UK: Expectations On PSD2 Interactions Between Banks And Fintechs Clarified By UK Treasury

Last Updated: 24 July 2017
Article by Luke Scanlon

ANALYSIS: How long financial technology (fintech) companies have been operating in the UK's payment services market will determine whether they have a choice over whether to temporarily opt out of new regulations that will apply from early next year, according to new plans published by the Treasury.

The plans concern the implementation of the EU's revised Payment Services Directive (PSD2) in the UK, through new Payment Services Regulations which have been laid before parliament.

The policy announcement, which follows an earlier consultation exercise, offers a degree of flexibility to some existing fintechs operating in the payment services market and clarifies what is expected of banks and other payment service providers (PSPs) in terms of enabling those fintechs to access customers' payment accounts or data.

The multi-faceted approach outlined by the Treasury reflects the fact that regulatory standards vital to governing third party rights of access to payment accounts and data under PSD2 have not yet been finalised, as well as the fact that there will be a transitional period of 18 months before the finalised standards actually apply.

Third party access rights and PSD2

Recent years have seen the emergence of innovative, new payment services onto the market in the EU to compete with more traditional payment services offered by banks. Now, customers can, for example, initiate payments from accounts held by their banks through a third party fintech company (payment initiation service providers or PISPS), or use services provided by fintechs to aggregate all their data from multiple payment accounts in one place (account information service providers or AISPs).

In a bid to support the competition and innovation offered by the fintechs and provide a framework for better consumer protection and security, EU law makers updated existing payment services laws with PSD2. For PISPs and AISPs, obtaining new rights to access payment accounts and data means that they will be subject to regulation for the first time.

The revised Directive must be implemented in national laws across the trading bloc by 13 January 2018. However, much of the detail on how banks and other 'account servicing payment service providers' (ASPSPs) must interact with PISPs and AISPs, and on fintechs' obligations when doing so, will be set out in regulatory technical standards (RTS). The final RTS will set out rules on when 'strong customer' authentication applies, when it does not, details around the confidentiality and integrity of personalised security credentials and the means by which communications between the parties involved can be secured.

Those standards will not apply from the date the new PSD2 rules take effect. Instead, an 18 month transitional period will take place before the RTS must be adhered to. The transitional period will begin from the date the RTS are published in the Official Journal of the EU (OJEU).

The RTS has proven controversial. The European Banking Authority (EBA), tasked with developing the standards, saw its proposals rejected by the European Commission, which has the final say over their implementation. The EBA has subsequently urged the Commission to rethink counter proposals it had tabled. Much of the disagreement has related to the functionality of new 'interfaces' (generally, in the form of dedicated API access) that ASPSPs will be required to develop to support communications with PISPs and AISPs, as well as fall-back options for when those interfaces fail or underperform.

The debate over facilitating third party access rights under PSD2, in the UK at least, is being influenced by ongoing industry work on the development of new open banking standards, which have been mandated by the Competition and Markets Authority (CMA).

Though there are differences in scope between the two regimes, consideration is being given to how open application program interfaces (APIs) being developed under the open banking initiative could be used to support access to payment accounts and data by PISPs and AISPs under PSD2.

The overall picture is therefore a complicated one and it is in this context that the Treasury's new plans have been published.

The Treasury's plans on third party access during the transitional period

In its new paper, the Treasury differentiated between its expectations on third party access once the PSD2 rules take effect in the UK but before the RTS on strong customer authentication and common and secure communication apply, and after the RTS apply.

The obligations, or choices, available to PISPs and AISPs during the transitional period depend on how long those businesses have been operating in the UK.

PISPs and AISPs operational on or after 12 January 2016

For PISPs or AISPs that started to operate on or after 12 January 2016, the date set out in PSD2 itself, the situation is straightforward – UK PISPs will need to be authorised, and UK AISPs registered, with the Financial Conduct Authority (FCA) before PSD2 takes effect in the UK on 13 January 2018 in order to continue operating. The Treasury said applications for authorisation or registration will be able to be submitted to the FCA from 13 October 2017.

Authorisation or registration means becoming subject to PSD2 regulation. These PISPs and AISPs will therefore face a number of new obligations, including on data security and on obtaining professional indemnity insurance or putting in place a comparable guarantee to underwrite their liabilities under the new regime.

During the transitional period, these businesses will be able to continue screen scraping the data they need to provide their services if ASPSPs fail to provide "another access route" for them to use that in the words of Treasury fintechs can use "without having to comply with requirements" on security and authentication under PSD2 that "are yet to come in force" and will be set out in the RTS.

ASPSPs will only be able to stop the firms screen scraping during this period if there are "reasonably justified and duly evidenced reasons related to unauthorised or fraudulent access or payments".

PISPs and AISPs operational before 12 January 2016

The situation is more flexible for PISPs or AISPs that have been operating in the UK prior to 12 January 2016.

Under the Treasury's plans, they can continue to operate on a non-regulated basis – i.e continue screen scraping – until the new RTS take effect. However, PISPs or AISPs that choose that option "will not benefit from the right of access provided for in PSD2", the Treasury said.

The Treasury strongly encouraged PISPs and AISPs which have been operating prior to 12 January 2016 "to apply to be registered or authorised as soon as possible".

While the Treasury is not explicit about what measures ASPSPs will be able to legitimately take to prevent screen scraping by unregulated PISPs and AISPs during the transitional period, it did state that it expects "a degree of cooperation between firms" and that it "would discourage ASPSPs from adopting a blanket policy of blocking these firms".

Once the RTS take effect, unregulated PISPs and AISPs will have to become authorised or registered to continue operating.

Synergies between PSD2 and open banking

In its paper, the Treasury advocated the use of open and secure APIs in facilitating third party access under PSD2. It said the standards being developed under the open banking initiative can support such access under the PSD2 regime.

It said it encourages ASPSPs, AISPs and PISPs to "work towards using the open banking API standards as the basis on which secure API access to other payment accounts is provided in future". AISPs and PISPs should look to "work with ASPSPs to transition to the use of secure APIs as soon as possible during 2018", it said.

It is clear, then, that the government expects banks and fintechs to work together to enable transparent PSD2 services.

Useful Links

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions