Policy Newsletter: October 2023 – Latest FinTech policy issues: Innovate Finance review of the last month
Whilst our team immerses itself in the party conferences, we take a look back at September’s FinTech policy issues. We hit the ground running after a (short) summer break with critical developments within FinTech policy, including:
- APP Fraud
- Payments
- SME Finance
- Open Banking and Open Finance
- Crypto and Digital Assets
APP Fraud
Fraud hurts consumers and damages trust in innovation. Stopping scams is therefore vitally important for FinTech. Alongside this Payment Systems Regulator (PSR) work on introducing mandatory reimbursement for victims of scams will introduce consistent protection for consumers. Introducing this needs to be done right.
This is a major project - covering Pay.UK payment systems that transfer £3 trillion a year with over 3 billion payments transactions, tens of millions of consumers and involving over 1000 payments firms.
In our Innovate Finance responses to recent PSR consultations on the details and go-live date for APP fraud reimbursement, we highlighted significant industry concerns about ensuring effective implementation. We need:
- clear plans;
- time to implement through the value chain;
- a gradual approach to avoid unintended consequences, and;
- connectivity with wider measures to tackle fraud including adoption of the Online Safety Bill (OSB) that will place wider responsibility upon the platforms used by scammers.
You can read our detailed analysis of the proposals here:
APP Fraud PSR Reimbursement Requirement Draft Legal Instrument Consultation Paper (CP23/4)
Policy win! In this we called for a review of the go-live date for Authorised Push Payment (APP) fraud mandatory reimbursement to ensure effective and full implementation. Later in September, the Payment Systems Regulator proposed an extension from 2 April 2024 to 7 October 2024. Innovate Finance welcomes this as a positive step and thanks the Regulator for listening to industry concerns - albeit FinTech and financial services firms still need to see more detailed implementation plans to properly assess any go-live date.
In the last month we also responded to additional consultations on further details of the reimbursement scheme:
PSR consultation on APP fraud excess and maximum reimbursement level (CP23/6)
PSR consultation on APP scams - The consumer standard of caution (CP23/7)
Payments
Our recent Innovate Finance green paper on payments policy reviews how FinTechs have already transformed the payments landscape, looks at international comparators, and calls for further action by Government and regulators:
We have submitted this to the independent review on the future of payments, commissioned by HM Treasury. Our key points are:
- We need a clearer UK strategy for retail payments.
- At the heart of this, there should be a vision of a diverse, competitive market enabling different technology enabled payments, to provide consumer and merchant choice and promote innovation. UK Future payments must embrace a range of technologies and possibilities developing - including open banking, digital assets, digital pound and increasing connectivity between smart contracts and programmable money to create new services and markets with embedded payments.
- We need joined up government and regulatory policies and actions to support this and enable:
- A common set of Rules of the Road for service providers and operators - including application of Open Banking rules on data sharing.
- Interoperability between systems to avoid "walled gardens" - including between digital pound, digital commercial bank money and stablecoin; across devices; and across borders.
- More consistent consumer protections - ensuring consumers can rely on the same core protection if something goes wrong with a purchase regardless of payment method.
There are a number of pieces of work already in play by regulators and HM Treasury that will be critical in shaping the future, which currently risk diluting the UK’s overall approach. Areas of concern include: APP fraud reimbursement, Buy Now Pay Later regulation, the New Payments Architecture, and current work on Open Banking payments.
SME Finance
The Treasury Committee of MPs recently sought views on how to improve the provision of lending to UK small and medium sized businesses (SMEs). Innovate Finance submitted evidence to the Committee showing that FinTech lenders now provide c7.0% of SME finance, and calls for policy-making to reflect this, with British Business Bank instruments tailored for different types of funders. We also call for bank capital rule changes to recognise the position of Challenger banks, larger and broader wholesale funding schemes for non-bank lenders from the British Business Bank, and expansion of the British Business Bank’s remit.
Open Banking and Open Finance
September continued to be a hive of activity on Open Banking, with industry stakeholders convened to consider the next phase of UK Open Banking before authorities firm up their next steps over the autumn. Innovate Finance and our members have been represented in the full breadth of discussions, including on the responsibilities, governance and funding of the successor organisation (‘the Future Entity’), and have submitted detailed survey responses calling for a strong co-ordinating body to drive forward future developments.
Joint Regulatory Oversight Committee (JROC) work is also progressing on the blueprint for Variable Recurring Payments (VRPs), new metrics to level up Application Programming Interfaces (APIs), and improving information flows, with our previous feedback on issues such as performance and error codes being acknowledged and acted upon. This work has been supported by our Open Banking policy working group which brings interested members together for regular discussion and sharing updates.
Alongside Innovate Finance’s regular engagement with HM Treasury, FCA, PSR and OBL on these matters, we were delighted to host OBL Chair Marion King and CEO Hank van Hulle at an Innovate Finance roundtable in September giving members the opportunity to input first-hand towards the strategic discussions underway on improving and expanding Open Banking.
Looking to Open Finance and beyond, Innovate Finance continues to support the CFIT Coalition on Open Finance as a founding partner, and is a member of the government’s Smart Data Council, looking to extend the benefits of data-sharing to new sectors. In light of this, we will be doing more to map the Open Finance route ahead in the coming months - watch this space.
Crypto and Digital Assets
Consumer protection and market trust: Important regulatory rules come into force in the UK for cryptoassets on 8 October. These will require promotions (including marketing of crypto assets) to include risk warnings and risk summaries; a ban on incentives to invest; and the requirement that financial promotions must be fair, clear and not misleading. All promotions must be approved by an authorised entity. These rules are a significant landmark in protecting consumers and ensuring a level playing field for responsible cryptoasset service providers. The FCA will be undertaking market surveillance and enforcement action and these rules provide the first phase of regulation of trading venues, in advance of wider regulatory measures which HM Treasury consulted on earlier this year. FCA has issued final guidance for firms on complying with these rules.
Financial promotions on social media: More widely on financial promotions, the FCA recently consulted on updated guidance on how their financial promotions rules apply to social media content. In our response, we strongly supported the need to update guidance to reflect the increased use of social media and 'influencers’ in advertising financial services, but raised concerns that the proposed revised guidance was still not clear enough and had a number of areas of ambiguity that need further testing and possibly call for a ‘sandbox’ approach to ensure the rules achieve the best outcomes.
CoinCover’s Securing the Future of Cryptocurrencies Report: Looking forward, our Director of Policy, Adam Jackson, contributed to CoinCover’s Securing the Future of Cryptocurrencies Report, which outlines key policy areas for growing confidence within crypto-asset investment, including broader regulation of trading venues.
Response to HM Treasury’s Digitisation of Shares Taskforce interim Report: Innovate Finance submitted its response to the Taskforce to understand how the UK’s shareholder framework can move away from its paper share certificates model, including timeframes to transferring existing Ultimate Beneficial Owners (UBOs) to digital systems. The digitalisation of shares remains one part of the UK digitalising its equity market.
Got views? Get in touch
The team wants to hear from members, stakeholders, and wider networks across civil society regarding these critical areas. If you have views or concerns, please feel free to email us with your thoughts at policy@innovatefinance.com.
Innovate Finance policy team
