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Contracts for indirect access to payment systems could be subject to stiffer self-regulatory code

Banks that facilitate other payment service providers' indirect access to payment systems could be required to meet stiffer contractual requirements in future, under plans for a self-regulatory regime.16 Nov 2015

In a consultation (24-page / 3.74MB PDF), trade body Payments UK has asked for views on the effectiveness of an interim code of conduct on indirect access to payment systems that it published in August and whether it needs to be further developed.

The code, established following a recommendation by the UK's Payment Systems Regulator, is currently relevant to the Bacs, Faster Payment Service, CHAPS, Cheque and Credit Clearing and LINK payment systems. The code is voluntary but it places a number of obligations on indirect access providers (IAPs) that commit to observing it.

Indirect access providers are banks that have direct access to payment systems that contract with payment service providers to help those companies provide services using those payment systems too.

Under the existing code payment service providers (PSPs) have the right to obtain written agreement of the agreed arrangements governing the supply of their indirect access to payment systems from IAPs. That agreement must be written in "clear and transparent language" and there are 10 "key components" that it must include.

However, Payments UK said it has conducted research that found that some PSPs do not have contracts with IAPs that specifically address "the indirect access services they receive". It said that it has received "concerns" about some of the contracts that are in place, as well as the time taken to negotiate them.

"Where indirect PSPs do have contracts, these may have taken a significant length of time to negotiate and/or may not include all the elements recommended by the code, which has led to the suggestion of including a maximum recommended length of time for negotiation of an indirect access contract within [the code]," the Payments UK consultation paper said.

"Other concerns raised to us around the contractual aspects of indirect access include transparency and proportionality of pricing, that contracts should be 'fair and reasonable' and the suggestion of the introduction of a recommended minimum notice period for termination and/or transition of services in circumstances other than an immediate termination of services as a result of a breach [of] contractual or regulatory terms," it said.

Payments UK has asked stakeholders whether they would support the codification of the recommendations. Further changes to the code under consideration could see IAPs required to be more transparent with PSPs about planned outages and how they are tackling unscheduled downtime.

The trade body has also asked whether a voluntary code "is the most effective model to support the code aims of increasing confidence in the supply of indirect access and improving outcomes for service-users", or whether stakeholders would get behind "additional measures" or an "alternative model".

The consultation is open until 8 February 2016.

Banking law expert Tony Anderson of Pinsent Masons, the law firm behind Out-Law.com, said the establishment of the code of conduct is "a key development". However, he said that the outcome of the current market review the Payment Systems Regulator is conducting into indirect access to payment systems is "likely to have a more significant impact on the future development of payment systems".

"Any significant changes to current indirect access arrangements may have financial stability implications," Anderson said. "This is to the extent that such changes result in higher volumes and value of payment transactions through an indirect participant to a particular payment system. The PSR and other relevant regulators will need to be mindful of this issue when considering appropriate access requirements for such participants."