This is the text of the speech as drafted and may differ from the delivered version. This speech was delivered at the Westminster Business Forum: Payments, policy and regulation – infrastructure, innovation and end-user priorities, in London on 23 January 2020.
Good morning, and thank you for inviting me to speak here today. I’m Chris Hemsley, the Managing Director of the Payment Systems Regulator.
I am privileged to have been appointed to this post in an organisation that already has a successful five-year track record in a critical sector that underpins all of our day to day lives. But the payments sector is facing considerable challenges, now and in the very near future. I want to see the PSR play its full part in meeting those challenges.
Now I have been in post for a little over 100 days – and it has certainly been a busy and interesting 100 days!
I have used this time to listen to you - our stakeholders - on how you want to see the PSR play its role: what we should focus on; and how can be better at what we do.
You have not been slow to share views with me – including about what you want us to do differently.
Today I want to talk to you about how we are acting on that feedback across some of our key projects.
Collaboration across regulators
First, you have told me that you want a coordinated and joined-up approach across the payments regulators. Now this is – in practice – something that has been happening – with close working between us, the FCA, Bank of England and, of course, government. But it is not perhaps always sufficiently visible and it is an area where we can always do more.
Indeed, only yesterday, the PSR board was discussing our forward workplan and the long-term challenges facing the sector, at a session where we benefited from the active participation of colleagues from both the FCA and Bank of England.
We are also playing our part in coordinating the impacts of our regulation on the financial sector: the so-called Air Traffic Control problem of managing changes. We announced in July that the PSR was working with the FCA and PRA to improve coordination. For our part, we will continue to consult on our proposals, listen to what you have to say, and be prepared to change where the evidence supports that. This is exactly what we have done in the implementation of Confirmation of Payee for example.
Some stakeholders also talked to me about getting more clarity about PSR’s role – and how it complements the work of the other regulators. On this, we are now developing a clearer statement of our strategy, so that you can all have a better understanding of what we are seeking to achieve and how we are planning to achieve it.
This will take the form of a draft strategy statement which we will publish later this year. And, of course, we will be asking for your views so that we get it right.
Access to cash
When I took up my new role the PSR was grappling with the dilemma of what to do about cash. And it is indeed a dilemma – one that you will all be familiar with:
- Cash use has been declining – and continues to decline,
- Meanwhile the infrastructure to deliver that cash has not fundamentally changed, and many of the costs of that infrastructure do not naturally fall as cash use declines, and
- While many of us are comfortable with digital payments, or live in places that are well-served by free-to-use ATMs, this is not true of everyone.
Without action, there is a very real risk of a disorderly decline in cash, which could adversely affect consumers and businesses – particularly those who rely on cash.
Consistent with this, the PSR welcomed LINK’s commitment to protect the 2018 geographic footprint of ATMs, and we underpinned that commitment with a specific direction which we are in the process of reviewing. That was a sensible step. Most of us still get most of our cash from free-to-use ATMs (and prefer to do so).
But we need to be more creative about the solutions that will work for people and that meet the economy’s need for cash in the medium to long term. The cash dilemma will not be solved by simply preserving the 2018 footprint of ATMs in aspic.
We recognised this and heard the call for stronger direction. That is why many of you will have already heard me talk about how we want to work together to develop a suitable longer-term framework for cash.
We have taken that work forward – with the very welcome support of the industry. This is a key priority for the PSR – and it is one where collaboration across regulators, government, industry and consumer groups is critical. The focus of this new work is to develop practical long term sustainable cash access models. That will allow us all to manage the cash transition in a way that works for consumers and the UK economy.
The future may include key elements of today’s model, and I hope it will also have new innovative solutions. But one thing is clear – it will, at least, have to meet some minimum level of access to cash that is acceptable to consumers and wider society. We need to have open minds about how this could best be achieved – so that nobody is left behind as digital payments continue to grow.
We will make sure our work takes into account the bigger picture; joining up thinking on ATMs, cashback and depositing of cash; and joining up with the work that the Bank of England is taking forward on wholesale cash distribution.
And while we work towards a long-term model, we cannot stand still. We have hosted a number of workshops, most recently to explore what our 2019 consumer research programme revealed about how best to meet the needs of consumers. That led us to strongly support the principle of community engagement. We have welcomed the work of LINK, UK Finance and others to secure greater involvement of local communities in the cash debate, and we want to see this become an enduring part of how consumers’ needs are understood and met.
Indeed, it is worth reflecting on these industry initiatives, which include -
- LINK’s local engagement scheme which considers community requests to install ATMs. I understand it has received over 2,700 requests so far and is busy working through these, which is a really positive development.
- There is also a UK Finance scheme to be launched soon, that will accept community applications for grants for non-ATM cash access solutions. I am delighted that Natalie Ceeney continues to be involved in this work – she has contributed hugely to the debate on sustainable cash so far.
- And there are various trials cashback services underway too.
This work, the development of longer terms models, and a plan for a transition to a sustainable joined up cash system is the focus of the PSR’s cash access work over coming months.
New Payments Architecture
Another major priority for us is the New Payments Architecture (NPA). Pay.UK (formerly the New Payment Systems Operator) is now the operator of the Faster Payments Scheme, Bacs and the Cheque and Credit Clearing Company and it is charged with delivering the NPA.
The importance of the NPA can’t be understated. It’s a once in a generation change to the very fabric of our interbank payment systems. It’s an opportunity to future-proof the UK’s payments landscape, while delivering a resilient, robust architecture to support innovation and competition in overlay services, benefitting everybody making payments.
