Pesky EU Wants UK Banks Etc To Cut Cross-border Payment Fees

Not content with getting the Brits a better deal on mobile roaming charges and otherwise standing up to BigBusiness, the EU now wants to cut fees for non-Euro cross-border payments and currency conversion. The European Commission is inviting answers to two questionnaires by 30 October 2017 on awareness of the high fees and potential solutions, including whether consumers are being steered toward more costly currency conversion options at check-out.

Of the non-Euro countries in the EU, only Sweden chose to follow Eurozone countries by ensuring its banks and other payment service providers charge the same for cross-border and domestic funds transfers involving Swedish Krona. The other non-Euro countries have allowed "very high" charges for non-Euro cross-border transfers. 

The Commission wants to cut those charges and help consumers choose the best conversion rate when offered the chance to pay in a different currency at check-out.  

Remittance costs must also come down to less than 3% to meet UN Sustainable Development Goals.

The Commission's first step is collecting the views of consumers and industry experts on awareness of high fees and potential solutions. It also wants to know whether consumers are being steered toward more costly currency conversion options at check-out; and how long it might take for real-time exchange rates and price quotes to be introduced.

"British consumers are very pleased to be ripped off when making payments abroad, and are jolly well thankful that our banks and other financial institutions are free to make as much money as possible at their expense. They can't wait to be rid of all this EU meddling in our affairs," a Tory spokesperson probably said.

"Fee Banking", Not "Free Banking": The Shameful Overdraft Saga Continues

Readers will recall that UK retail banks are self-regulated when it comes to overdrafts. They lost control of deposits, savings and payments in 2009, but kept control of lending (bizarrely, given the over-extension of credit in the lead up to the crash). They continued to battle savagely against the OFT's attempt to assess the 'fairness' of their overdraft charges for many years before finally offering to charge a bit less in late 2009. By 2013, however, the banks felt the heat was off, and were congratulating themselves on having found "no breaches" of their own Lending Code. Yet in 2014, the FCA found that "overdraft prices were high, complex, confusing and poorly understood". Now a new report reveals:

"Not only are unarranged overdrafts expensive, but in many cases they cost significantly more than [payday] loans. Many consumers are also unaware either that they have used an unarranged overdraft or of the cost implications even if they do."

The FCA's latest analysis suggests there are about 42m current accounts, about 27% of which are in arranged overdraft for 1 to 12 months (staying within a pre-set credit limit) while 10% operate as unarranged overdrafts for 1 to 12 months (no right to be overdrawn at all or in breach of the credit limit). The FCA's analysis "shows that a quarter of people that used unarranged overdrafts used them in four or more months during 2016. Nearly 10% of unarranged overdraft consumers used them for 10 or more months."

The banks' Lending Code does not require a creditworthiness assessment, yet the FCA found that "overdraft users typically have lower credit scores than consumers with current accounts... [and] consumers using unarranged overdrafts have noticeably lower credit scores than the overall population of current account and overdraft users." The FCA adds that it is "concerned that consumers who repeatedly using unarranged overdrafts are being given access to a service that seems unsuitable for them, and which may be contributing to potential financial distress."

This sounds like a clarion call to the claims management industry 

to switch from seeking refunds of PPI premiums

to seeking refunds of unagreed overdraft charges.

No doubt the banks will continue to resist interference with their dastardly overdraft arrangements, claiming that it would mean the end of "free-banking" (which industry insiders refer to as "fee banking" because banks rely on fees arising from the mismatch between actual customer needs and poorly aligned/understood products).

Banks claim that overdrafts are a feature of current accounts, so the FCA should wait to see how the recent attack on those by the competition regulator pans out before taking further action.

But, as the figures show, not all current accounts come with an overdraft, although my sense is that overdrafts are actually a side-effect of shortcomings in banks' legacy technology - the systems can't maintain real time balances, so the bank has no way of knowing the actual account balance or whether an overdraft limit will be breached when each transaction comes through. But that's the banks' problem.  Overdrafts do constitute a form of "credit", whether they are "arranged"  or "unarranged" and the fact they are still self-regulated as 'lending' speaks volumes (current accounts are regulated as "payment accounts" under the Payment Services Regulations).

Lloyds has already lost its nerve, however, and moved to a new charging structure that the FCA says "does not allow a consumer to use unarranged facilities and does not charge a daily fee if they do."

The banks certainly have plenty of cause for alarm. 

In 2014, the FCA took over regulation of the comparatively tiny 'payday lending' market - 1.6m customers borrowing £3bn at its peak in 2013 - and imposed rules that reduced volumes by 42%. But in this case, the FCA is sounding the death knell of unarranged overdrafts entirely:

"Based on the evidence we have to date, we believe there is a case to consider fundamental reform of unarranged overdrafts and consider whether they should have a place in any modern banking market."

All Hands On Deck: UK Sailing Close To #PSD2 Deadline

The UK government has just announced its final approach to implementing the new Payment Services Directive (PSD2), along with the final version of the Payment Services Regulations 2017 that will apply from 13 January 2018. So firms don't have long to figure out whether they fall within the definitions and, if so, how to apply and comply. 

