Our response to HM Treasury's consultation 'Opening up UK payments'


The Building Societies Association (BSA) represents mutual lenders and deposit takers in the UK including all 46 UK building societies.  Mutual lenders and deposit takers have total assets of over £375 billion and, together with their subsidiaries, hold residential mortgages of £245 billion, 20% of the total outstanding in the UK.  They hold more than £250 billion of retail deposits, accounting for 22% of all such deposits in the UK.  Mutual deposit takers account for 31% of cash ISA balances.  They employ approximately 50,000 full and part-time staff and operate through approximately 2,000 branches.

The BSA welcomes the opportunity to comment on HM Treasury’s consultation document Opening up UK payments.


The BSA supports HM Treasury’s proposal to bring payment systems under economic regulation, and establish a new competition-focused, utility style regulator for retail payment systems.  This is a change from our previous position set out in our response to HM Treasury’s July 2012 consultation Setting the strategy for UK payments.  Although the option of creating a new economic regulator was mentioned in the July 2012 consultation, there was very little detail and the Government made it clear that it did not support the proposal.  Given the lack of detail and Government support, the BSA felt at the time that we could not support the proposal.  We are pleased that this proposal is now back on the table and that the consultation Opening up UK payments sets out in more detail how the new regulator and regulatory regime would function.

While we are pleased that the Government is now seriously considering this proposal, we do not agree with all of the reasons given for its change of mind.  In particular, we do not think that the LIBOR revelations are relevant to this debate and we do not accept that all self regulation in financial services has been discredited.  Independently monitored industry codes, such as the Lending Code, provide robust protection for consumers beyond that provided by statute and continue to play a vital role in other areas of financial regulation.  However with regard to retail payment services, the BSA agrees that the balance of arguments now lie in favour of introducing a full utility-style regulator.

We do not have a firm stance on which body would be most suitable to take on the regulatory role.  While there are clear benefits to giving the role to the Financial Conduct Authority (FCA), such as the pre-existing relationship with payment institutions and funding arrangements, we do have some reservations.  As stated in the consultation document, the FCA has no prior experience of utility-style regulation and would need to build this capacity up from nothing.  This is likely to take considerable time and resource. We are also concerned that the widening of the FCA’s remit may divert its attention away from its existing retail banking conduct remit.  We recognise that creating a new stand-alone regulator or giving the role to one of the existing economic regulators would also have their own challenges.  The BSA looks forward to working closely with whichever body is appointed to take on the regulatory role.

The BSA agrees that the role of the regulator and its proposed powers are generally appropriate to achieve the Government’s aims.

The BSA supports the Government’s aim to improve competition and open access in payment systems and we agree that there is currently a lack of transparency of the arrangements in the sector.  Our members rely on “agency” arrangements to access payment systems via larger institutions.  We agree with the Government’s view that, with regard to agency arrangements, “complexity, information asymmetries and lack of transparency put larger institutions in an influential position” and make it difficult to assess the competitiveness of the market.  The BSA looks forward to being involved in discussions with the new regulator about how best to address this issue.

While we acknowledge many of the criticisms set out in the consultation document of the existing regulatory regime and the effectiveness of the Payments Council, it is important to recognise the achievements of the industry and the Payments Council over recent years.  Improvements to payment systems such as the introduction of Faster Payments and faster personal current account switching (in September this year) were only possible due to industry collaboration and co-ordination under the Payments Council.  Under the new regulatory regime there will continue to be a need for an industry body to co-ordinate future projects and work closely with the new regulator to help it achieve its aims.  We look forward to continuing to work with the Payments Council on relevant payment system initiatives in the future.

25 JUNE 2013