UK retail banking and payments: Regulatory return to the office - recent developments to be aware of

Retail banking

"De-banking": FCA update report on payment accounts access and closures

On 4 September, the FCA published a report setting out its findings from follow-up work on payment account access and closures, together with the results of independent research on the experiences some of the most financially excluded consumers face when accessing and using financial products and services. The FCA focuses on the need for improved access to Basic Bank Accounts and for firms to review onboarding/offboarding customer journeys and associated policies and procedures through a Consumer Duty lens. Read more

“De-banking”: Pending changes to payment service contract termination rules

In July 2023 the previous government committed to changing the requirements on payment service providers (PSPs) when terminating payment service contracts. In March 2024, HM Treasury published draft regulations amending the Payment Services Regulations 2017 to do this. The reforms will increase from 2 months to 90 days the notice period PSPs must give customers when terminating a framework contract concluded for an indefinite period. While there are some exceptions, PSPs will also be required to give customers a detailed and specific explanation of the reason for termination so their customer understands why their contract is being terminated. The previous government had intended these changes to enter into effect ‘as soon as practicable”. However, this did not happen before the July 2024 General Election and next steps under the new government are now awaited. Read more

Digital Markets, Competition and Consumers Act 2024: Update on implementation timeline

On 9 September, the Minister for Employment Rights, Competition and Markets, Justin Madders, issued a written ministerial statement on the implementation of the Digital Markets, Competition and Consumers Act 2024. Among other things, the statement mentioned that the expected commencement date for Part 4, Chapter 1 (and Schedule 20) of the Act – which relates to the amended and restated provisions of the Consumer Protection from Unfair Trading Regulations 2008 - is April 2025.

PRA second policy statement on Basel 3.1 and proposals on ‘strong and simple’ capital regime for smaller firms

On 12 September, the PRA published the second near-final policy statement and rules covering the implementation of Basel 3.1 standards for credit risk, the output floor, reporting and disclosure requirements in response to its previous consultation paper CP16/22. The implementation date for the Basel 3.1 standards has been moved back by a further six months to 1 January 2026 with a four-year transitional period ending on 31 December 2029. A wider banking capital package of consultation papers has also been published, including one - CP7/24 - on the simplified capital regime for Small Domestic Deposit Takers (SDDTs) under the PRA’s ‘strong and simple’ framework initiative which sets out proposals that would significantly simplify the capital regime for SDDTs whilst maintaining their resilience. In doing so, the proposals for the SDDT framework are also aimed at supporting a competitive, diverse and sustainable UK banking sector. The PRA states that with the publication of CP7/24, it has made significant progress towards tackling many of the issues with current regulation that small firms have previously raised. Read more in this PRA press release.

HM Treasury policy update and draft legislation: Applying the FSMA 2000 model of regulation to the Capital Requirements Regulation

Also on 12 September and in a development related to the above item on the PRA’s publications, HM Treasury (HMT) published a policy update explaining how HMT will revoke certain parts of the Capital Requirements Regulation (the ‘CRR’, which is the central piece of assimilated law on bank capital requirements), which the PRA will then replace with its rules implementing the new Basel standards.​ The update also outlines the proposed legislative approach for revoking the remainder of the CRR and for revoking and restating with modifications the Capital Buffers Regulation. ​HMT states on the webpage for the policy update that completing the application of the FSMA model to this area of assimilated law will pave the way for a number of further reforms to the prudential regime proposed by the PRA, including a proportionate prudential regime for smaller banks and building societies (ie the SDDT regime referred to above).​ HMT will commence revocation of the relevant parts of the CRR, as set out in the draft regulations that have also been published for technical comments (see the HMT webpage), to take effect in time for the PRA to meet its Basel 3.1 package implementation timetable of 1 January 2026.

