In this Newsletter:

• Regulatory Developments: Payments

• Regulatory Developments: Digital Assets

• Market Developments

• Surveys and Reports

For previous editions of the Payments Newsletters, please visit our Financial Services practice page.

The Digital Asset Summit 2024

On 11 September 2024, we gathered policymakers, industry leaders, and the Hogan Lovells team to attend our annual summit on digital assets and tokenization, held in partnership with Global Digital Finance. You can read the key takeaways from the summit on our Digital Assets and Blockchain Hub here.

Payments Conference 2024

Our Payments Conference, Pay it Forward, will be taking place on Wednesday, 20 November 2024. The payments industry has seen enormous change in the past few years and the pace of this change continues to accelerate. Our conference this year will explore this evolution in the context of increasing geopolitical and economic uncertainty and rapid technological innovation. You can see more details and RSVP for the conference here.

Regulatory Developments: Payments

United Kingdom: PSR consults on reducing maximum reimbursement level for APP fraud

On 4 September 2024, the Payment Systems Regulator (PSR) published a consultation paper (CP24/11) on a proposal to reduce the maximum reimbursement level for the Faster Payments authorised push payment (APP) fraud reimbursement scheme from £415,000 to £85,000 per scam claim. The consultation follows industry feedback - in particular, prudential concerns for some smaller firms in the market – and work with the FCA.

The previous limit had been set to reflect the Financial Ombudsman Service’s (FOS) maximum reimbursement limit. The new limit would instead reflect the Financial Services Compensation Scheme (FSCS) maximum reimbursement limit, and would change to track any future revisions to this. The PSR would review its effectiveness and impact after 12 months as part of a post-implementation review.

While the proposed change is good news for in-scope payment service providers (PSPs), reducing the maximum claim limit under the PSR’s requirement is likely to increase the number of complaints made to the FOS. It should also be borne in mind that the FOS has the ability to apply additional award limits (up to the current limit of £430,000) where a complaint falls under their wider jurisdiction e.g. Consumer Duty.

The change would take effect from the policy start date, which remains 7 October 2024.

For more on this development, see our Engage article.

United Kingdom: PSR publishes final guidance on distinguishing between APP scam claims and civil disputes

On 23 September 2024, the Payment Systems Regulator (PSR) published its final guidance to support payment service providers (PSPs) in assessing whether an APP scam claim raised by a consumer is not reimbursable under the Faster Payments Scheme (FPS) and CHAPS reimbursement rules because it is a private civil dispute. 

The PSR consulted on its draft guidance in July this year (see our previous Engage article).

The final guidance remains substantially the same as the draft guidance, with a few key additions as outlined in this Engage article.

The FPS and CHAPS reimbursement requirements come into effect on 7 October 2024.

United Kingdom: PSR policy statement on directing APP scams reimbursement for CHAPS payments

On 6 September 2024, the Payment Systems Regulator (PSR) published a policy statement  (PS24/5) and Specific Direction 21 (SD21) to banks and other payment service providers (PSPs) participating directly or indirectly in CHAPS (the UK’s high-value payment system) to reimburse their customers who have been victims of authorised push payment (APP) scams.

This follows the PSR's May 2024 consultation on the proposed SD21, which is designed to underpin the Bank of England’s new CHAPS reimbursement rules (the final version of which will be published shortly, now that SD21 has been published). See our Engage article on the consultation for more.

The policy statement confirms the policy start date of 7 October 2024, aligned with the date that the Bank’s CHAPS reimbursement rules will come into effect, and with the Faster Payments reimbursement policy start date. All in-scope PSPs must register in line with the requirements set out in the CHAPS reimbursement rules as soon as practicable and no later than 7 October 2024, by providing the information set out in the CHAPS reimbursement rules. This does not apply to PSPs that have already registered with Pay.UK under the Faster Payments reimbursement rules.

For more on the PSR’s policy statement and SD21, take a look at this Engage article.