Around the time I was appointed in this role, this major project went into a ‘reset’, prompted by an independent review of the project commissioned by Pay.UK. I know Paul Horlock will be speaking to you today and he can explain in more detail the purpose of that resent and how it is progressing.
For me, this provided another opportunity – to listen and hear what our stakeholders want from the PSR on this project. And I heard they want to know more about how the PSR will regulate the NPA and in particular the Central Infrastructure that will be at its heart.
We are responding. We want to provide greater clarity and more detail on our expectations, our concerns, our approach and how we might regulate. So we intend to publish a Policy Statement that will explain what bidders, participants and other users can expect from the PSR as the NPA becomes a reality.
As a first step, in coming days we will publish a Call for Inputs on how some of our competition and innovation concerns might be addressed and we invite our stakeholders to respond. As you would expect, we are working closely with Pay.UK to align this work with the updated procurement timetable as that emerges. This means that participants in the procurement process, and other stakeholders, can look forward to greater regulatory certainty and clarity at the right points in the procurement process.
We will keep focused on the outcomes that the programme reset should deliver – including resilience, competition and greater opportunities for innovation. To succeed, a number of different pieces need to come together:
- First, an effective procurement process with a good design concept, providing competitive ideas and keeping costs down
- Second, a robust contract for delivery and operation, supporting fair access and ensuring that the provider does not have an unfair advantage in related markets, and
- Importantly, quality governance arrangements within the new system, with rules which have the potential to change in the light of practical experience, and as demand changes over time.
We will play our role in supporting this by engaging with the market as we develop our approach, providing as much regulatory certainty as we can and seeking an NPA that underpins competitive innovative services, delivering good outcomes for consumers.
Preventing fraud and protecting those who fall victim
On other work - I want to touch on Authorised Push Payment Scams – or APP scams. I don’t need to rehearse how devastating the effect of these scams are on consumers. We have all heard the horror stories and want to see this type of fraud prevented in the first place, and consumers protected and compensated where they become unwitting victims to what can be life changing crimes.
The PSR welcomed the voluntary Contingent Reimbursement Model Code (CRM) that a significant proportion of the industry signed up to in May 2019. The code, which is governed by the Lending Standards Board, is intended to ensure customers who fall victim to an APP scam will be reimbursed for their losses, provided they’ve taken the right precautions when making payments.
This was a great first step. But we know that industry, consumers and other stakeholders had to work hard and fast to get the code in place, and there are, unsurprisingly, some loose ends to be tidied up. These include:
- governance arrangements around the code;
- processes and rules to allow new institutions to join;
- clarity about how individual code signatory banks can fund the reimbursement of consumers; and – perhaps most critically of all
- understanding how the code is being applied and whether it is being effective in protecting consumers and incentivising measures to reduce fraud.
I have heard how challenging this work has been – especially as it is a voluntary code. Some stakeholders have asked for a more directive approach from regulators, which falls outside of our powers. But, I was also asked recently by one of the Code signatories to be clearer about what we, at the PSR, want to see.
So here is an attempt to provide that clarity.
We want to see an effective code in place, protecting people who fall victim to this type of fraud. So we are looking at the evidence on whether the code is delivering this outcome – and we have been working closely with the LSB, and support their work to review how the code is operating in practice.
And if the voluntary code needs refinement to be effective, then we want to support that. This means that the governance around the code needs to support improvements over time, and with more members unanimity in decision making is unlikely to be practical.
We want to see more banks and building societies signed up to the code, or at least apply equivalent standards of protection. Part of this means completing the important work that is underway to allow more institutions to sign up to the code – as it doesn’t yet work for all building societies and other payment institutions. We want it to be clear to potential new members the terms on which they can join.
As many of you will be aware, a critical issue that remains to be resolved is how to ensure that victims are reimbursed when they have done nothing wrong, but where all other parties have also met their obligations under the code. The so-called ‘no blame’ scenario.
I won’t recap on the process leading us to where we now are. You are all likely familiar with the amount of work undertaken by all parties to try to address this issue.
So in the spirit of trying to add some clarity about our position, what approach do I think should be taken. Now, as you would expect, any formal view really requires a detailed proposal and proper analysis.
But there are some features that are emerging, and some aspects where I can set out my current view.
First, I support the principle of using a rule change in the payment systems to introduce protection for victims of fraud. Pay.UK has set out its intention to work with industry on a potential new role as part of FPS which would require refunds to consumers when they have done nothing wrong. But we also need to ensure that any rule change can be implemented in practice and that Pay.UK can secure compliance with the rules.
Second, I support the concept that a bank or building society should be able to recover this cost from another firm, where that third party firm has failed to take reasonable steps to prevent the fraud from happening in the first place. This includes supporting the principle of being able to recover these costs from outside the financial sector, where this is where the problem arose.
But I am not convinced that a mandatory fund to reimburse victims is the right way to go. We already have a number of institutions, including parties to the code, who are self-funding claims, while others have chosen to participate in a fund . This choice is, I think, an important one. It is also arguably a simpler one.
It is important to touch on one further aspect of the work against APP fraud and financial crime.
Prevention is better than the cure.
Which is why we have required the introduction of Confirmation of Payee by the end of March, whereby banks have to check the name on the account that someone is paying into, as well as the account number and sort code. This means customers can confirm that they are paying exactly who they think they are, helping them to spot scammers – or simply a misdirected payment.
I haven’t been able to cover all of the work that the PSR is undertaking.
But I have sought to highlight some of our main priorities, and how we can best make progress on them.
A clear theme running through them is the need to collaborate effectively – across regulators and with industry stakeholders and consumer groups. These are shared problems. And we – at the PSR – have a better chance of improving outcomes if we work closely with you all.