My Lords, the UK’s payment sector has changed rapidly over the last decade, with an increasing use of card, mobile and electronic wallets to make payments. Firms today range from small remittance firms on the high street to fintech giants with millions of customers.
The growth of the payment sector has offered opportunities to UK businesses and consumers, with many using payment and electronic money institutions not only to make payments but as their transactional banking provider, to access their salaries and savings. Customers are now able to make faster, cheaper and more secure payments. However, as the sector has grown, this has increased the number of customers exposed to risk if these firms fail and enter insolvency.
There is evidence that the existing insolvency regime for payment and electronic money institutions is suboptimal for customers. Recent administration cases involving these types of firm have taken years to resolve, with customers left without access to their money for prolonged periods of time and receiving reduced money as a result of high distribution costs. This legislation therefore proposes to introduce a new special administration regime for payment and electronic money institutions and an extension of provisions under the Financial Services and Markets Act 2000 to these firms. The new regime is modelled on the 2011 special administration regime for investment banks.
HM Treasury conducted a public consultation during December and January and received useful responses from a number of trade bodies, relevant firms and other interested parties. Officials also met with industry groups before and after the consultation and spoke with the Banking Liaison Panel.
These changes will help to make managing insolvency of a firm quicker and clearer, ultimately leading to customers receiving their funds more quickly and giving continuity and confidence to consumers and businesses in the event of a payment and electronic money firm being put into insolvency. The legislation also corrects a minor defect in the recent legislation which transposed and onshored the Bank Recovery and Resolution Directive II.
The special administration regime for payment and electronic money services is a new insolvency process that provides consumer protection objectives and a toolkit for insolvency practitioners to aid them in efficiently managing an insolvent payment or electronic money institution. The key provisions of this regime include: bespoke objectives for an insolvency practitioner to ensure the return of customer funds as soon as reasonably practicable, to engage with the relevant authorities and to either rescue or wind up the institution in the best interests of creditors; continuity of supply provisions that will allow an insolvency practitioner to keep the firm’s key functions operational for customers; provisions to ease the transfer of business processes such that a new firm can take on the incumbent’s business and provide continuity for customers; and bar date provisions to allow the insolvency practitioner to set a deadline for consumers to claim and thus enable an earlier distribution of customer funds.
I note that additional work is required to apply the special administration regime to firms located in Northern Ireland and partnerships or limited liability partnerships located in Scotland. Around 1% of the 1,300 UK payments and electronic money firms are located in Northern Ireland, and there are no firms that are partnerships or LLPs based in Scotland. The Economic Secretary has written to his counterparts in the Northern Ireland Executive and Scottish Government, committing to rectify this as soon as is practicable in future legislation. In the interim period, consumers will still benefit from the changes to the Financial Services and Markets Act and from the protections offered to the 99% of eligible firms, as it does not matter where in the UK the customer is located.
The instrument also provides for Part XXIV of the Financial Services and Markets Act 2000 to be applied to payment and electronic money institution insolvencies. The extension of these provisions will provide the FCA with the same powers to participate and protect consumers in an insolvency process for these sectors as it does for other FCA-supervised firms. This includes the right for the FCA to speak at court hearings regarding the insolvency and a requirement for the administrator to work with the FCA during the insolvency process.
These regulations will provide a modern and effective insolvency process for a world-leading British financial services sub-sector, inspiring confidence from investors and customers alike. I therefore hope that the Committee supports them, and I beg to move.