United Kingdom: FCA guidance consultation on APP fraud and a risk-based approach to payment processing

On 9 September 2024, the FCA published a guidance consultation (GC24/5) on amendments to its Payment Services and Electronic Money Approach Document to provide guidance for payment service providers (PSPs) on how to apply the proposed outbound payments delay legislation – the draft Payment Services (Amendment) Regulations 2024 - published by HM Treasury in March this year (see our previous Engage article).

Under the proposed legislation, PSPs would be able to delay the execution of an outbound sterling payment within the UK by up to four business days from the time a payment order is received if they have reasonable grounds to suspect fraud or dishonesty by someone other than the customer.

Following industry uncertainty about PSPs’ ability to delay inbound payments where they suspect fraud, the FCA is also proposing updates to its existing guidance on when and how PSPs should consider delaying inbound payments.

In all cases of payment delay, the FCA highlights the importance of PSPs’ Consumer Duty obligations.

The FCA’s guidance consultation closes on 4 October 2024. The FCA plans to publish a revised Approach Document for payment services by the end of 2024. It is expected that HM Treasury will lay the Payment Services (Amendment) Regulations 2024 before Parliament in due course.

For more on the FCA’s guidance consultation, take a look at our Engage article.​

Singapore: Protection from Scams Bill to empower police to restrict voluntary bank transfers to scammers

On 30 August 2024, Singapore’s Ministry of Home Affairs announced that it was seeking feedback on the Protection from Scams Bill, which it seeks to introduce in the coming months.

The Bill proposes to empower the police to issue Restriction Orders (RO) to banks to temporarily restrict banking transactions of targets of ongoing scams who refuse to believe they are being scammed.

This measure seeks to protect customers given that the number of scams involving voluntary transfer of monies to scammers remains high, with 84% of reported scams in the first half of 2024 being the result of self-effected transfers. The Ministry for Home Affairs reports that in some cases, victims refused to believe - despite warnings from the police, bank or their family - that they were being scammed.

Key points on the proposal for ROs include:

• ROs will suspend both money transfers and credit facilities, and be issued to all seven Domestic Systematically Important Banks in Singapore.

• ROs will only be issued for scams conducted solely remotely, where there has been no in-person contact.

• ROs will only be issued if the police have reason to believe the customer is being targeted by a scammer, may make transfers to a scammer in the foreseeable future, and all other options to convince the customer have been exhausted and have failed.
• ROs will be issued for only 28 days at first, with renewals for an equivalent period available if the police assess that the individual is still at risk of being scammed.
• Appeals from individuals to the Ministry of Home Affairs against the decision to issue an RO will be permitted.

United Kingdom: FCA update report on payment account access and closures

On 4 September 2024, the FCA published a report setting out its findings from follow-up work on payment account access and closures. Additionally, it published a research report containing the results of independent research on the experiences some of the most financially excluded consumers face when accessing and using financial products and services.

The FCA’s thematic findings from its follow-up work are:

• Basic Bank Account (BBA) customer journeys varied, leading to differences in apparent rejection rates, and firms were poor at making customers aware of BBAs.
• Data on account access was limited or unclear and the form in which it was collected varied significantly from firm to firm.

• The FCA did not see evidence of political beliefs or other views lawfully expressed being used as a rationale for account denial, suspension or termination. However, this conclusion remains based on the evidence that the FCA has seen and caveated by the limitations with data and record-keeping noted above.
• ‘Reputational risk’ is used in varying ways by different firms to deny or close accounts. In some cases the label of ‘reputational risk’ did not seem to correlate with significant risks to the firm’s standing but instead to other concerns eg about staff safety. In other cases, the actual rationale was not clear, raising concerns about firms’ record-keeping.

The FCA also highlighted some specific stakeholder feedback:

• Some firms’ approach to the implementation of financial crime controls can create difficulties for consumers.
• Some customers in vulnerable circumstances are experiencing worse outcomes regarding account access.

In the coming months, the FCA expects firms to be able to show that concerns flagged in the report have already been addressed or will be addressed in a reasonable timeframe.

