On Monday 4 March, Travers Smith's client, the Pay.UK Group (the body responsible for the UK's retail payment systems), in conjunction with the Bank of England (the Bank), achieved a seminal milestone in delivering the UK Government's promise to further open up the UK's dynamic and fast-moving payment markets.
New challenger payment institutions can now provide their innovative payment services (in competition with the banks) with the benefit of safe, secure direct access to central bank and payment infrastructure facilities. This is achieved by allowing non-bank payment institutions to use special purpose funds provided by their clients to support their central bank and system liquidity operations. These institutions can, for the first time, take absolute control of their client payments offering without being required to rely on or assume credit, operational and other exposures to their competitor commercial banks.
This paradigm-shifting project, believed to be a world-first, was only made possible by a creative statutory response to the UK's implementation of the new EU Payment Services Directive (PSD2), the development of innovative cross-system "settlement trust arrangements" allowing non-bank institutions direct access to a single pool of liquidity and substantive changes to the rules and contracts underpinning the operation of the leading UK retail payment systems. These legal changes support strong, well-founded continuing protection for client funds used to make payments and minimise systemic, credit and operational risks for participants in the UK's financial system.
The Travers Smith team (in close liaison with lawyers from the Pay.UK Group, the Bank, the Financial Conduct Authority and HM Treasury) led the work in devising, drafting, negotiating and putting in place the contractual and legislative model over a three year period.
Our team was led by Partner, Mark Evans and Senior Associate, Natalie Lewis in the Financial Services and Markets Department.
Tim Lewis, Head of Financial Services and Markets commented: "I am absolutely delighted that the Travers Smith team has been at the forefront of helping the UK payments industry once again deliver a ground-breaking, best-in-class solution to ensure innovation and competition in this exciting and fast-paced FinTech sector.
The significance of the opening up of the UK's central payments infrastructure to direct access by non-bank payment institutions is unlikely to be immediately apparent to many, but its immediate and longer term benefits will be felt by all: enhanced competition and innovation in the UK payments markets increases the range, quality and safety of payment services which are the life-blood of any vibrant economy.
The successful launch of this new payment offering is a testament to what can be achieved when the leaders of our payment infrastructures, financial institutions, regulators and policy-makers embrace a cast-iron commitment to the UK's world-leading payments sector and collaborate to produce imaginative, robust and well-founded legal, business and operational solutions to the issues it faces in a global market-place."