The UK government is currently undergoing a consultation process, seeking feedback on proposed insolvency changes for payment institutions and electronic money institutions, including a new special administration regime.
Payments in the UK have seen rapid change over recent years with people increasingly using card, mobile and electronic wallets to make payments. These changes offer opportunities for UK businesses and consumers, with many making payments faster, cheaper and more securely. However, and as will always be the case with a rapidly changing technological landscape, they also present new challenges and risks. The Government is proposing to introduce changes that will help protect customers in the event of a payment or electronic money institution being put into insolvency. This will in turn strengthen confidence in the payment and e-money sectors by improving customer and market outcomes. The deadline for comments to be submitted is 14 January 2021.
In response, Railsbank co-founder and CEO Nigel Verdon, one of the first to call on regulators to upgrade existing e-money safeguarding regulations and introduce new provisions for outsourcing platforms in the UK, said: “It’s been a turbulent year for the regulators across the globe, with Wirecard’s collapse making it crystal clear that the broad regulatory structure for fintechs is in desperate need of an overhaul.
“The rulebook for fintechs was written for the era of start-ups and sandboxes. Many of the core rules have been in place since 2007 or longer, although we’ve had various reforms like PSD2 since then. Any serious industry player will agree that the regime now needs to be modernised and updated to provide greater protections for consumers and SMEs and greater stability in the industry.
“One of the fintech sector’s main criticisms with current UK regulations is they’ve been drafted by people with little knowledge of the operational implications of implementation and had conflict with other UK legislation like insolvency law. The government’s consultation on a new special administration regime for payment and e-money institutions is therefore both welcome and timely. I’d encourage my peers across the industry to make sure they have their say. There needs to be fundamental changes to support healthy market growth.
“Updating the customer money regulations and legislation is very much needed now, so that we can avoid another Wirecard–type event occurring in the future, where there’s conflict between safeguarding in the Financial Services and Markets Act, and company liquidation law under the Companies Act where the liquidator, on behalf of creditors, can claim client money under certain circumstances.
“We can learn a lot from the Monetary Authority of Singapore (MAS), which put in place regulation for material outsources (the Technology Risk Management (TRM) regulations) to give the industry comfort on matters like orderly shutdown, service levels and step-in rights. An updated rulebook, rather than guidance, is a key part of the UK holding onto its leading position in global fintech.”