FCA Cash Savings Market Review update

On 18 September, the FCA published an update on its review of the cash savings market and investigation into the practices of the largest 9 firms with easy access savings accounts. With a focus on the effectiveness of firms' fair value assessments, the update provides valuable insights for all firms on the FCA’s approach to this key aspect of the Consumer Duty Principle. Read more

FCA Consumer Duty price and value outcome - good and poor practice update

Also on 18 September, the FCA provided insights from its supervisory activity on price and value in its priority areas of cash savings, GAP insurance and cash on investment platforms following the implementation of the Consumer Duty. The FCA has prioritised these three areas since the Duty came into force due to its longstanding concerns about value and effective competition in the interests of consumers. However, the findings are general findings for in-scope firms in all sectors to consider. Read more

FCA calls for a change in mindset on financial inclusion

Financial inclusion remains a particular area of interest for both the regulator and the new government. On 19 September, the FCA published a speech by Nikhil Rathi, FCA Chief Executive, which focussed on ‘the idea that financial inclusion, approached thoughtfully, can actually catalyse productivity and growth.’ With the FCA’s new secondary international competitiveness and growth objective in mind, Mr Rathi points to the fact that published research suggests a causal link - it appears both ways - between improving financial inclusion and economic growth. However, the speech emphasises that a fundamental change in mindset will be needed in this area, focusing not just on products but on what customers actually need and putting systems in place that deliver those in the long term. For example, Mr Rathi refers to the FCA’s update report on de-banking (see above) in which it presses firms to build greater awareness of Basic Bank Accounts, and make the application journey easier.

Benefits fraud and bank accounts: Fraud, Error and Debt Bill to be introduced

On 24 September, the government announced its intention to bring forward a new Fraud, Error and Debt Bill to tackle fraud in the social security system. In what sounds like something similar to the “account information notice” proposals under the previous government’s now-abandoned Data Protection and Digital Information Bill, the legislation will give the Department for Work and Pensions (DWP) powers to, among other things, ‘require banks and financial institutions to share data that may show indications of potential benefit overpayments’. Further details on the scope of the legislation will be set out when the Bill is introduced.

FCA Call for Input on retail conduct requirements following introduction of Consumer Duty closing soon

The FCA’s July Call for Input (CfI) on how far it may be appropriate and beneficial to place greater reliance on the Consumer Duty instead of its specific retail conduct rules and guidance closes on 31 October. Now is the time for firms to seize the opportunity to help in shaping a leaner, less complex retail conduct regulatory regime more conducive to effective innovation and competition both nationally and internationally. Read more

Post-implementation review of FCA vulnerable customers guidance due by end of 2024

The FCA is due to conduct a post-implementation review to test the effectiveness of firms' implementation of its vulnerable customers guidance and how this has impacted on outcomes for customers in vulnerable circumstances. It intends to publish a report by the end of 2024.​

Consumer finance

FCA consults on new regulatory reporting return for ancillary credit firms

On 12 September, the FCA published a consultation on its proposal to issue a new regulatory reporting return for consumer credit firms who engage in one, or more, of the regulated activities of credit broking, debt adjusting, debt counselling and providing credit information services. This is part of the FCA’s multi-year plan to review and replace its regulatory returns for consumer credit regulated activities, contributing to its aim to become a more data-led regulator. In outline, the proposed new return will be a series of questions about the way firms operate, engage with consumers and use the regulated activities for which they hold permission. Depending on a firm’s responses, the return will present a range of questions which are relevant to their business model (so-called ‘branching logic’). The FCA explains that this will allow it to better understand firms’ activities, the products and services they are providing, and the extent of their regulated activities. This method also aims to tailor the set of questions so they are more readily aligned to firms’ business models and activities. Some of the current consumer credit returns will be completely or partially replaced by the new return. The consultation closes on 31 October 2024. The FCA aims to publish a final policy statement, including its response to feedback, in Spring/early Q1 2025.

FOS speech provides guidance on how firms can improve complaints handling

On 20 September, the Financial Ombudsman Service (FOS) published a speech by Abby Thomas, FOS Chief Executive and Chief Ombudsman. With reference to the FOS quarterly complaints data on financial products and services for Q1 2024/25, which showed large volumes of complaints relating to irresponsible and unaffordable lending, Ms Thomas focused on what the FOS sees in complaints involving credit and debt. She provided the following pointers as to what firms could be doing better, or differently, when responding to complaints (particularly given the requirements of the Consumer Duty):

• Vulnerable customers: Ensure that all customer-facing staff can identify circumstances as well as characteristics of vulnerability in the customers they serve and follow best practice in supporting those customers.
• Staff training: Train staff and, crucially, give them the time they need to listen, empathise and ask consumers what support they need.
• Policies and practices: Policies and practice should be designed to focus on finding solutions that help customers, rather than focusing on what a firm is unable to do for them.
• Consumers in financial difficulty: Offer greater forbearance to consumers in financial difficulty and signpost them to relevant support agencies.
• Digital transformation priorities: Put customers' needs first and foremost when developing and designing each stage of the firm's digital transformation.

