Guidance

Payment Accounts (Amendment) (EU Exit) Regulations 2018: explanatory information

Published 31 October 2018

1. Context

The European Union (Withdrawal) Act 2018 (EUWA) repeals the European Communities Act 1972 on the day the UK leaves the EU and converts into UK domestic law the existing body of directly applicable EU law. The purpose of the EUWA is to provide a functioning statute book on the day we leave the EU.

The EUWA also gives Ministers powers to make Statutory Instruments (SIs) to prevent, remedy or mitigate any failure of EU law to operate effectively, or any other deficiency in retained EU law. We refer to these contingency preparations for financial services legislation as ‘onshoring’.

HM Treasury is using these powers to ensure that the UK continues to have a functioning financial services regulatory regime in any scenario.

This SI is part of the wider work the government is undertaking to prepare for the UK’s withdrawal from the EU. It is not intended to make policy changes, other than to reflect the UK’s new position outside the EU, and to smooth the transition. The changes made in this SI would not take effect on 29 March 2019 if, as expected, we enter an implementation period.

2. Notice

The attached draft SI is intended to provide Parliament and stakeholders with further details on our approach to onshoring financial services legislation. The draft instrument is still in development. The drafting approach, and other technical aspects of the proposal, may change before the final instrument is laid before Parliament.

3. Policy background and purpose of the SI

3.1 What does the underlying EU regulation and UK law do?

The Payment Accounts Directive 2014/92/EU (Directive) has three main components:

1. improve the transparency and comparability of fees related to payment accounts that are used for day-to-day payment transactions;

2. to facilitate the switching of those accounts; and

3. to ensure access to bank accounts with basic features for EU residents. The Payment Accounts Regulations 2015 (PAR) transposed this Directive into UK law.

A payment account is an account which enables consumers to place funds in the account, withdraw cash from the account, execute and receive payment transactions to third parties, including credit transfers, and receive payment transactions to and from third parties. Savings accounts, credit card accounts, e-money accounts, or current account mortgages fall outside the scope of the Directive and the transposing 2015 Regulations unless the account has all the listed functionalities and is used for day-to-day payment transactions. In the UK, the most common form of payment account is a current account.

While, in the UK, it is uncommon for banks and building societies to charge fees for their standard current account products, this is not the case across the EU. The Directive seeks to improve transparency and comparability of fees and charges on payment accounts to make it easier for consumers to compare the accounts on offer, in the hope it may lead to more competition and better deals for consumers.

Alongside this requirement, the Directive requires Member States to facilitate the creation of a price comparison website using the transparent fee information, to enable customers to find the best deal for their payment accounts. It also requires Payment Service Providers to offer a payment account switching service.

The Directive also seeks to ensure that all consumers legally resident in the EU have access to a payment account with basic features (often referred to as basic bank accounts in the UK) at no or low cost. PAR designated the nine largest UK current account providers to offer basic bank accounts. These accounts are free of charge and have a number of features, but do not include an overdraft facility. The 2015 Regulations state that a customer is eligible for a basic bank account if he/she is legally resident in the EU and does not have a UK payment account, or is ineligible to open any other payment account at the bank he/she is applying to for an account. The designated providers must offer these accounts to those who are eligible, unless it would be otherwise unlawful for the provider to open the account.

Prior to the implementation of PAR, the UK already had well-established domestic arrangements for current account switching, price comparison websites and basic bank accounts. The 2015 Regulations ensure that existing policies are compliant with the Directive and provide them with a legal underpinning.

3.2 Deficiencies this SI remedies

This SI will make amendments to retained EU law related to PAR to ensure that they continue to operate effectively in the UK once the UK has left the EU, in the event of a no-deal exit. The changes for payment account providers and consumers will be minimal.

Changes introduced by the SI include:

Removing references to EU institutions

This SI transfers responsibility for implementing technical standards on the documents which set out fees and charges from the European Banking Authority (EBA) to the Financial Conduct Authority (FCA). It also removes the requirements for HM Treasury to report to the EU Commission or for the FCA to review the linked services list in line with EBA revisions to the EU standardised terminology.

Removing requirements which were intended to improve the functioning of the internal market

As the UK will no longer be an EU Member State after Exit Day, this SI removes the requirement on payment account providers to facilitate cross-border opening of accounts. Following the changes made by this SI, it will be at the discretion of UK payment account providers whether to continue to offer basic bank accounts to customers legally resident in the EU. This is because it would not be appropriate to oblige UK payment account providers to continue to offer basic banks accounts to EU residents once the UK is no longer an EU Member State.

This could affect customers legally resident in the EU who wish to open a basic bank account in the UK after exit, as UK providers may decide to stop offering this product for EU residents. It could also affect existing holders of UK basic bank accounts who are resident in the EU, as UK providers will no longer be obliged to keep these accounts open, but may choose to do so. Based on conversations with industry government expects this will affect very few accounts, in the region of the hundreds. The nine UK designated basic bank account providers must, however, continue to offer basic bank accounts to UK residents.

The changes made by this SI will also mean that it would be at the designated providers’ discretion whether to offer cash withdrawal or payment transactions outside the UK or in a currency other than sterling on any basic bank account (including basic bank accounts held by UK residents). However, the designated providers must continue to provide sterling cash withdrawals and sterling transactions for free on all UK basic bank accounts.

3.3 Relevant Rulebook and Binding Technical Standard changes

Where necessary, the FCA will update its Rulebook and relevant Binding Technical Standards to reflect the changes introduced through this SI, and to address any deficiencies as a result of the UK leaving the EU. The FCA has confirmed its intention to consult on any changes in the autumn. The Payment Services Regulator (PSR) will also update their guidance to firms where necessary to reflect the changes introduced through this SI.

3.4 Stakeholders

The impact of this SI will be minimal and there is likely to be a slight decrease in regulatory burdens. This SI will affect all Payments Service Providers which offer payment accounts, and, in particular, the nine designated providers of basic bank accounts.

As stated, this SI will also affect consumers of payment accounts, in particular those who hold basic bank accounts. Basic bank account consumers may experience a reduction in service, as their providers are no longer required to give them access to non-sterling EU transactions, though they may still choose to do so. Under this SI, providers of basic bank accounts are also no longer required to provide basic bank accounts to customers resident in the EU, but must continue to provide them to customers resident in the UK who meet the eligibility criteria. It will be at discretion of the providers whether they continue to offer new basic bank accounts, or keep existing ones open, for customers resident in the EU. We expect this will affect very few accounts.

HM Treasury has engaged with industry bodies where possible to ensure awareness of these changes. As already noted, the intention of this SI is not to make policy changes, other than to reflect the UK’s new position outside the EU, and to smooth the transition to this position.

This SI does not include provisions that may be necessary to ensure Gibraltarian financial services firms’ continued access to UK markets in line with the UK government’s statement in March 2018, and other provisions dealing with Gibraltar more generally. Where necessary, provisions covering Gibraltar will be included in future SIs.

4. Next steps

HM Treasury plans to lay this instrument before Parliament in the autumn.

5. Further information

Read HM Treasury’s approach to financial services legislation under the European Union (Withdrawal) Act 2018.

6. Enquiries

If you have queries regarding this instrument, email [email protected].