UK Payments Regulator Defends Record On De-Risking

UK authorities have not yet taken any regulatory action against banks that deny account services to payment providers, new figures reveal, reigniting debates over the industry’s battle against systemic de-risking.

Under the UK’s Payment Services Regulations 2017, any time a credit institution refuses to grant or chooses to withdraw a bank account of a payment service provider (PSP) it must notify the Financial Conduct Authority, providing “duly motivated reasons” for the decision.

That information is then passed onto the Payment Systems Regulator (PSR) unless it opts out.

But at the launch of the PSR’s annual plan on Wednesday, outgoing managing director Hannah Nixon was challenged on how often this requirement has been followed and consequently how accurate the published figures were.

The regulator said it had received 197 such notifications from banks, as well as “a number of complaints from PSPs who have had bank account access refused or withdrawn”, according to the annual plan.

Nixon, however, also addressed extant concerns that endemic underreporting by banks could mean the figures do not tell the whole story.

“It’s really important we do get the information. We need people to report that to us, so that is the data that we have. We’re constantly monitoring the access space and the progress that’s being made,” Nixon said.

“We’re also aware that there are still some issues, particularly with smaller players in the market not getting access.

“So I suppose the key is to make that data actually available to us, because unless we understand the issues that people are actually facing in the market it’s difficult for us to focus on improvements to be made.”

The PSR is empowered under the Payment Services Regulations and the Financial Services (Banking Reform) Act 2013 to take enforcement action, including fines, against banks that fail to undertake these obligations.

Its report revealed that, so far, three cases have been opened against banks for failing to offer accounts to payment providers.

However, in two of those cases the payment firms in question withdrew their reports before the regulator issued a final decision, while in the third the parties involved “came to a commercial agreement” before any regulatory action was taken.

“Where there are disputes, and we have had some come our way, what we have seen is showing that the market is working,” said Louise Buckley of the Payment Systems Regulator. “Access has opened up much more, but if people are having problems they need to let us know.”

John Burns, payment services director at Compliancy Services, questioned the regulator on whether 197 notifications of account refusal is an accurate starting figure.

“The view from the industry is that PSPs cannot get bank accounts and I am concerned that you don’t know what you don’t know,” he said at Wednesday’s launch event. “If banks don’t realise they have to report, you don’t know about it.

“As an example of what’s out there in the market, one major bank wrote back to a client of mine saying they were still considering their policy on access for payment institutions and e-money institutions in February this year, more than a year after the regulations had come into effect.”

But Louise Buckley, chief operating officer and one of two managing directors of the PSR, suggested that the fact no formal enforcement action has been taken was a sign that the system was working.

“Where there are disputes, and we have had some come our way, what we have seen is showing that the market is working,” she said. “But ... if people are in this situation they need to let us know about it. Access has opened up much more, but if people are having problems they need to let us know.”

Complaints about banks refusing accounts to smaller payment providers are long-standing.

Last year, a representative from the Financial Conduct Authority noted the discrepancy between the number of complaints from payment and e-money institutions and the number of official reports submitted by banks, urging the former to come forward and help shed light on the true extent of the situation.

He said that without comprehensive data, regulators ultimately have no way of assessing the scale of the problem — regardless of the strength of their legal powers.

Even graduates of the authority’s vaunted regulatory sandbox programme have complained of difficulty gaining access to the formal financial system, due to the wariness of banks to deal with entities deemed to pose a heightened risk in terms of money laundering or terrorist financing.

The PSR added in its annual plan that it plans to review how it handles such complaints and will consider making changes to its guidance.

A consultation will be launched in the coming financial year, it said.

A spokesperson for UK Finance said the industry association “is currently working with the regulator and industry stakeholders to establish good practice guidelines to both account providers and firms applying for payment account services”.