This section of the topic guide sets out the legislative basis for the Payments Services Regulator (PSR) and outlines the supervisory and enforcement powers of the PSR, as set out in Part 5 and Schedules 4 and 5 of the Financial Services (Banking Reform) Act 2013.
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Establishing the Payment Systems Regulator
The Payment Systems Regulator (PSR) is a competition-focused regulator for retail payments systems formed by the Financial Conduct Authority (FCA) under s40 of the Financial Services (Banking Reform) Act 2013 (FSBRA) and is housed within the FCA. The roles, responsibilities and powers of the regulator were established by the FSBRA and it is funded by the payments industry.
Most of the provisions of the FSBRA relating to the PSR came into effect on 1 March 2014 and the PSR's remaining powers (relating to its competition functions) came into force on 1 April 2014. The PSR became fully operational on 1 April 2015.
The power to designate a regulated payment system sits with HM Treasury under s43 of the FSBRA. Designation brings the payment system within the scope of the PSR. To date, designation orders have been made relating to the following payment systems:
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Background material
The Financial Conduct Authority and the PSR
The FCA and the PSR
Once a payment system has been designated as a regulated system by HM Treasury, the PSR (and in some cases the FCA) will have supervisory and enforcement powers over participants in that system.
The FCA must ensure that the PSR is consistently capable of exercising its functions. In consequence, under s100 of the FSBRA, the FCA has a right of veto over certain actions of the PSR and a power to direct the PSR to exercise its powers in a specified manner, particularly where the PSR's proposed exercise of its power may have an adverse effect on the ability of the FCA to comply with its general duties. The PSR has a duty to consult with the FCA (together with the Bank of England (BoE) and the Prudential Regulation Authority (PRA)) prior to issuing a general direction relating to payment systems rules applicable to all operators of regulated payment systems.
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The FCA, the PSR and enforcement of PSD2
The Payment Services Directive (EU) 2015/2366 (PSD2) was implemented in the UK by the Payment Services Regulations 2017 (PSRs 2017), which came into force on 13 January 2018. The FCA is the competent authority for most provisions of the PSRs 2017, but the PSR is the competent authority for some parts, as set out in Part 10 of the PSRs 2017.
In September 2017, the PSR published its final approach document and a joint policy statement with the FCA setting out PSR's enforcement powers, its statement of penalty principles, and the processes it will follow when investigating and enforcing potential breaches of the PSRs 2017. The approach document also explains the PSR's and FCA's approach to monitoring and enforcing the rules in Regulation 105 of the PSRs 2017 on access to bank accounts for payment institutions. Both regulators are jointly responsible for this provision and have worked closely together to develop their approach set out in a protocol between the PSR and the FCA.
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Participants in a regulated payment system
The PSR's scope extends beyond mere payment systems and includes the operator of the system, any infrastructure provider, and any payment service provider as defined in s42 of the FSBRA. Once a system is designated, this brings the payment scheme company, the system participants (such as the members, card issuers and merchant acquirers) and the system infrastructure providers within the scope of the PSR's powers.
In discharging its general functions relating to payment systems, the PSR has three key objectives under ss50-53 of the FSBRA:
- to promote effective competition (Part 1 Competition Act 1988 (CA1988));
- to promote the development of, and innovation in, payment systems in the interests of those who use it; and
- to ensure that payment systems are operated and developed in a way that takes account of, and promotes, the interests of those who use, or are likely to use, it.
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Background material
Competition powers of the PSR
Competition powers of the PSR
The PSR and the FCA have competition enforcement powers under Part 1 of the CA1988 together with market study and market investigation reference powers under Part 4 of the Enterprise Act 2002 (EA2002), to the extent these powers relate to participation in payment systems (see ss59-67 of the FSBRA). What constitutes 'participation' in payment systems is defined in s42 of the FSBRA and includes the operation of the payment system and the provision of infrastructure and payment services. The powers relate to all payment systems falling within the definition in section 41 FSBRA, and not only to those systems that have been designated. Therefore, a firm need not be directly regulated by the PSR for it to be subject to its powers.
These powers are exercised concurrently with the Competition and Markets Authority (CMA). The PSR may take enforcement action under the FSBRA as well as CA98 concurrently or sequentially but is under a ‘primacy’ obligation to consider whether it is more appropriate to proceed under the CA1988 before exercising certain of its powers under the FSBRA.
The PSR has published PS15 Guidance relating to the exercise of powers and procedures under the Competition Act 1998 and its guidance on market reviews, market studies and market investigations.
On 1 April 2015, the Payment Services (Amendment) Regulations 2015 (SI 2015/422) came into force, amending the Payment Services Regulations 2009 (PS Regs) by transferring the functions of supervising and enforcing compliance with the requirements of the PS Regs relating to access to payment systems from the CMA to the PSR.
