It is a commercial reality that banks monitor the activities of their client base and keep under review the risk posed by particular industries and jurisdictions. The regulations that inform the way in which banking access can be restricted and relationships terminated are essential reading for those working with banks and payment service providers, and can prove to be useful tools for advisers.
The Payment Services Regulations
Those dealing with, or acting for, payment services providers (PSPs) in the UK, will likely be familiar with the Payment Services Regulations 2017 (PSRs 2017). These form the key piece of English legislation which governs payment services in the UK. They apply to any PSP, that is anyone or any institution which provides a payment service as a "regular occupation or business activity in the UK".
Proportionate, objective and non-discriminatory
Part 8 is generally a lesser-known part of the PSRs 2017. It relates to access to payment systems and bank accounts. Specifically, regulation 105 of the PSRs 2017 requires that credit institutions must grant PSPs access to payment account services on a proportionate, objective and non-discriminatory (or POND) basis.
The FCA considers that the regulation also requires credit institutions to ensure that, where access is provided, it is sufficiently extensive to allow the PSP to provide payment services in an unhindered and efficient manner.
This piece of legislation can be extremely useful in circumstances where banks are reluctant to provide services to PSPs, or seek to terminate a banking relationship with a PSP. Banks are continually reviewing the activities of their client base, and are also reassessing their own risk parameters. Where PSPs are carrying out services for customers in higher risk jurisdictions, banks are increasingly wary of providing services. While guarding against money laundering and terrorist financing is, of course, a matter of the highest importance, banks cannot deal with PSPs in a discriminatory manner.
So, while regulation 105 does not impose a positive obligation on institutions to provide access, credit institutions should not deal generically with whole categories of customers. As noted in the FCA paper, 'Payment Services and Electronic Money – Our Approach', regulation 105 "reinforces the need to determine applications for banking services by PSPs not simply by reference to membership of a particular category of business, but taking account of the individual circumstances".
Case study
A typical scenario would be one in which a high street bank takes the decision to terminate its banking relationship with a PSP. If the bank is unable to provide a cogent explanation for its decision, beyond vague references to the bank's review of its own risk profile, it may find itself in difficulty.
In a recent example in which we acted for a client PSP, the reason provided for the bank's decision to terminate the relationship was vague and unsubstantiated. In this instance, our PSP client's business relies entirely on the provision of banking services, so we had to act quickly. The damage to the business if the bank had proceeded as planned to would have been catastrophic.
By drawing the bank's attention to section 105 of the PSRs 2017 and arguing that the bank had acted in a manner which was contrary to the POND requirements, we were able to persuade the bank to grant an extension of time, in order that our client could effect an orderly transition of accounts to its new bank.
Regulation 105 and the POND requirements can therefore provide a useful and effective tool in redressing the balance of power in the banking relationship between a credit institution and a PSP, and an important provision for banks and PSPs to keep in mind.
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