Included in this issue of InContact: Payment Systems and Services and Electronic Money Regulations 2017 published; House of Commons Public Accounts Committee reports on growing threat of online fraud; Bitcoin surges above $14,000 to new high and more...

UK

Payment Systems and Services and Electronic Money (Miscellaneous Amendments) Regulations 2017 published

The Payment Systems and Services and Electronic Money (Miscellaneous Amendments) Regulations 2017 (SI 2017/1173) were published on legislation.gov.uk.

The Regulations make a number of amendments to other statutory instruments relating to payment services and systems and electronic money:

• Part 2 amends the Financial Markets and Insolvency (Settlement Finality) Regulations 1999 to extend protection from insolvency proceedings for transfers in systems that have been designated under those Regulations until those transfers have been settled, so that the protection applies to transfers originating from non-bank payment institutions.
• Part 3 amends the Payment Services Regulations 2017 (PSRs), the Electronic Money Regulations 2011 (SI 2011/99) (EMRs) and other related instruments. The amendments enable funds safeguarded for customers of payment service providers (PSPs) and electronic money issuers to be held in a single bank account, make provision for agents of registered account information service providers, make provision for electronic money issuing services in Gibraltar by UK firms and vice versa, and enable the FCA to continue to consider spent convictions when making decisions relating to PSPs.
• Part 4 amends the Banking Act 2009 (Inter-Bank Payment Systems) (Disclosure and Publication of Specified Information) Regulations 2010 as a consequence of amendments to the Banking Act 2009 made by the Digital Economy Act 2017.

The Regulations were made on 29 November 2017. Part 4 comes into force on 22 December 2017. Part 2 and Part 3 come into force on 13 January 2018 (except for certain regulations in Part 3, which come into force on 22 December 2017).

Legislation.gov, 30 November 2017

House of Commons Public Accounts Committee reports on growing threat of online fraud

The House of Commons Public Accounts Committee has published its sixth report of the 2016-17 parliamentary session, on the growing threat of online fraud. The committee finds that banks do not accept enough responsibility for preventing and reducing online fraud. The protection they provide is variable and some are keener to invest in educating customers and anti-fraud technology than others. It considers that shifting more responsibility onto banks for scams is likely to make them better at protecting customers. There is scope for more transparency over individual banks’ performance. There is also scope for banks to provide more help to vulnerable people, such as putting restrictions on their bank accounts. The committee stated that unless all banks start working together, including making better use of technology, there will be little progress on tackling card fraud and returning money to customers. Card not present fraud, where criminals use stolen card details, has been rising dramatically in recent years. Between 40% and 70% of victims never get their money back, and banks have different policies to determine whether they will refund money.

House of Commons Public Accounts Committee, 6 December 2017

FCA speech on firms' use of artificial intelligence in AML practices

The FCA has published a speech by Rob Gruppetta, head of the FCA's financial crime department, on using artificial intelligence (AI) to keep criminal funds out of the financial system. Points of interest in Mr Gruppetta's speech include:

• Data analytics and machine learning are widely seen by firms as the approaches with the greatest potential to improve current anti-money laundering (AML) practices, particularly in the field of transaction monitoring.
• The FCA does expect to see new AI technology implemented through testing, governance and proper management.
• Firms often ask the FCA whether older, more traditional transaction monitoring systems can be decommissioned if they prove to be less effective. In the FCA's view, it would clearly be wasteful for parallel systems to be running beyond the time necessary to form a robust judgement about their relative usefulness.
• A firm trialling a new approach to overseeing its transactions, and comparing it to an older system, might wish to consider the cost of achieving each actionable piece of intelligence.
• The FCA sees machine learning as complementing, not replacing, human judgement.
• While there are big potential benefits from the use of machine learning to tackle money laundering, it will be a constant work in progress and there are limitations. Two non-technological challenges facing the use of machine learning in AML are that data quality can be patchy and that an individual institution will only see a limited part of the picture. In this regard, the Criminal Finances Act 2017 has created a clearer legal framework around information sharing between banks. This could do as much as anything else to improve the quality of the intelligence that banks are able to provide to the authorities.

FCA, 6 December 2017

Bitcoin surges above $14,000 to new high

Bitcoin crossed $14,000 (£10,460; €11,870) on 6 December, surging $2,000 in less than 24 hours. The cryptocurrency began the year below $1,000 but continues its sharp rise despite warnings of a dangerous bubble. Bitcoin hit the latest milestone during early trading in Asia, according to the website Coindesk.com. The FCA warned investors in September they could lose all their money if they buy digital currencies issued by firms, known as "initial coin offerings". But last week a US regulator agreed to let two traditional exchanges, CME Group and CBOE Global Markets, begin trading in Bitcoin-related financial contracts. The announcement from the Commodity Futures Trading Commission (CFTC) that it will allow investors to buy and sell "future" contracts in bitcoins - an agreement to buy the crypto-currency, for example, in three months' time at a certain price - was seen as a watershed moment for Bitcoin.

BBC News, 7 December 2017

FCA provides update on regulatory sandbox and announces fourth cohort application period

The FCA has published an update on the next phase of its regulatory sandbox, which includes details of those firms that were successful in their applications to test in the third cohort of the sandbox and the opening of the application period for the fourth cohort. The FCA also announces that the application window for its fourth sandbox phase is now open and firms have until 31 January 2018 to submit their applications in accordance with the eligibility criteria and process set out in the regulatory sandbox pages of the FCA website. It has published a new webpage on cohort 4 that includes a link to the relevant application form. The FCA expects that all accepted firms from cohort 4 will be ready to begin testing from June 2018.

FCA, 5 December 2017