skip tocontent

ombudsman news

issue 74

December 2008/January 2009

ombudsman focus: the Payment Services Directive and the ombudsman

In issue 72 of ombudsman news (September/October 2008), chief ombudsman, Walter Merricks, mentioned a new European directive, coming into force in 2009 and intended to help protect consumers transferring money cross-border, as well as providing more of a level playing-field in this market.

In this ombudsman focus, we give more information about the Payment Services Directive - and about the proposed role of the Financial Ombudsman Service as part of the Directive's complaints-handling requirements.

what does the Payment Services Directive cover-

The Payment Services Directive requires countries in the European Economic Area (EU members plus Iceland, Norway and Liechtenstein) to regulate payment services - including, for example, payments by plastic cards, direct debits and money transfers.

The Directive will affect all businesses providing payment services in or from the European Economic Area. In the UK that will include:

  • banks and building societies - already regulated by the Financial Services Authority (FSA) and covered by the ombudsman;
  • electronic-money (e-money) issuers - already regulated (or certified) by the FSA and covered by the ombudsman;
  • non-bank credit-card companies - already licensed by the Office of Fair Trading (OFT) and covered by the ombudsman; and
  • money-transfer operators - not currently regulated by the FSA (nor licensed by the OFT) and not covered by the ombudsman.

when and how does the Payment Services Directive come into force in the UK-

The Payment Services Directive will be implemented in the UK through the Payment Services Regulations 2008. These regulations have recently been the subject of a public consultation by HM Treasury. They will come into force on 1 November 2009 - when the requirements of the Directive will take effect in the UK.

what will businesses that provide payment services have to do - to comply with the law from 1 November 2009-

Businesses that provide payment services - and that will be covered by the Payment Services Directive - will have to comply with the Europe-wide rules on their "conduct of business" in relation to how they handle payment-services transactions with their customers. They will also have to comply with rules on how they deal with consumer complaints about payment services. Unresolved disputes can be referred to the ombudsman, if the consumer remains dissatisfied.

The FSA has recently consulted on the changes that are required to its Handbook in order to implement aspects of the Directive.

These changes involve:

  • introducing an approach to enforcing the Payment Services Regulations that mirrors the FSA's general approach to enforcement under the Financial Services and Markets Act;
  • applying the FSA's complaints-handling rules to payment services firms; and
  • extending the jurisdiction of the Financial Ombudsman Service, so that we can carry out the "out-of-court" redress function required by the Directive.

The FSA intends to publish a document in early 2009, outlining its approach to matters such as authorisation and supervision under the Payment Services Directive. In the meantime, information for businesses affected by the Payment Services Directive is available on the FSA's website.

will the ombudsman cover payment-services transactions inside and outside the European Economic Area-

The FSA proposes to extend the ombudsman's remit, so as to cover all transfers carried out by businesses providing payment services in or from the UK. This will include transactions starting or ending outside the European Economic Area and in non-European currencies. This reflects the ombudsman's current remit for the money-transfer complaints it already covers - in relation to banks, building societies and e-money issuers.

will small businesses also have the protection of the ombudsman under the complaints-handling provisions of the Payment Services Directive-

Yes. But in order to align the ombudsman's traditional definition of a "small business" with the definition of "micro-enterprise" used in EU legislation, the FSA plans to alter how we define those businesses that can bring complaints to the ombudsman.

From November 2009, when the Payment Services Directive comes into effect in the UK, businesses with an annual turnover of up to €2 million (approx £1.6 million) will be covered by the ombudsman - as long as they have fewer than ten staff.

This raises the turnover limit from the current threshold of £1 million - but introduces the new, separate, requirement relating to the number of staff.

This new definition of "micro-enterprise" will affect small businesses that bring complaints relating to everything the ombudsman covers - not just payment services complaints.

which other UK official bodies will have responsibilities under the Payment Services Directive-

The government has appointed the FSA as the "competent authority" for most aspects of the Payment Services Directive. This means the FSA will be responsible for authorising, supervising and registering so-called "payment institutions". These are businesses that carry out payment-services transactions such as money transfer - other than banks, building societies and e-money issuers (that are already regulated by the FSA).

In addition to the Financial Ombudsman Service's role in providing the "out-of-court" redress functions under Article 83 of the Payment Services Directive, the OFT will be responsible for requirements relating to access to payment systems. And HM Revenue and Customs will be responsible for the anti money-laundering supervision of businesses providing payment services.

more information

image of ombudsman news

ombudsman news gives general information on the position at the date of publication. It is not a definitive statement of the law, our approach or our procedure.

The illustrative case studies are based broadly on real-life cases, but are not precedents. Individual cases are decided on their own facts.