BCOBS2 (banking conduct rules that apply to dealings with customers) are applied across all payment service providers. These provisions and associated guidance relate to the content and accuracy of communications and financial promotions and add some real granularity to the broader brush Principles. Again the FCA's intention is that this will both harmonise the law applying to all those providing the same services, bringing about greater fairness and competitiveness, but also enhance its ability to take action. It is noteworthy that the FCA also proposes to update BCOBS to include specific provisions regarding currency exchange transfer services provided by payment service providers and in particular a requirement that comparisons with other providers are presented in a fair and balanced way. This is a direct response to misconduct that the FCA has apparently seen (and in many cases taken action in relation to) around firms using unavailable rates and unfair market comparisons, in order to lure in retail customers.
In terms of the scope of these changes, it is important to note that they will benefit "customers" of payment service providers. This relates mainly to individuals acting in a personal capacity and micro-enterprises. In other words, as will already be apparent to readers, the FCA's main concern here is with retail consumer protection.
Whilst suggesting that for many payment service providers these proposed reforms will already be consistent with their existing policies and best practices, the FCA accepts that the reforms are likely not to be cost free. This is especially so in relation to changes to marketing material and communications, where the cost is very hard to quantify. What is clear is that by bringing payment services firms under their full scrutiny, the FCA hopes to bring about a more fundamental cultural shift. It may well be that, like the experience of many less well equipped consumer credit firms after the FCA assumed responsibility for their regulation, this process results in some exiting the market or being required to do so. Given that the FCA appear to want to implement these changes in short order, payment service providers would be well engaged to consider now whether their material as well as policies and procedures are compliant with BCOBS2 and the Principles and to make appropriate changes.