UK: FCA Urged To Account For All Business Models In Its Approach To PSD2

Last Updated: 9 June 2017
Article by Out-Law.com  

Businesses could face unnecessary costs, and confusion could reign among consumers over the level of protection available to them, if the Financial Conduct Authority (FCA) does not change its proposed approach to regulating the payment services market, an expert has said.

Under its current plans, the FCA risks neglecting all possible business models that could be in operation under the revised Payment Services Directive (PSD2), financial technology (fintech) law expert Luke Scanlon of Pinsent Masons, the law firm behind Out-Law.com, said.

Scanlon was commenting on the day that the FCA's consultation on the way it plans to regulate the market for payment services under PSD2 will close.

In its consultation, the FCA asked stakeholders for their views on the way it intends to define account information services (AIS).

AIS is an innovative type of service that has emerged in the payments market in recent years which allow consumers to, for example, aggregate all their payment account information in one place.

The FCA consultation asked whether its definition of AIS either inappropriately included or excluded specific business models from the scope of its guidance.

Scanlon said there is an issue with the FCA's proposals as they stand.

"The technical regulatory discussion concerning PSD2 and open banking has largely focussed on a 'three party' scenario – data transfers between 'account servicing payment service providers' (ASPSPs) – banks or other holders of customers' payment accounts, AIS providers (AISPs), and end customers." Scanlon said. "This scenario, however, is not representative of all data aggregation supply relationships which currently exist in the market or may take place once the regulation implementing PSD2 and open standards underpinning banking come into force."

"An example of a 'fourth party' data transfer scenario is one where the provider of an API or other service to access data enters into a contractual relationship with an AISP that is used by an end customer. The fourth party does not itself have a direct relationship with the end customer but provides its service to enable the services of the AISP. It is, however, the fourth party that seeks access to the customer's transaction data from the customer's bank or other ASPSP," Scanlon said.

"Clarification is needed as to whether fourth parties are considered to AISPs for the purposes of regulation, notwithstanding that they do not have direct relationships with end users of AISP services," he said.

Scanlon said his proposed approach is supported by the way an AISP is defined under PSD2.

"The PSD2 definition for an AISP has four elements: the application, product or service must be 'online'; the purpose of the service must be to provide users with 'consolidated information'; the 'consolidated information provided' must be 'on one or more payment accounts' held by the user; and the 'payment accounts' must be provided to the user by one or more financial institutions or payment service providers," Scanlon said. "None of these elements, nor any other provisions in PSD2 require that a registered AISP provide the user interface to the customer on whose behalf the information is consolidated and to whom the accounts relate."

"The services of all registered AISPs must be 'based on the payment service user's explicit consent'. Again, however, this does not suggest that a fourth party cannot itself be a  registered AISP, if the fourth party's customer, the AISP which has a direct relationship with the end customer, obtains explicit consent in its terms and conditions from the end customer to use the fourth party," he said.

The FCA must address current uncertainty over which businesses that currently provide AIS can formally register as an AISP before the PSD2 regime takes effect on 13 January 2018, Scanlon said.

"If this uncertainty is to continue, these businesses may incur unnecessary costs relating to applying for registration," Scanlon said. "It may also cause confusion for customers as to the regulatory status of the AISP they are dealing with and the protections available to them."

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