Global Payment Matters

Upcoming global developments for the payment sector 

In this update we signpost key areas of change coming on the horizon that will impact those in the payment sector.

• Asia

• Europe

• Global

• Middle East

• UK

• US

Payment sector on the horizon: What do I need to know?

Asia

 1. Hong Kong: HKMA publishes report on Project Sela

On 12 September 2023, a report on Project Sela was published by the Hong Kong Monetary Authority (HKMA), the Bank of Israel and the Bank for International Settlements. Project Sela is a public-private partnership to create a retail Central Bank Digital Currency (CBDC) and facilitate the use of digital payments. A CBDC is a digital form of a currency issued by a central bank for use by the public.

The project’s aim is to set-up a system where: (1) a central bank is responsible for the currency and for providing accounts to customers; and (2) Access Enablers (a new type of service provider) interact with customers but with no control over the storage of digital currency. The aim of this arrangement is to reduce credit risks, encourage competition and promote cyber-security.

Impact: Central banks around the world are increasing efforts to engage in pilots promoting the use of CBDCs. Financial stability and safer cross-border payments are key drivers of this change. Expect further collaborations between banks as countries increase cyber-security efforts applicable to financial innovations in the field of banking.

 2. Singapore: finalisation of stablecoins regulatory framework

On 15 August 2023, Singapore’s central bank (the Monetary Authority of Singapore (MAS)) released comments on its framework for regulating single-currency stablecoins (SCS) issued in Singapore in the Singapore Dollar or a G10 currency (like the UK pound and US dollar). It will apply to issuers of the SCS with a circulation value greater than S$5 million.

Issuers of SCS will be expected to meet certain requirements such as a need for SCS to hold a minimum base capital of S$1 million and meeting redemption timelines. Issuers that meet all requirements will receive approval from the MAS and will be labelled as ‘MAS-regulated stablecoins’.

Impact: The MAS will release additional information on the regulatory requirements and is expected to carry out future public consultations related to the framework. The framework is expected to come into effect in 2024.

Europe

3. Germany: consultation on requirements for risk management of payment services

On 27 September 2023, BaFin (Germany’s Federal Financial Supervisory Authority) released a consultation on a circular related to the minimum requirements for the risk management of payment institutions. It is aimed at entities caught under the Payment Services Supervision Act. It sets out a framework on how to properly structure business organisations and specifies security and outsourcing requirements.

Impact: Payments and e-money operators in Germany have until 6 December 2023 to submit comments on the new guidelines.

Global

4. France, Singapore, Switzerland: central banks test cross-border trading

On 28 September 2023, the Bank for International Settlements (BIS) and the central banks of France, Singapore and Switzerland published a report on Project Mariana, a project to test the trading of wholesale central bank digital currencies (CBDCs).

The project included the trading and settlement of hypothetical euros, Singapore dollars and Swiss francs. New decentralised finance (DeFi) concepts on a public blockchain were used.

Impact: The project is an experiment only and doesn’t mean that the central banks will issue wholesale CBDCs. The project represents banks’ willingness to explore advanced solutions to improve cross-border payments. But further research and experimentation is required and expected in the future. The success of the project shows that it’s possible and feasible to exchange wholesale CBDCs using DeFi concepts (like automated market makers).

Middle East

5. Saudi Arabia: SCB implements new financial regulations

On 7 July 2023, Saudi Central Bank issued Implementing Regulations for the Law of Payments and Payment Services. The regulations support the objective of improving the efficiency of the payment systems infrastructure in the Kingdom.

The regulations are aligned with the Saudi Vision 2030 to promote investment in Saudi Arabia – the aim is to attract investors, stimulate innovation and competition and encourage new payment products and services.

Impact: It’s expected that the regulations will enhance compatibility with similar international principles and standards, including the Principles for Financial Market Infrastructures.

UK

6. Bank of England shares strategy to enable innovation through a digital pound

On 24 August 2023, the Bank of England (BoE) published a paper on the digital pound.

The BoE says that the UK authorities see a role for the digital pound in the future by promoting innovation, choice and efficiency. The BoE acknowledges the amount of innovation that has already taken place within the payments ecosystem, including Open Banking, and believes that the introduction of a digital pound would build on this.

The BoE identifies four ways in which an organisation can enable wider innovation: building a new technology, convening a new market, providing data, and setting standards. The BoE reflects on each of these methods and how they can be applied to the design of a Central Bank Digital Currency. The BoE also considers lessons that can be learned from successful innovations in other sectors.

Impact: The BoE has a lot to consider when pursuing innovation. We await further developments in this area, including when it might be feasible to introduce a digital pound. Read our briefing here.