For more on this development, see our Engage article.

Australia: Attorney General introduces AML/CTF Amendment Bill in Parliament

On 11 September 2024, the Australian Attorney General introduced the Anti-Money Laundering and Counter-Terrorism Financing (AML/CTF) Amendment Bill 2024 into Parliament, with an accompanying further press release.

If passed by Parliament, the Bill would amend the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 and reform the AML/CTF regime to bring Australia in line with international standards set by the Financial Action Task Force (FATF).

The Bill’s introduction comes after extensive consultation conducted over 2023 and 2024.

The Bill’s three key objectives are as follows:

1. to extend the AML/CTF regime to additional services provided by lawyers, accountants, trust and company service providers, real estate professionals, and dealers in previous metals and stones;

2. to modernise the regulation of virtual assets and payments technology; and
3. to simplify and clarify the regime.

European Union: European Commission adopts Delegated Regulation correction on co-operation and exchange of information for passporting under PSD2

On 13 September 2024, the European Commission adopted Delegated Regulation (C(2024)6421) correcting Commission Delegated Regulation (EU) 2017/2055 which supplements the Payment Services Directive ((EU) 2015/2366) (PSD2).

The corrected Regulation contains regulatory technical standards on the co-operation and exchange of information between competent authorities relating to the exercise of the right of establishment and the freedom to provide services of payment institutions under PSD2. The correction is to the ID number type in Denmark for natural persons that are “sole proprietorships”.

United Kingdom: CMA confirms completion of Open Banking implementation roadmap

On 9 September 2024, the Competition and Markets Authority (CMA) published a letter to Open Banking Limited (OBL) confirming that all nine of the relevant banking providers have fully completed the Open Banking Roadmap implementation phase.

Open Banking was established as part of the Retail Banking Market Investigation Order 2017 (the Order) which resulted from the CMA’s Retail Banking Market Investigation. The Order required the UK’s nine largest retail banking providers to open up customer data using secure data protocols.

Each of the nine banking providers have now satisfied all requirements of the Roadmap. They are required to continue to fulfil their obligations under the Order.

Regulatory Developments: Digital Assets  

Italy: Legislative Decree implementing MiCAR published in Official Gazette

On 13 September 2024, the Italian Legislative Decree No. 129 of 5 September was published in the Official Gazette (in Italian only). The Decree implements Regulation (EU) 2023/1114 on markets in cryptoassets (MiCAR).

It outlines the following:

• The Bank of Italy is the competent authority for prudential supervision of electronic money token (EMT) and asset-referenced token (ART) issuers and cryptoasset service providers (CASPs). With respect to CASPs, the Bank of Italy is also the supervisory authority in respect of anti-money laundering/counter-terrorism financing (AML/CTF).
• The Italian financial market authority, CONSOB (Commissione Nazionale per le Società e la Borsa), is  the competent authority for overseeing cryptoassets other than EMTs and ARTs and for transparency, fair conduct, orderly trading and protection of customers in relation to ARTs and cryptoasset services. It also has supervisory powers in relation to the prevention and prohibition of market abuse involving cryptoassets.
• A transitional regime from the current domestic virtual asset service provider

(VASP) regime to MiCAR.

VASPs currently operating in Italy and enrolled in the Organismo per la gestione degli Elenchi degli Agenti in attività finanziaria e dei Mediatori creditizi (OAM) register should take into account the transitional regime provided by the MiCAR Italian Decree and take the necessary steps to apply for a CASP licence (either in Italy or in another EU member state) by 30 June 2025.

Take a look at our Engage article for more on this development.

United Kingdom: Property (Digital Assets etc) Bill published

On 12 September 2024, the Property (Digital Assets etc) Bill was published along with accompanying Explanatory Notes and further information. The Bill will establish in statute the common law position that certain digital assets can constitute property. The Bill makes provision about the types of things capable of being objects of personal property rights, including a thing that is digital or electronic, despite being neither a thing in possession nor a thing in action.

