Greg Kilminster
Head of Product - Content
BoE and HMT respond to digital pound consultation
The Bank of England (BoE) and HM Treasury (HMT) have released their response to the Consultation Paper on a UK retail central bank digital currency (CBDC) proposal launched in February 2023. Over 50,000 responses were received from members of the public, businesses, civil society, and academia.
Below are some key takeaways:
Infrastructure
The BoE and HMT have decided to proceed with a platform model based on a public-private partnership. The BoE will provide the core infrastructure and ledger, while private-sector intermediaries, including financial and non-financial firms, will access this core ledger and provide payment and other services directly to end-users using ‘pass-through’ wallets.
Privacy and data protection
The BoE and HMT will explore how Payment Interface Providers (PIPs) can offer tiered access to users based on the amount of identification they are willing or able to provide. Anti-money laundering (AML) and countering the financing of terrorism (CFT) regimes will apply to digital payments, and the amount of information required will reflect the value and perceived risk of the transaction. The BoE and HMT will also have no access to personal data.
Holding limits
The Consultation Paper proposed setting limits on holdings between £10,000 and £20,000 for individuals and a significantly higher limit for corporates. Respondents’ views on individual limits varied widely, with banks preferring a limit in the range of £3,000 to £5,000. The BoE and HMT are open to revisiting the bounds of the £10,000 to £20,000 range if new information comes to light.
Non-UK residents’ access
The BoE and HMT support non-UK residents’ access to a digital pound on the same basis as UK residents. Any non-resident access regime will be in accordance with the G7’s 2021 pledge to design any future CBDCs in such a way that would avoid the risk of currency substitution in other countries. The BoE and HMT will also ensure that UK standards of resilience, consumer protection, AML, KYC, and any other legal requirements are upheld for non-UK private-sector wallet providers. Further work will be undertaken on whether and to what extent non-resident corporates might have access to a digital pound.
Next steps
The BoE and HMT have entered the design phase of work on a digital pound and expect to decide whether to proceed to the build phase in 2025. If a decision is taken to move to the build phase, a prototype digital pound will be developed, first in a simulated environment and then in live pilot tests. The Government has committed to introducing primary legislation before launching a digital pound, preceded by further public consultation. Parliament will scrutinise the Bank and HMT’s work on a digital pound.
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PSR MD outlines priorities in speech
In a speech at the Payments Regulation and Innovation Summit, Chris Hemsley, managing director of the UK’s Payment Systems Regulator highlighted key priorities and initiatives in the UK payments landscape. Hemsley covered three areas: APP fraud, open banking and the new national framework for cash access.
APP scams: a focus on prevention
Hemsley began by stressing the significant progress made in combating Authorised Push Payment (APP) fraud. New regulation, effective from 7 October 2024, sets a minimum standard of protection for all consumers, eliminating reliance on inconsistent voluntary protections. Hemsley noted that nobody can opt out of the new regulations adding: “What [the new regulation] amounts to is a real step-change in the way we approach fraud – applying minimum levels of protection to customers of all payment firms, while splitting this cost between sending and receiving firms”.
Hemsley added that the emphasis on enhanced data sharing and transparent fraud performance reporting signals a commitment to a comprehensive strategy against fraudulent activities but he added a rallying cry, urging all payment firms to “prioritise getting their systems, processes and people ready. This includes making sure their fraud risk management is effective and meets their risk tolerance”. Finally, he added that, in his view, social media and telecom firms can and should do much more to prevent APP fraud.
Open banking: unlocking innovative services
Hemsley delved into the next stage of open banking implementation, emphasising the need for quick expansion to benefit a broader audience. The focus on Variable Recurring Payments (VRP) providing consumers with more flexible payment options was noted, with Hemsley adding that the PSR is keen to push for VRP to be introduced for utility payments, across regulated financial services and for local and central government payments.
Hemsley then addressed the commercial implications of VRP and open banking, balancing out the reduction of costs on the one hand with the provision of free services on the other but noting that “we will need to refine the approach to the commercial model in open banking payments. And we will need to add in some complexity to recover costs that we can’t factor in right now”.
National payments vision and infrastructure upgrades
The speech touched upon the National Payments Vision, emphasising the importance of clarity in translating the vision into action. The current pause in the New Payments Architecture program pending the National Payments Vision’s publication indicates the dynamic nature of the payments landscape, Hemsley noted. He added there was no clear path forward currently but that the PSA was working with all relevant parties to provide the clarity needed.
Concluding, Hemsley noted that the year will see a “major step forward on tackling payment fraud, while navigating through to a full framework for open banking payments. And we will be well on our way to making any further changes, as our card fees work draws to a close”.
Elsewhere, Hemsley emphasised the direction of travel in the latest PSR quarterly newsletter which also addresses some of the issues in his speech.
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CFTC commissioner shows support for capital comparability determination for UK PRA-regulated SD
The Commodity Futures Trading Commission (CFTC) commissioner, Caroline D Pham, has voiced her support for a proposed order regarding the comparability determination of UK PRA Swap Dealer (SD) Capital and Financial Reporting Requirements. The proposal, submitted by the Institute of International Bankers, International Swaps and Derivatives Association, and Securities Industry and Financial Markets Association, seeks to allow registered nonbank SP in the UK, licensed as investment firms and designated for prudential supervision by the UK Prudential Regulation Authority (PRA), to meet certain capital and financial reporting requirements under the Commodity Exchange Act by complying with comparable capital and financial reporting requirements under UK laws and regulations.
The Commission is now seeking public comment on the proposed order, with a deadline of 24 March 2024.
It’s worth noting that, concurrently, on 16 January 2024, the CFTC proposed new rules on capital requirements for SDs and major swap participants. The proposed amendments aim to simplify SDs’ compliance with the Commission’s financial reporting obligations and demonstrate their compliance with minimum capital requirements. The proposal also includes changes to the timing of certain notifications, the approval process of subordinated debt for capital, and revisions to financial reporting forms to align with the rules. The deadline for comments on the proposed amendments is 13 February 2024.
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