UK Treasury proposes payments regulation overhaul

The UK Treasury on July 19 unveiled proposals to improve regulation of the country's payments industry, setting out three possible options to improve or supplement the Payments Council, the body currently responsible for payments strategy in the UK.

The Treasury said it favoured the creation of a Payments Strategy Board (PSB), which would not have full regulatory powers but would allow for greater transparency and accountability than the current system. The PSB would make recommendations to the industry, which would then be implemented by the Payments Council.

A spokeswoman for the Payments Council said it was too early to give an opinion of the effectiveness of the PSB. "We want to look at the actual mechanics," she said. "We certainly are not against the PSB, we just need to see how it works."

Under the current design, the PSB would be funded through a levy imposed on firms in the payments industry. The spokeswoman said this cost would be an important consideration. "The cost impact is about £2 million in running costs per year… one of the things the industry will want to ensure is that they are getting value for money," she said.

The new body's decision-making board would comprise industry representatives, consumer representatives and independent directors. When making recommendations, the PSB would be expected to consult the Bank of England, with a member of the central bank invited to attend board meetings without having voting powers.

The Treasury made it clear that the Bank of England's payments stability role would not be affected by the changes. "The government has no concerns over the Bank of England's stability remit. Under all the options discussed in this consultation, the oversight regime for systemically important payment systems, operated by the Bank of England… would remain unchanged," the Treasury said.

Besides the government's favoured option – the PSB – two other options were proposed. One is to update the current system, leaving the Payments Council responsible for regulation, by taking measures to "enhance the responsiveness to end-users, and to empower strong, independent voices". The spokeswoman for the Payments Council said the organisation had already implemented a number of changes and was working towards others.

A third option is to create a full regulator with the power to require specific action from the payments industry, rather than making non-binding recommendations. "This approach would, however, also create a significant new regulatory burden that would carry considerable costs for business," the government said.

The proposed changes come after the Payments Council was criticised by the government in 2011 for its handling of plans to abolish cheques. In April 2011, the Treasury Select Committee began an investigation into the Payments Council's approach, concluding that the plans to phase out cheques had caused "deep, unnecessary and unacceptable concern".

Furthermore, the Treasury added: "Given the Payments Council is dominated by the banks and other payments industry members, consumers were entitled to be suspicious of the motives of the Payments Council when proposing measures that were in the financial interest of its members."

The Treasury said all interested parties should respond to the proposals by October 10, 2012.