In December 2015, the PSR and the CMA entered into a memorandum of understanding on their concurrent competition powers.
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Monitoring the IFR
On 9 December 2015 the PSR became the competent authority (CA) for monitoring compliance of the Interchange Fee Regulation (Regulation (EU) 2015/751) (IFR), which came into effect across Europe on 8 June 2015. IFR sets a cap on credit and debit card payment interchange fees to improve competition for all card payments.
The PSR was appointed as CA under the IFR pursuant to Payment Card Interchange Fee Regulations 2015, SI 2015/1911 (PCIFRs) and derives its powers of monitoring and enforcement from the same. In October 2015, HM Treasury capped the fees banks can charge at 0.3% for credit card transactions and an average of 0.2% for domestic debit card transactions. HM Treasury keep the level of caps under review with the assistance of the PSR. On 29 January 2018, the PSR issued information notices in relation to Visa Europe and Mastercard that would further help the PSR to monitor compliance with the caps in the IFR.
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PSR regulatory and enforcement powers
Regulatory powers
The PSR's regulatory powers are set out in ss54-58 of the FSBRA and broadly allow it to:
- issue general and specific directions to participants in regulated payment systems;
- issue direction to require a system operator to establish rules for its system or to change existing rules;
- grant access to payment systems;
- require a person who has an interest in the operator of a regulated payment system to dispose of all or part of that interest. These divestment powers give the PSR the means to require a change in ownership structures, should it decide that this is the appropriate outcome; and
- vary the terms or conditions of any agreements between the operator of a regulated payment system and a payment service provider, or any agreement relating to fees or charges payable in connection with participation in a regulated payment system or the use of services provided by a regulated payment system.
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PSR enforcement and investigative powers
The PSR's enforcement powers are set out in ss71-80 of the FSBRA and are exercisable where a compliance failure has occurred. A compliance failure will include a failure to comply with a direction given by the PSR or a failure to comply with a requirement relating to a system's rules.
A range of sanctions are available to the PSR and include:
- financial penalties;
- injunctions, including freezing assets; and
- warning notices.
The PSR’s Penalties Guidance contains the PSR’s statement of the principles which it will apply in determining whether to impose a penalty and the amount of that penalty. Details of the procedures that the PSR will generally apply in relation to its regulatory functions under the FSBRA.
Under ss81-86 of the FSBRA, the PSR has information gathering and investigative powers.
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Appeals against decisions of the PSR
Firms have a right of appeal against a decision of the PSR to impose sanctions. The procedure for appeals to the CMA is set out in Schedule 5 to the FSBRA. A person affected by the publication of details of a compliance failure or the imposition of a financial penalty has a right of appeal against the PSR. In the case of a decision to publish details of a compliance failure, the appeal must be made to the Competition Appeal Tribunal CAT in accordance with s77 of the. In the case of a decision to impose a penalty, the appeal must be made to the CAT in accordance with s78 of the FSBRA.
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The PSR's ongoing and future initiatives
Access to cash
The PSR has reviewed how the use of cash might evolve in the future, and how it can secure a network of cash outlets that meets the population's needs.
In July 2019 the PSR published consultation paper (CP19/6), calling for views on insights from research into cash access, use and acceptance and published a final report by 'BritainThinks'. The research showed that, despite a supposed move towards a cashless and contactless society, "most respondents used cash regularly and over a quarter of respondents preferred to use cash." The review coincided with the FCAs consultation on the structure of LINK interchange fees and the PSR's report on contactless mobile payments in 2018.
The focus on the use of cash has been acutely exacerbated by the COVID-19 pandemic, and in April 2020, the PSR published a document providing an update on its work supporting access to cash during the COVID-19 pandemic.
Background reading
Market review into card-acquiring services and merchants
In January 2019, the PSR published final terms of reference for its market review. The market review examined whether the supply of card-acquiring services was working well for merchants, and ultimately consumers. The final terms were followed with a working paper consulting on the proposed pass-through analysis methodology in February 2019.
Background reading
- PSR final version survey questionnaire for merchants (December 2019)
- PSR consultation on its proposed approach to conducting a survey of merchants (May 2019)
- PSR working paper consulting on the proposed pass-through analysis methodology (February 2019)
- PSR final terms of reference for its review in (January 2019)
Use of data
In September 2019, the PSR published its response (RP19/1) to (DP18/1) about how data is used in the payments industry.
The PSR plans to work with Pay.UK to look at the feasibility of opening access to NPA scheme-wide data once it is in operation.
Background reading
PSR and a new Payments Architecture
In January 2020, the PSR issued a call for input on competition issues that could arise in the UK's New Payments Architecture (NPA), a new way of organising the clearing and settlement of payments between bank (interbank payments). The NPA will replace Bacs and Faster Payments.
Background reading
- PSR call for input on competition issues in the New Payments Architecture (January 2020)
