The Payment Services Directive. Mortgage Fraud - what are the lessons?

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1 The Payment Services Directive Mortgage Fraud - what are the lessons? Jean Price Head of Retail Banking and Consumer Finance 3 rd September 2008

2 The Payment Services Directive Overview and objectives Key dates The structure of the PSD Who does it effect? What services does it cover? Authorisation v- registration The Conduct of Business rules

3 What is the PSD? Prudential authorisation regime for non-credit or e-money institutions. Harmonised conduct of business rules. Broadly a maximum harmonisation directive.

4 What are the PSD s objectives? A building block for SEPA Enhanced competition between national payment markets by opening up markets and ensuring a level playing field Increased market transparency for both providers and users Standardised rights and obligations of provided and users of payment services in the EU, with a strong emphasis on a high level of consumer protections Promotion of modernisation and efficiency of payment systems.

5 Key Dates 13 November 2007 PSD adopted 18 March Treasury consultation on implementation closes 21 July 2008 Response to consultation published Treasury consultation on draft legislation published 3 October Treasury consultation on draft legislation closes Before end 2008 legislation to be laid before Parliament 1 November implementation

6 The PSD s Structure I Subject-matter, scope and definition II Payment Services Providers III Transparency of conditions for payment services IV Rights and obligations in relation to the provision and use of payment services V Amendments and Payments Committee VI Final Provision Annex: Payments Services under Article 2(1)

7 Who will be subject to the PSD Credit institutions E-money institutions Post office giro institutions Payment institutions Money transfer operators Bill payment service providers Non-credit or e-money institution credit card issuers Mobile phone operators ECB and national central banks Member states or their regional or local authorities

8 What does it cover? Electronic payments systems Not: cash for cash (currency exchange), Cash handling or transportation certain cash and cheque payments e.g. banker s drafts, postal orders, traveller s cheques Cash-back services offered by retailers Doesn t apply to those providing the infrastructure of payment system e.g. website or mobile phone system operators All national currencies used in the EU not just euro Payer s payment service provider and the recipient s payment service provider both in the EU

9 The activities - Annex to PSD services enabling cash to be placed on a payment account, as well as all the operations required for operating a payment account; services enabling cash withdrawals from a payment account, as well as all the operations required for operating a payment account; execution of payment transactions, including transfer of funds on a payment account with the user s payment service provider or with another payment service provider, including direct debits, card payments and standing orders;

10 The activities cont. execution of payment transactions where the funds are covered by a credit line for a payment service user; issuing and/or acquiring payment instruments; money remittance; and execution of payment transactions where the consent of the payer to a payment transaction is transmitted by means of any telecoms, digital or IT device and the payment is made to the telecoms, IT system or network operator, acting solely as an intermediary on behalf of the payment service user.

11 In English basically. Money remittance Payment transactions carried out by mobile telecom operators Credit transfers Cash deposits and withdrawals where there is an electronic component to the transaction Direct debits Debit cards Card payments

12 So what is affected? Current accounts E-money accounts Some models of bill payment services Card issuing and card merchant acquiring services Money transfer/remittances Mobile phone payments

13 Authorisation regime Payment institutions which: Execute more than 3 million payment transactions a month, or Wish to passport services into one or more EU Member States other than the one in which they obtained their licence Need to be authorised by FSA Subject to full prudential requirements under Title II as well as conduct of business rules

14 Registration regime Payment institutions which: Execute less than 3 million payment transactions a month, and Do not wish to passport services into one or more EU Member States Less demanding than full authorisation Caters for smaller firms Must still comply with the PSD conduct of business rules

15 Title II - Authorisation Application comprehensive list of information Capital and own funds Safeguarding/ring-fencing Maintenance of authorisation Accounting and Statutory audit Activities Use of agents and outsourcing Liability Record-keeping Right to passport

16 Conduct of Business Rules Title III Rules on: Information to be provided to customers prior to execution of a payment transaction Information accompanying a payment transaction Ways in which changes to payment services contracts must be communication to customers Micro-enterprises less than 2 million per year and 9 or less employees

17 Conduct of Business Rules - cont Title IV rights and obligations: Provider responsibilities for executing payment transactions Maximum execution time of D+1 by 1 January 2012 Liability of both providers and users for unauthorised payment transactions Conditions surrounding refund of transactions Complaints and redress procedures

18 Not to be looked at in isolation Distance Marketing Regulations Unfair Terms in Consumer Contracts Regulations Banking Code CCA (if credit is provided)

19 Mortgage fraud what are the lessons?

20 Mortgage fraud what are the lessons? Why is it such a key issue for FSA? What are FSA doing about the problem? What are the themes? What are the wider implications of FSA s actions? What should firms be doing about it?

21 Why is it such a key issue at present? Mortgage fraudsters tarnish the reputation of the industry as a whole Consumers at risk Lenders at risk Current market conditions

22 What are FSA doing about the problem? Publicity Closer collaboration with lenders Greater supervisory focus Action against firms and individuals

23 What are the themes? Brokers: knowingly and dishonestly involved entering false information on application forms Failing to meet minimum regulatory standards of honesty and integrity Submitting false applications in their own names Lenders BDM s involved

24 What are the themes? Senior management Failure to take steps to present the firm being used for financial crime Failure to implement proper systems and controls Failure to ensure proper monitoring Failure to manage conflicts of interest Failure to cooperate with the regulator

25 What are the wider implications of FSA s actions? It won t stop at mortgages Senior management Approved persons prohibitions personal fines

26 What should firms be doing about it? Management information Checking systems and controls to ensure they are appropriate Making sure that the systems and controls are properly implemented Compliance monitoring

27 Any questions?