UK government outlines National Payments Vision and confirms plans to issue Digital Gilt Instrument

In the concluding remarks of her first Mansion House speech, Rachel Reeves made two key fintech announcements on (1) the publication of the National Payments Vision, and (2) plans to pilot a Digital Gilt within the next six months.

National Payments Vision  

Last year, industry leader Joe Garner undertook an independent review of the future of the UK payments sector on behalf of HM Treasury. Its main recommendation was that the government should set out a clearer strategic direction for the payments industry. A year later, the new government has now done so.

Some points to note from the Vision include:

• FCA to drive forward open banking: The FCA will become the UK’s sole regulator for Open Banking under the Data (Use and Access) Bill. The FCA has until now been part of a Joint Regulatory Oversight Committee overseeing Open Banking but, after slow progress, the JROC will now be wound down.
   
• HMT to look at data asymmetry: The government notes the FCA’s recent work exploring data asymmetry between Big Tech companies and financial services firms. The government will consider whether policy changes are required to align incentives between data users and data holders e.g. reciprocal obligations or reasonable compensation where APIs are accessed at significant scale.
   
• FCA to revisit SCA: The government plans to revoke the prescriptive regulations on strong customer authentication will be revoked and replaced with a more outcomes-based regime set by the FCA.
   
• Payment rails under review: A new Payments Vision Delivery Committee will outline the UK's retail payments infrastructure needs and deliver a Payments Forward Plan by the end of 2025 which will sequence future initiatives.
   
• Tech firms told to do more on fraud: The government says that it has written to the tech and telecommunications sectors to call for demonstrable action to reduce the scale of incidents and losses from fraud taking place on their platforms and networks. The government will request updates on progress and action taken at the next Joint Fraud Taskforce in March 2025. The government also plans to release an expanded fraud strategy in 2025.

For a deeper dive read our article: Eye on the horizon: UK sets National Payments Vision 

The Digital Gilt Instrument pilot (DIGIT) 

The Chancellor also announced that the government intends to pilot a Digital Gilt Instrument (referred to as DIGIT) using distributed ledger technology. This was much anticipated and something many will see as a positive impetus from the public sector to drive digital infrastructure in the UK. 

A ministerial statement from the Treasury this week indicated that the DIGIT would be issued within the Digital Securities Sandbox. This will mean that the arrangement is able to benefit from certain modifications to law and regulation but is also subject to certain conditions and limitations that do not apply outside the sandbox. 

There remain many unknowns around the structure of the DIGIT instrument and the underlying system, including in relation to what legal or regulatory modifications will be sought under the DSS, who will operate the underlying platform and what technology stack they will use. The design choices will have important implications for market participants, both in terms of potential opportunities and in terms of potential challenges (for example, around issues such as risk factors, liquidity and onboarding). 

The government has said it plans to engage further with the market on structuring options in the new year.