Publication of the Bill followed from the government issuing a written statement in response to the outcome of the Law Commission’s 2024 consultation on the proposed Bill and 2023 report on digital assets. The statement noted that the Bill aims to provide certainty over legal issues surrounding digital assets and encourage the use of English and Welsh law in internationally mobile transactions.

The Bill will be applicable to England and Wales and will come into force two months after it has been passed.

The first reading of the Bill took place on 11 September 2024, with the second reading yet to be scheduled.

Hong Kong: Project Ensemble Sandbox launch

On 28 August 2024, the Hong Kong Monetary Authority (HKMA) launched the much anticipated Project Ensemble Sandbox and introduced themes of asset tokenisation use cases for the initial round of experimentation.

The Sandbox is designed to enable interbank settlement using experimental tokenised money, focusing on transactions involving tokenised assets.

The initial round will involve both traditional financial assets and real-world assets, covering four main themes: fixed income and investment funds, liquidity management, green and sustainable finance, and trade and supply chain finance. The HKMA will continue to engage with the industry to gauge interest in tokenisation, develop new themes and identify further use cases for tokenisation.

Qatar: Qatar Financial Centre introduces new digital assets framework

On 1 September 2024, the Qatar Financial Centre announced that the Qatar Financial Centre Authority (QFCA) and the Qatar Financial Centre Regulatory Authority (QFCRA) had launched the QFC Digital Assets Framework, a new comprehensive regime for the creation and regulation of digital assets in the Qatar Financial Centre.

The framework includes:

• regulation on the process of tokenisation;
• legal recognition of property rights in tokens, and their underlying assets, custody arrangements, transfer and exchange; and
• legal recognition of smart contracts, making self-executing contracts enforceable under law.

The framework is a result of a process of extensive consultation with industry stakeholders, coordinated through an advisory group of 37 domestic and international organisations from the financial, technology, and legal sectors.

All providers from or operating token service business in the QFC must apply for a QFCA licence to operate. Following the launch, companies are now able to apply for a licence to perform token service provider activities.

Global: BIS warns banks face new risks from permissionless blockchains

On 28 August 2024, the Basel Committee on Banking Supervision (BCBS) issued a working paper, published on the Bank for International Settlements (BIS) website, addressing risks banks face by transacting on permissionless blockchains or similar distributed ledger technologies (DLTs).

The paper, entitled “Novel risks, mitigants and uncertainties with permissionless distributed ledger technologies,” attempts to explore risks stemming from the new technology such as security, governance, technology and compliance risks.

To address the risks identified, the paper highlights several mitigants:

• Business Continuity Planning to address governance risks, technology/attack risks, and policy/legal uncertainty.
• Technology-based control over parties and transactions to address legal/compliance risks.
• Permissioning a subset of node infrastructure to address legal/compliance risks, technology/attack risks, and consumer protection risks.
• Technology to address privacy/confidentiality/consumer protection.
• Technology to address liquidity risk.

The paper notes that current practices for mitigating risks are at various stages of development and have not yet been tested under stress.

Brazil: Brazil Central Bank CBDC pilot

On 4 September 2024, Brazil’s central bank - Banco Central do Brasil - published a press release (only available in Portuguese) on the second phase of its central bank digital currency (CBDC) pilot programme. Thirteen use cases have been selected after 42 proposals were presented.

The first phase involved testing privacy and programmability functionalities of the platform through a single use case. The second phase will involve testing the infrastructure developed for the pilot by implementing financial services through smart contracts created and managed by third party participants on the platform.

In a press report, it was reported that participants include Visa and Santander.

The BCB has indicated that in Q3 of 2024, it will issue a new call for participation in the pilot.     

Market Developments

Global: Volt launches stablecoin settlement solution, VX2

On 10 September 2024, UK based real-time payments platform Volt announced the launch of its stablecoin settlement solution, VX2, which is designed to seamlessly integrate with Volt’s existing real-time payment infrastructure. It will expand Volt’s interoperability between fiat and stablecoin transactions.

