In an ever-increasing digital era, where the use of cashless transactions and electronic payments has become the norm, it is essential for businesses to understand and adhere to the legal regulations that govern these practices. Specifically, in the United Kingdom, the Payment Services Regulations 2017 (PSR 2017) play a pivotal role in outlining the obligations and responsibilities of businesses when it comes to conducting payment services. In this article, we’ll delve into the specific legal requirements that UK businesses must comply with under PSR 2017.
Understanding the Payment Services Regulations 2017
Introduced by the Financial Conduct Authority (FCA), the Payment Services Regulations 2017 were put into place to enhance the competitive nature of the payment services market, protect consumers, and foster innovation. This regulation primarily focuses on businesses that provide payment services – be it high-street banks, e-money businesses, or payment institutions.
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The PSR 2017 replaces the previous Payment Services Regulations 2009 and incorporates the European Union’s Second Payment Services Directive (PSD2) into UK law. The major updates from PSR 2009 to PSR 2017 reflect the changes in the payment landscape over the years, especially the rise of online and mobile payments.
Requirements for Authorisation and Registration
One of the fundamental requirements of the PSR 2017 is that payment service providers (PSPs) need to be authorised or registered by the FCA. This requirement aims to ensure that PSPs meet the standards set out in PSR 2017 and are capable of providing secure and reliable payment services.
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Authorisation is essential for payment institutions that intend to offer payment services that are not exempt under the regulations. These institutions must meet stringent capital requirements, conduct rules, and safeguarding measures. They are also required to have robust governance arrangements, including a comprehensive risk management process.
Registration, on the other hand, is required for smaller payment institutions (SPIs). Although the criteria are less stringent compared to authorisation, SPIs must still meet the necessary requirements regarding their management, business plan, and the safety of payment services.
Safeguarding Requirements
The safeguarding requirements under PSR 2017 are designed to protect users’ funds in the event of insolvency of the PSP. These regulations require payment and e-money institutions to segregate customer funds from their own, either by holding them in a separate bank account or investing them in secure, low-risk assets.
Furthermore, PSPs are required to have an adequate safeguarding arrangement in place. This means that if a payment institution holds funds overnight or longer, they must either deposit them in a separate account or use them to purchase secure and liquid assets. These safeguarding measures aim to ensure that customers can recover their money if the provider becomes insolvent.
Conduct of Business Requirements
The conduct of business requirements under the PSR 2017 set out the rules PSPs must follow when dealing with customers. These include providing clear and comprehensive information about their payment services, and ensuring that their practices are honest, fair, and professional.
For example, PSPs must supply customers with a detailed summary of the key features of their payment service, including all charges and exchange rates. They must also provide information on the timing of payments, the rights and obligations of users, and procedures for making complaints.
Complaint Handling and Dispute Resolution
Finally, the PSR 2017 mandates that PSPs have effective and transparent procedures for handling complaints received from customers. It requires them to provide a prompt response to the complainant and take appropriate action to resolve the issue.
Additionally, PSPs must be a member of the Financial Ombudsman Service (FOS). The FOS is an independent body that settles disputes between businesses providing financial services and their customers. If a customer is not satisfied with the resolution provided by the PSP, they can refer the matter to the FOS.
The Payment Services Regulations 2017 present a comprehensive framework for businesses to ensure they are providing safe, secure, and consumer-friendly payment services. Understanding and complying with these regulations is not only a legal requirement but is also vital in maintaining trust and confidence in the payment services market.
Security and Fraud Prevention
The Payment Services Regulations 2017 also puts a heavy emphasis on security and fraud prevention. These regulations require payment service providers (PSPs) to implement stringent security measures to protect their systems against unauthorized access, data breaches, and fraudulent activities.
Specifically, PSPs are mandated to have a comprehensive security policy in place, outlining their approach to managing and mitigating operational and security risks. This policy must be updated regularly in light of the advancements in technology and emerging threats. In addition, PSPs are required to ensure that their staff receives regular training in security and fraud prevention.
Furthermore, under the PSR 2017, PSPs need to have strong customer authentication procedures in place. Strong customer authentication is a process that validates the identity of the user to reduce the risk of fraud. This typically involves the use of two or more independent elements, such as something the customer knows (like a password), something the customer has (like a mobile device), and something the customer is (like a fingerprint).
In the event of a security incident, PSPs are required to notify the Financial Conduct Authority (FCA) without undue delay. They must also provide affected customers with clear and timely information about the incident and any measures they can take to mitigate its impact.
In conclusion, complying with the Payment Services Regulations 2017 is not only a legal obligation for businesses in the UK providing payment services but is also a fundamental aspect of maintaining trust, safety, and fairness in the payment services market. These regulations have been designed to protect consumers, promote competition, and foster innovation in the payment services sector.
From requiring PSPs to be authorised or registered, to setting out detailed safeguarding and conduct of business requirements, the PSR 2017 provides a comprehensive regulatory framework for businesses to adhere to. Moreover, the emphasis on security and fraud prevention underscores the importance of providing secure and reliable payment services.
It is worth noting that non-compliance with these regulations carries serious implications, including financial penalties and potential loss of authorisation to operate. Therefore, businesses must ensure they understand and meet all the requirements set out by the PSR 2017.
Staying abreast of regulatory changes and ensuring continued compliance is an ongoing responsibility for businesses. As the payment services landscape continues to evolve, it’s crucial for businesses to regularly review their compliance status and adjust their practices as needed. This not only ensures they stay on the right side of the law, but also helps build and maintain customer trust and confidence in their services, which is ultimately beneficial for their long-term success.
