Payment companies in the United Kingdom have until June 25, 2013, to respond to a new plan to end payments industry self-regulation and appoint a regulator for retail payment systems.
HM Treasury, the financial policymaker of the U.K. government, issued a paper titled Setting the strategy for UK Payments in July 2012. The paper offered alternatives for "improving the way that payments strategy is made in the UK" and said the government favored introducing a national Payments Strategy Board to "set strategy" for the industry.
However a new policy paper released March 26, 2013, called Opening up UK payments discarded the idea of a payments board in favor of a regulator. The Treasury stated further developments led it to conclude a payment board would not be able to deliver the kind of improvements in the industry the government wants initiated. Those aims would best be delivered by a "new regime of economic regulation" that would "establish a new competition-focused, utility-style regulator for retail payment systems."
The Treasury said it decided on a regulator because of "a series of high profile examples where the self-regulation of financial services ... has been discredited." It added that a payment strategy board "would have been open to strong industry influence" and would not have been capable of tackling payment systems problems the Treasury has identified.
The government also said it is concerned with barriers to competition in the U.K. banking market - primarily the fact that the majority of the payments industry in the U.K. is owned or controlled by just a few banks. "It has become clear that there are significant concerns around the potential for the terms on which competitors can access the payment systems to act as a barrier to entry in retail banking," Opening up UK payments stated. The Treasury said this issue can only be effectively addressed with a new system of economic regulation.
The government also found that "regulatory powers would have been needed to make a payment strategy board effective. Giving regulatory powers to a body that would be susceptible to strong industry influence risks a return of the system of self-regulation in financial services." The government said it will not do that and recommended the Financial Conduct Authority or another existing economic regulator take on the regulatory role for the payments industry.
The Treasury recommends the payment regulator be given authority to enforce prohibitions on anti-competitive agreements and refer members of the payments industry to the government's Competition Commission for investigation. Members of the payment system in the U.K. should also be licensed through the regulator, the Treasury said.
The government also believes the regulator should have the power to gather information, issue enforcement orders, impose financial penalties for a data breach, share information with other European governments, create advisory bodies, levy charges on regulated members of the payment system to finance regulation activities, and be able to amend license conditions.
A copy of the government plan for payment regulation and directions on how to comment before the June 25 deadline can be downloaded at www.hm-treasury.gov.uk/d/consult_opening_up_uk_payments.pdf.
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