Europe: Liberis expands SME financing to 10 European countries with myPOS partnership

On 10 September 2024, the global embedded finance platform Liberis announced its partnership with fintech myPOS to enable it to provide revenue-based financing to small businesses (SMEs) in 10 European countries, starting with the UK.

A recent European Investment Fund (EIF) working paper reports SMEs disproportionately rely on bank-based debt instruments, but one in four report difficulty accessing finance. This partnership enables myPOS to create a more comprehensive one-stop shop for SMEs by including revenue-based financing, facilitated by Liberis’ technology, to help them grow their business.

UAE: Standard Chartered launch digital asset custody service

On 10 September 2024, Standard Chartered announced its digital asset custody service in the UAE. The launch comes after grant of a licence by the Dubai Financial Services Authority (DFSA) to operate within the global financial centre, the Dubai International Financial Centre (DIFS). The service enables clients to safekeep their digital assets. It initially supports Bitcoin and Ethereum, the two largest cryptocurrencies by market capitalisation.

Japan: Banks pilot cross-border stablecoin payments

On 10 September 2024, it was reported that Japanese banks MUFG, SMBC and Mizuho are participating in a pilot using the Swift network and stablecoins for cross-border payments. The cross-border transfer market was worth $182 trillion in 2022, however the G20 identified four critical areas – cost, speed, access, and transparency – that need improvement. The banks are seeing whether stablecoin can address these issues. The pilot, Project Pax, will begin shortly. There are plans to expand collaboration to more countries and financial institutions before a potential commercial launch next year.

Middle East: TeleMoney partners with Thunes

On 11 September 2024, the international payments network Thunes announced that TeleMoney, the international remittance arm of Arab National Bank, would be joining it in a strategic alliance. TeleMoney becomes a member of Thunes’ cross-border payment infrastructure, Thunes Direct Global Network, which connects over 7 billion mobile wallets and bank accounts worldwide. This will allow TeleMoney to directly send funds to digital wallets and facilitate seamless bank transfers across key markets in Asia and Africa.

Singapore: Stablecoin payments approach record $1 billion

On 11 September 2024, it was reported that Singapore recorded a record-breaking figure of almost $1 billion in stablecoin payments in Q2 2024. Stablecoin payments were predominantly at merchant locations. Reportedly, the speed, low cost, and absence of currency fluctuation influence businesses’ decision to use stablecoins in payments.

Nevertheless, stablecoin payments were dwarfed by other payment methods in the same quarter, with retail cards accounting for $56.2 billion in Singapore.

Uganda: Flutterwave receives PSO licence

On 29 August 2024, it was announced that paytech Flutterwave had been granted a Payments System Operator (PSO) licence by the Bank of Uganda. This will enable Flutterwave to expand across Africa, adding Uganda to the list of countries where it operates. Uganda’s digital payment landscape is transforming, driven by  a youthful population, with over 78% of citizens under the age of 35. Given this demographic, Flutterwave sees unprecedented opportunity for economic growth in the country via digital innovation and enhanced financial inclusion.

New Zealand: Revolut launches digital commodities trading

On 11 September 2024, it was reported that Revolut had launched its digital commodities trading service in New Zealand. This marks a key step in expanding offerings in the country. The new platform facilitates investment in various commodities, including precious metals such as gold, silver, and platinum. This provides New Zealanders with an additional investment option to diversify their portfolios.

Bulgaria: LetKnow Pay to relaunch Bulgarian Blockchain Association

On 2 September 2024, it was reported that LetKnow Pay, a leading EU-licensed and regulated crypto payment services provider, had announced plans to relaunch the Bulgarian Blockchain Association. The relaunch comes amidst growing scepticism surrounding cryptocurrency and blockchain. The aim is to support the development of the blockchain industry in the country and rebuild trust in blockchain technology and legitimate cryptocurrency platforms.