FCA confirms extension to motor finance complaint handling pause

In July this year the FCA announced that, following the launch of a review of historical motor finance commission arrangements and sales across several firms (January 2024), it was pushing back the timing for publication of the review findings to May 2025 (rather than September 2024). The related pause on the consideration of new complaints is also being extended to 4 December 2025. On 24 September, the FCA published a policy statement following its related consultation on extending the temporary changes to handling rules for motor finance complaints. Affected firms should note that the FCA has reiterated its view that, while it’s too early to say whether any redress intervention will be necessary, based on its work so far it thinks it is more likely than when it started its review. Read more

FCA strengthened framework for borrowers in financial difficulty coming into force

On 4 November, the FCA’s rules and guidance aimed at strengthening protections for borrowers in financial difficulty, incorporating aspects of the Tailored Support Guidance (TSG) introduced during the COVID-19 pandemic into its Consumer Credit (CONC) and Mortgages and Home Finance: Conduct of Business (MCOB) sourcebooks, come into force. Many of the changes reflect existing expectations under the TSG which have already become industry good practice. However, firms will still need to have carried out a legal review and gap analysis of the new requirements against current practices to identify required changes. Read more

BNPL regulation and wider Consumer Credit Act 1974 reform

We understand that revised proposals for the regulation of buy now, pay later (BNPL) are being worked on by HM Treasury following the recent change of government. No specific timeline for publication of the revised proposals is currently available. It looks likely that progress on wider Consumer Credit Act 1974 (CCA) reform will follow once the BNPL work has been completed – again, more information on timing is awaited. Take a look at our previous Engage articles for the story so far on BNPL regulation and CCA reform.

FCA planned review of debt advice rules and evaluation of persistent debt intervention

According to the November 2023 Regulatory Initiatives Grid, which is still the latest published edition, the FCA intends to review the debt advice rules in CONC 8 to ensure they provide the right framework for good quality debt advice. No timing for the review is mentioned in the Grid. Also according to the Grid, in Q4 2024 the FCA is planning to publish the result of its evaluation of the effect of its persistent debt intervention which involved changes to rules introduced in September 2018 following its Credit Card Market Study.

Payments - APP fraud

PSR final policy on CHAPS mandatory reimbursement requirement

On 6 September, the PSR published a policy statement and final Specific Direction to banks and other payment firms participating directly or indirectly in CHAPS (the UK’s high-value payment system) to reimburse their customers who have been victims of authorised push payment (APP) scams. The Specific Direction will require payment service providers to comply with the Bank of England’s new CHAPS reimbursement rules which are intended to align – as far as possible - with the equivalent regime that the PSR is introducing for the Faster Payments System and will have the same go-live date – 7 October 2024. Read more

FCA consults on Approach Document changes to support proposed payments delay legislation

On 9 September, the FCA launched a consultation on amendments to its Payment Services and Electronic Money Approach Document to provide guidance for payment service providers (PSPs) on how to apply the proposed outbound payments delay legislation published by HM Treasury in March this year. Under the proposed legislation, PSPs would be able to delay the execution of an outbound sterling payment within the UK by up to four business days from the time a payment order is received if they have reasonable grounds to suspect fraud or dishonesty by someone other than the customer. Following industry uncertainty about PSPs’ ability to delay inbound payments where they suspect fraud, the FCA is also proposing updates to its existing guidance on when and how PSPs should consider delaying inbound payments. The final legislation is still awaited. In all cases of payment delay, the FCA highlights the importance of PSPs’ Consumer Duty obligations. The consultation closes on 4 October 2024. The FCA plans to publish a revised Approach Document by the end of 2024. Read more

