On November 16, 2018, HM Treasury published a draft version of the Interchange Fee (Amendment) (EU Exit) Regulations 2018, along with explanatory information. The draft Regulations will primarily affect payment system operators, payment service providers (including banks and building societies) and the businesses and individuals who rely on card payment systems. The Payment Systems Regulator will consult separately on consequential changes to its guidance on the IFR once the draft Regulations are made. The PSR will also be responsible for correcting deficiencies in the Binding Technical Standards made under the IFR.

The draft Regulations amend the EU Interchange Fee Regulation that will be retained on Brexit and the Payment Card Interchange Fee Regulations 2015. The changes are designed to ensure that current laws on interchange fees continues to operate effectively in the U.K. once the U.K. has left the EU.

Among other things, the amendments include changes:

  1. reducing the scope of the retained IFR from the whole of EEA to the U.K. only, meaning that transactions taking place within the U.K. (where both the acquirer and the card issuer are located in the U.K.) would continue to be covered by the IFR (and consequently be subject to caps on interchange fees), but cross-border card payments between the U.K. and the EU or EEA will no longer be within scope of the onshored U.K. IFR or the EU IFR;
  2. empowering HM Treasury to make regulations to set lower caps on U.K. debit and credit card transactions respectively, as well as to set a maximum cap for U.K. debit card transactions; and
  3. transferring, from the European Commission to the PSR, the function for making RTS regarding the requirements for separation of card schemes and processing entities.

In the explanatory information accompanying the draft Regulations, HM Treasury notes that reducing the scope of the IFR (to the U.K. only) could lead to higher costs for merchants participating in U.K.-EEA cross- border transactions, since these transactions will no longer be subject to the interchange fee caps. Higher interchange fees could be passed on to consumers, either directly or indirectly.

HM Treasury intends to lay the draft Regulations before Parliament before exit day and the Regulations will enter into force on exit day.

The draft Regulations are available at: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/756931/
Interchange_fee_SI_draft_text.pdf  and the explanatory information is available at:  https://www.gov.uk/government/publications/draft-interchange-fee-amendment-eu-exit-regulations-2018/interchange-fee-amendment-eu-exit-regulations-2018-explanatory-information.

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