Government responds to its consultation on payments regulation and the systemic perimeter

In 2022 the Government published a consultation which set out proposals to widen the Banking Act 2009 to bring systemically important entities operating within payment chains within the Bank of England's supervision. This proposal was driven by a recognition that a proliferation of new services and market entrants, as well as greater interconnectivity, had changed the payments landscape.

The growth and evolution of the payments sector has created a risk that systemic actors that are not subject to Bank supervision may emerge within payment chains. Disruption to the activities of these systemic actors could pose a material risk to the UK's financial system.

The Government's answer to this issue was a proposal to expand the scope of the systemic payments perimeter to cover payments providers where these are judged to be likely to threaten the stability of, or confidence in, the UK financial system or have serious economic consequences for the UK. Associated service providers to these systemic payments providers would also be brought within the Bank's supervision.

What does the Government's response say?

The Government says that it is committed to taking forward its proposed reforms to the Bank's supervisory perimeter at a future legislative opportunity. Legislation to put the proposals into action will require an Act of Parliament.

According to the consultation response, this legislation would set out clear, high-bar recognition criteria against which the Bank would be required to assess systemic risk. The Treasury would be responsible for formally recognising entities as systemic in consultation with the Bank and the entities themselves. The Government will work with the Bank to produce guidance setting out how systemic importance will be assessed. The intention is that Bank supervision will remain focused on those few entities that operate at a systemically important scale.

What does this mean for firms that are recognised as systemically important?

The Government also intends to follow through on its proposed enhancements to the Bank's ability to gather relevant information from market participants. These reforms would enable the Bank to request information from recognised payments providers.

The 2022 consultation noted that there could be instances where the Bank may need to apply a limit on an activity of a recognised payments entity. For example, by applying a limit on transaction volumes or values. The response paper explains that the application of this power will be set out in legislation and that the Government will consult with the Bank in relation to providing further guidance as to how the power can be used. 

The response also indicates that the Government does not intend to create an automatic location requirement for an entity reocgnised under the Banking Act to be established in the UK. However, the Bank will be able to use its existing discretion to impose a location requirement on a case by case basis in relation to systemically important payments providers. 

Other reforms of note

The Government has confirmed that it will set out next steps regarding the future extensions of the Senior Managers and Certification Regime to payment service providers and payment system operators once it is has completed its "SMCR Review" which was launched in March this year.