FCA speech highlights collaboration and collective effort as key to tackling fraud

On 17 September, the FCA published a speech by Andrea Bowe, director of its specialist directorate, entitled “Frameworks for effective fraud prevention measures”. Among other things, Ms Bowe highlights collaboration and a collective effort as being key to tackling fraud. Stopping the cash-out of the proceeds of fraud through money mule activity is described as a crucial area for joint action. Ms Bowe calls for firms to adopt a collaborative approach, prioritising not only the sharing of information on suspected mules, but also acting swiftly when that information is received, whether through internal or external channels. There is also a reminder of the FCA’s evolving enforcement toolkit, with reference to its recent £15m fine for an audit firm for failing to report their suspicions that a firm they were auditing might be involved in fraudulent activity. This was the first time that the FCA has fined an audit firm. Ms Bowe emphasises that it establishes a ‘clear precedent’ that depriving the FCA of potentially vital information can lead to enforcement action.

PSR final guidance on distinguishing between APP scam claims and civil disputes

On 23 September, the PSR issued its final guidance to support payment service providers in assessing whether an APP scam claim raised by a consumer is not reimbursable under the new Faster Payments Scheme (FPS) or CHAPS reimbursement rules because it is a private civil dispute. Read more

Reduction in maximum reimbursement level under FPS and CHAPS mandatory reimbursement regimes

Following a short consultation earlier in the month, on 25 September the PSR and the Bank of England confirmed the decision to reduce the maximum level of reimbursement for both the Faster Payments System (FPS) and CHAPS APP fraud mandatory reimbursement requirements from £415,000 to £85,000 per scam claim. On 2 October, the PSR published a policy statement explaining the decision in more detail. Read more

Final draft payments delay SI published

On 3 October, HM Treasury published its awaited final draft outbound payments delay legislation, the Payment Services (Amendment) Regulations 2024. PSPs will be able to delay the execution of an outbound sterling payment within the UK by up to four business days from the time a payment order is received if they have reasonable grounds to suspect fraud or dishonesty by someone other than the customer. Contrary to previous expectations, the Regulations won’t now enter into force until after the 7 October go-live for the new Faster Payments and CHAPS mandatory reimbursement requirements. Read more.

Payments - general

FCA consults on two-stage reforms to safeguarding regime

On 25 September, the FCA published a consultation on proposed changes to the payments and e-money safeguarding regime. The FCA believes that there is a continuing problem with poor safeguarding practices across the industry due to poor implementation of the current regulatory framework. Deficiencies in the current safeguarding rules were also noted in HM Treasury’s Payment Services Regulations Review and Call for Evidence (January 2023). The FCA’s consultation proposals include imposition of a statutory trust over relevant funds to address legal uncertainty from recent case law. The consultation closes on 17 December 2024. The FCA plans to publish final interim rules with an accompanying policy statement within the first six months of 2025.Read more

Last but not least – some recent enforcement insights

FCA opens up “ongoing conversation” with firms over transparency proposals

On 24 September, the FCA published a speech by Therese Chambers, joint executive director of enforcement and market oversight, entitled "Change for the better: the FCA’s evolving approach to enforcement". Of most interest are Therese’s comments on the FCA’s renewed enforcement approach - and on the FCA’s recent proposals to publicise the opening of enforcement investigations, which show a softening of the FCA’s stance. Read more

Trends in FCA enforcement activity 2023/24 and what lies ahead

In September the FCA published its Annual Report and Accounts covering the period April 2023 – March 2024, which includes information on its enforcement activity during that period.  The FCA has changed the way it reports its enforcement data, which makes it trickier to compare its performance with previous years. Nonetheless, certain trends are apparent. Read more

Next steps

Given the number of new and on-going developments in the retail banking and payments space, it may be tempting to switch your “out of office” back on…The final quarter of 2024 is certainly shaping up to be a busy and interesting one.

If you would like to discuss any of the developments highlighted above or anything else on your retail banking, consumer finance or payments “to do” list, please get in touch with one of the people listed above or your usual Hogan Lovells contact.

Authored by Virginia Montgomery.