7. HM Treasury responds to consultation on payments regulation and systemic perimeter

On 7 August 2023, the HM Treasury (HMT) responded to its consultation on regulatory framework reforms for the payments sector. The government proposed to include major, systemic players in its remit to avoid disruption and maintain financial market stability. It’s also looking to reform the BoE’s perimeter to reflect a more holistic assessment of systemic risk across the payments sector.

Amongst other things, the response proposes:

• new laws to set criteria to determine if a player is a systemic risk to the market
• improvements to the BoE’s ability to gather information from market participants
• clarifications on co-supervision of systemic payments firms by the BoE and the FCA

HMT has support for its plan to give the FCA and the Payment Systems Regulator (PSR) relevant powers over their retained EU law for payment services.

Other developments in the response include:

• announcement of the first two tranches of the Smarter Regulatory Framework programme
• reforming the PSR’s payment system access framework, by revoking the access framework within Part 8 of the PSRs 2017
• outlining how the Senior Managers & Certification Regime will be applied to systemic payments entities, authorised PSPs and EMIs

Impact: The government aims to make significant progress on this programme by year-end. Reforms to the BoE’s systemic payments perimeter will require primary legislation. The next step is to issue a policy statement outlining a legislative approach, followed by the BoE’s proposed supervisory approach.

Reforms to the PSR’s payment systems access framework will be via secondary legislation. The remaining proposed reforms to the FSBR relating to the PSRs 2017 will be covered in a policy statement once a primary legislative vehicle is determined.

8. PSR seeks views on the start date for compulsory reimbursement of fraud victims

On 7 June 2023, the Payment Systems Regulator (PSR) confirmed in its Policy Statement (PS23/3) (PS) how it intends to implement Mandatory Reimbursement (MR Reforms) for victims of authorised push payment (APP) fraud. The PS followed the passing into law of the Financial Services and Markets Act 2023.

There have been four consultations since the PS, including the PSR’s consultation on its proposed specific direction (CP23/8). In CP23/8, the PSR sought views on its new proposed implementation date for the MR Reforms of 7 October 2024 (it was initially set at 2 April 2024). There are other outstanding aspects of the MR Reforms which are still to be decided.

The MR Reforms are relevant to the payments industry, consumer groups, payment service providers, and prospective qualifying customers who use APPs to send money. The MR Reforms relate to Faster Payments, but it’s proposed that they will also be replicated by the Bank of England for CHAPS transactions.

Impact: Consultation CP23/8, regarding the start date for the MR Reforms, has now closed. The new proposed implementation date for the MR Reforms is intended to give firms time to implement necessary changes, and they are expected to come into force in 2024 (though this has not yet been confirmed).

US

9. Anti-CBDC laws proposed

On 25 September 2023, the US House Financial Services Committee passed a bill to block the launch of a US central bank digital currency (CBDC). The underlying aim is to protect citizens’ privacy and the financial system’s health by counteracting potential CBDC-related risks.

The bill stops the Federal Reserve from using a CBDC to implement monetary policy and control the economy. It also seeks to ensure that any future US CBDC is explicitly authorised by Congress.

Impact: Congress will now vote on the bill. If passed, it will hinder the government from making any efforts to develop innovative digital currencies which is a marked difference in the approach taken by other major markets (like China) that are making rapid advancements in this space.

10. Treasury releases proposed cryptocurrency regulations for brokers

On 25 August 2023, the Department of the Treasury and the Internal Revenue Service (IRS) announced rules requiring brokers to (starting from 1 January 2025) report information on the sale and exchange of cryptocurrency and other digital assets. Types of information to be reported include wallet addresses and blockchain transaction IDs.

There is also a requirement for brokers to provide information on any incurred gains and losses arising from the sale of such assets. This requirement will apply from 1 January 2026.

Impact: The deadline for comments is 30 October 2023. A public hearing is scheduled for 7 November 2023. Once they become law, the regulations will require US brokers to file information returns with the IRS using a new form and to provide payee statements to customers.

Written by Kirath Bharya (Regulatory Insights), supported by Jon Botham (Research) in Knowledge.

Further reading

• Global Payment Matters (eversheds-sutherland.com)
• Summary - Changes to the European payments market(216069598) (eversheds-sutherland.com)
• EU: Changes to the European payments market (eversheds-sutherland.com)
• European Securities and Markets Authority (ESMA) publishes its second report on marketing requirements and marketing communications under the Regulation on cross-border distribution of funds (eversheds-sutherland.com)
• UK: key takeaways from the Mansion House reforms for capital markets (eversheds-sutherland.com)
• Law Commission finalises recommendations for the future of digital assets (eversheds-sutherland.com)
• UK FCA multi-firm review: Authorised fund manager’s assessments of fund value 2023 (eversheds-sutherland.com)
• The Financial Conduct Authority’s new regulatory gateway for approval of financial promotions (eversheds-sutherland.com)
• Bank of England shares strategy to enable innovation through a digital pound (eversheds-sutherland.com)