Kazakhstan: Binance Kazakhstan becomes first digital asset platform to receive full regulatory licence

On 6 September 2024, it was reported that Binance Kazakhstan, a branch of the global Binance blockchain ecosystem, had received approval from the Astana Financial Services Authority (AFSA) for a full regulatory licence. According to the report, this makes it the first fully regulated Digital Asset Trading Facility in the country. The licence permits Binance Kazakhstan to operate a virtual assets trading platform, deal in investments as principal, and provide custody services for virtual assets.

Brazil: Mercado Pago launches stablecoin

On 22 August 2024, it was reported that Mercado Pago, the fintech arm of Mercado Libre (a major e-commerce market player), had launched stablecoin priced in USD at a one-to-one value. The stablecoin, called Meli Dolar, can be traded by all Mercado Pago clients in Brazil through the fintech’s app. The South American economy is one of the largest markets for Mercado Libre.

Turkey: Crypto market experiences increase in licence applications

On 20 August 2024, it was reported that 76 cryptocurrency companies had applied for licences under new regulatory frameworks. This is a rise from the 47 applications reported by the Turkish Capital Markets Board (the Board) on 9 August 2024. New applicants include Coinbase, KuCoin and Gate.io. Each company must still obtain formal approval from the Board, which is contingent on the enactment of secondary legislation. The country awaits anticipated overarching crypto legislation, but a draft has not yet been introduced to parliament.

Global: Swift to develop plans for CBDC and tokenised asset exchange

On 11 September 2024, it was reported that Swift, a global banking co-operative, is advancing with plans to offer member banks access to emerging digital asset classes and currencies over its network. It plans to cover a range of use cases in payments, securities, FX, trade and more. Over the last couple of years, Swift has held trials for interoperability with CBDCs, private blockchain networks and tokenised assets and says it is now ready to move towards real-world solutions.

Switzerland: Instant payment system launched across Swiss banking industry

On 21 August 2024, it was reported that Swiss banks had turned on instant payments. This means that consumers in the country can now send and receive payments in seconds. Around 60 financial institutions are now able to receive and process instant payments, covering more than 95% of Swiss retail payment transactions. By the end of 2026, all financial institutions active in retail payment transactions will be able to participate in instant payments.

Global: Tokenised real-world assets (excluding stablecoins) hit record high of $12 billion

On 13 September 2024, it was reported that the market value of tokenised real world assets (RWAs), excluding stablecoin, continues to rise. Currently RWAs are worth more than a record $12 billion. This excludes the $175 billion stablecoin market.

Tokenised RWAs include real estate, government bonds, stocks and intangible assets like carbon credits. They make traditionally illiquid markets easier to trade.

Surveys and Reports

United States: ACI Worldwide publishes report on consumer billing and payment trends

On 28 August 2024, ACI Worldwide, an innovator in global payments technology, announced the result of its 2024 Speedway Pulse Report focused on consumer billing and payment trends.

Findings highlight a significant rise in digital payment preferences, with over 75% of Americans preferring digital bill payments.

However, the report found that the trend also brings risk, with 18.7% of consumers experiencing online identity theft.

The report also found a loss in trust in data security. Fewer consumers believe their data is more secure than it was five years ago. Concerns about password security were raised, with evidence that biller outreach to prompt customers to change their passwords in the interests of increased security is needed. Additionally, less than one in three consumers believed companies properly educate them on data security.

Global: Atlantic Council reports CBDC projects underway in 134 countries

In September 2024 the Atlantic Council, an American think tank focusing on international affairs, updated its research tracking Central Bank Digital Currency (CBDC) across the globe.

Key findings include:

• 134 countries, representing 98% of global GDP, are exploring a CBDC.
• 66 countries are in an advanced phase of exploration – development, pilot or launch.
• There are 44 ongoing CBDC pilots including the digital euro.
• Three countries have fully launched a CBDC – the Bahamas, Jamaica, and Nigeria.

Authored by Charles Elliott, Virginia Montgomery and Erin Davies.

^{Hogan Lovells (Luxembourg) LLP is registered with the Luxembourg bar.}