In this two-part blog series, we aim to help financial institutions to understand key impacts of Brexit on the UK payments landscape.
With Brexit becoming more of a certainty, financial institutions are progressively assessing how Brexit will impact their existing or planned payments change programmes. Although the timeline for Brexit is looming, there remains little or no clarity on post-Brexit arrangements including application of regulations.
So here is a list of what we know, and some of the important questions we believe need to be answered when assessing existing payment change programmes:
10 things we know:
- Open Banking will still be mandated for the largest UK and Northern Irish banks by the Competition and Markets Authority (CMA) and Financial Conduct Authority (FCA)
- payments resiliency and stability are still really important for any payments company to retain customer trust and loyalty
- cybersecurity is still a big deal
- the UK Government will have to decide whether to change EU mandates (eg Payments Services Directive II (PSDII) , Interchange Fee Regulation) that have already been implemented into law
- the infrastructure and people that have made London the global financial services and Fintech leader are still in place
- Brexit will create an uncertain fund and capital-raising environment for an extended period of time
- UK-based payment Fintechs (eg Transferwise) and talent are being recruited by other countries
- the FCA has strong relationships with European regulators built through decades of collaboration, but will soon lose its spot at the negotiating table.
- UK companies with a presence in the EU still have to comply with EU rules
- the London financial services market is lobbying to maintain EU passporting.
The important questions:
- What EU relationship model will the UK adopt? Will the UK retain access to the single market? Will free movement of people be restricted?
- Will the UK retain EU passporting rights?
- What EU mandates will the UK government change (eg Interchange Fee Regulation)?
- Will UK card schemes be classified as non-EU?
- Will smaller domestic UK banks need to comply with the Open Data aspects of PSD2?
- Will new Fintechs want to set up in London? Will established Fintechs move to the continent?
- How long will it take for the UK to leave the EU?
Even though there is a lot we do not know about the UK’s future with the EU, what we can say with certainty, is that existing UK standards will remain in force including Open Banking (reinforced by the recent mandate by the CMA of the Open Banking standards) and other initiatives driven by the Payments Services Regulator, including adoption of equivalent rules on PSDII.
Brexit does add another layer of uncertainty around the regulatory requirements and competitive and market landscape that the payments providers must be able respond to through the capabilities they are developing. However, irrespective of the impact of Brexit, UK banks and payment providers will need to continue to invest in their payments ecosystem to achieve agility and flexibility to enable rapid change, to improve security and reduce risk, to constantly innovate and increasingly partner with other providers, and to prepare for a world of open banking and data.
In the next blog in this series, we will continue to explore the practical considerations of Brexit on payment change programmes and how financial institutions can adapt to these changes effectively and robustly.