To some, 13 January and the implementation of the second Payment Services Directive (PSD2) will be a significant milestone in their business’s path. They will be joining the community of the regulated financial services sector, which means that their owners and managers take on significant additional liability and are subject to a new level of scrutiny. They will have to meet certain standards and requirements ranging from the information they must give their customers to the type of insurance they must hold (in the case of the payment initiation and account information service providers) to how they treat client money (for authorised payment and e-money institutions and small e-money institutions).
The second Markets in Financial Infrastructure Directive (MiFID II), and its accompanying regulation the Markets in Financial Infrastructure Regulation (MiFIR), are set to take effect tomorrow (3 January 2018) – some four and a half years after first being approved by the Council of the European Union (and after a year-long delay intended to allow for the development of the complex technical infrastructure required by firms for compliance with the incoming changes).
When does a great deal turn out to be not such a great deal? When a credit card surcharge is added right at the end. Such hidden surcharges will be a thing of the past, mostly, come mid-January when the second Payment Services Directive (PSD2) is implemented.
Following on from my previous blog post, where I looked at the UK’s current and future payments architecture, one of the most interesting developments identified at the Project Regulator event that could be a game changer for payment and e-money institutions concerns the UK’s interbank real time gross settlement (RTGS) system.
Last week, Project Regulator, which I lead on behalf of the Emerging Payments Association, hosted a special briefing on the new payments architecture organised by the inspirational and indefatigable, Anne Pieckielon, Director of Product and Strategy at bacs.
The gateway for PSD2 applications opens today. About 500 authorised payment institutions and e-money institutions and 150 payment initiation and account information service providers are expected to submit applications to the FCA over the next few months in order to be authorised by 13 January (in the case of payment initiation and account information service providers) or re-authorised by 12 July in the case of those firms already authorised.
The competence and capability expected of holders of the compliance function has been brought into sharp focus by two final notices issued by the Financial Conduct Authority (FCA) this summer. One holder of the compliance function (the CF10), was fined £75,000 for failing to exercise due skill, care and diligence in performing his compliance oversight role. The other, a would-be compliance officer, had his application for CF10 and the money laundering reporting function (CF11) refused on the grounds of ‘competence and capability’.
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Last year, the FCA sent a 'Dear CEO' letter about ICAAP. For those who don't know, the ICAAP is a process a firm follows to assess the risks it’s facing currently and in the foreseeable future and calculate an amount of capital it should hold as a buffer against those risks.
The letter was a warning that the exercise shouldn't be a quick totting up of sums without any real engagement in the process. It went only to IFPRU investment firms, though BIPRU firms also have to do ICAAPs. Payment and e-money institutions don't have to do an ICAAP but as those who are tackling their re-authorisation application know, PSD2 places strong emphasis on understanding and managing risks.
Last week the Emerging Payments Association announced the finalists for this year’s Emerging Payments Awards. With more than 200 entries from payments related businesses around the world, the awards are testimony to the amazing growth this area of FinTech is experiencing.