The FCA is expected to finalise its guidance and application forms by September, and can only begin accepting applications for authorisation/registration from 13 October 2017. That only leaves 3 months for the FCA to authorise/register firms who offer the newly regulated 'account information services' and 'payment initiation services' or who are losing their exemptions, as briefly explained below.

Payment initiation services

What constitutes a PIS is quite complex, but firms who are broadly in that space (including payment gateway providers) are perhaps more aware of the scope of their activities and the challenge ahead - although those relying on an exemption need to check their assumptions.  

Account information services

The new “account information service” basically involves providing information from one or more payment accounts held by the user with one or more other payment service providers. Initially, the list of services the government said might constitute account information services included some services of a much broader nature:

"• price comparison and product identification services;

• income and expenditure analysis, including affordability and credit rating or credit worthiness assessments...

[and] might include accountancy or legal services, for example”.

The government says it has heard the concerns that its interpretation was too broad and overlooked the requirement that a service must be conducted 'by way of business' in its own right, rather than merely as an ancillary part of a wider service. Examples of services that the government says that respondents were concerned about include:

"banks’ corporate functions; price comparison websites; accountants; financial advisors; legal firms; and Credit Reference Agencies (CRAs). Many of these services are currently provided via a contractual relationship between service providers, users, and ASPSPs, often referred to as Third Party Mandates (TPMs)."

The government now confirms, however, that:

"many uses of these mandates are likely to be outside of the scope of the PSDII. Examples could include power of attorney, where the services are unlikely to be undertaken ‘in the course of business’."

In addition, the FCA has already suggested this narrower view, based on the 'business test' in its own consultation on how it proposes to supervise PSD2.

Some narrower exemptions

Commercial agents can no longer act for both payer and payee. 

Firms operating gift card and other loyalty schemes not only face a stricter test of 'limited network', but must also notify the FCA if the total value of transactions executed over the preceding 12 months exceeds the amount of 1 million euros, and the FCA must then decide whether the exemption criteria. There is no allowance for transition if the service does not meet the exemption.

Technology service providers are no longer exempt if they also offer the newly regulated account information services or payment initiation services.   

The Cat Is Out Of The Bag: The EU Bars UK Financial Outsourcing

A key EU financial authority has asked EU regulators to be strict on UK firms seeking to escape the impact of Brexit. The concern is that having lost their EU passporting rights, desperate Brits will try to get authorised in Europe but continue to rely on UK managers and operations. 

"UK-based market participants may seek to relocate entities, activities or functions to the EU27 in order to maintain access to EU financial markets. In this context, these market participants may seek to minimise the transfer of the effective performance of those activities or functions in the EU27, i.e. by relying on the outsourcing or delegation of certain activities or functions to UK-based entities, including affiliates. It is therefore necessary to ensure that the conditions for authorisation as well as for outsourcing and delegation do not generate supervisory arbitrage risks."

ESMA even proposes a Cat o' nine tails set of 9 "principles" to prevent UK firms making the best of Brexit: 

1. No automatic recognition of existing financial firm authorisations;
2. Authorisation processes by the EU27 should be "rigorous and efficient";
3. Regulators must verify the objective reasons for relocation;
4. Regulators should avoid "letterbox" entities in the EU27 - the EU firm must perform substantial activities;
5. Outsourcing and delegation to third countries (like the UK) is only possible under strict conditions;
6. Substantive decision-making must occur in the EU, especially over outsourced activities;
7. There must be sound local governance of EU entities, by resident directors/senior managers;
8. Regulators must have the resources and data to effectively supervise and enforce EU law. 
9. ESMA is watching and will co-ordinate to ensure adequate and consistent supervision. 

Of course, the UK could retaliate with red tape of its own. Brexit is also a challenge for 8,008 EEA firms that hold 23,532 passports (about 3 each) to cover their UK offerings.

The Official Monster Raving Loony Party Is Too Normal

The OMRLP is short of candidates. Only 12 Loonies have been nominated for GE2017, the fewest since 1987. The problem is that nothing seems whacky anymore. Satire and irony are dead. There’s no competing with the idiocy of the major party manifestos, as the party political machines inhale more and more data from a population hooked on the Daily Mail.

"Shit in, shit out," as a data scientist might say, if quotes from such 'experts' were allowed.

But they're not, which is how Trump got to the White House and why Theresa May was there to sort of hold his hand. 

The "truth" is that the OMRLP could romp home in this election. It just needs to become truly loony. Here are some genuinely ‘strong and stable’ foundations on which to build: 

• Every university that accepts UK government funding must offer Creationism as a degree course, and as a compulsory module in Archaeology, Anthropology, Education, Geography, Geology, History, Medicine, Physics, Theology and Veterinary Science;

• The UK government should endow a new Flat Earth Geographical Society;

• All aircraft flying into or from the UK should be fitted with a ChemTrail monitor to measure the quantity of mind-control chemicals they are adding to the atmosphere (ignore these people);

• All academic research grants should be awarded by a simply voting majority of all the UK's local councillors.

Of course, the OMRLP must also recognise that it is competing with the sheer mendacity of mainstream politicians. It should therefore utterly fail to deliver on any of these cast iron commitments. This will inspire hope that they'll manage it next time, and guarantee progressively more electoral success at GE2018, GE2019, GE2020...