The 2009 Regulations cover electronic payments and most payments made through banks, including automated credit transfers, debit and credit card payments (including those made through store-branded cards), standing orders, direct debits and money remittance.

Services which enable cash to be placed on or withdrawn from a payment account are caught. A payment account is defined in the 2009 Regulations as an account held in the name of one or more payment service users which is used for the execution of payment transactions. However, there is no guidance as to what this means. It is thought to include accounts where customers can move funds freely in and out (for example, current accounts) but not accounts which carry restrictions on, for example, when withdrawals can be made.

The requirements of the 2009 Regulations depend on the size and status of the payment services provider:

Authorisation. Under the 2009 Regulations, firms providing payment services by way of business in the UK must generally be authorised by the Financial Services Authority (FSA) as a payment institution (PI). PIs will need to meet initial and ongoing prudential requirements and comply with conduct of business rules (see “Prudential and other requirements” and “Conduct of business” below).

The authorisation regime is comparatively onerous and expensive, but for major operators in this industry (for example, banks) it will merely involve an extension of their existing authorisation. It also has the advantage that, once authorised, firms may then be able to passport their activities elsewhere in the EEA.

Registration. Small Payment Institutions (SPIs) qualify for the cheaper and less onerous registration regime. SPIs are firms where the turnover is less than a monthly threshold of €3 million averaged over a year (and where the individuals responsible for the operation of the business have not been convicted of certain financial crimes). They will be eligible for a waiver from the authorisation and some of the prudential requirements, but must still comply with the conduct of business rules.

Agents. Those who operate as agents of authorised PIs or registered SPIs must be registered with the FSA, but do not need to apply for registration themselves. The agent’s principal is responsible for applying for registration on the agent’s behalf, and for ensuring that its agent complies with the conduct of business provisions.

The prudential requirements (which apply to authorised PIs, but not to SPIs) relate to initial and ongoing capital requirements. There are also rules relating to the segregation and safeguarding of customers’ funds and certain accounting, audit, outsourcing and record-keeping requirements, all of which apply to PIs only. (The detail of these requirements is contained in regulations 18 to 22 of the 2009 Regulations.)

The conduct of business rules in the 2009 Regulations apply to both PIs and SPIs (and their agents), and are directed at achieving transparency. To this end, they deal in the main with ensuring that customers receive proper and accurate information so as to have a complete understanding of the transaction.

Parts 5 and 6 of the 2009 Regulations set out various requirements relating both to one-off transactions and so-called framework contracts (that is, contracts which govern the future execution of single or successive transactions). Required information relates to a number of matters, including:

Additionally, the FSA’s new banking conduct regime (set out in its Banking: Conduct of Business Sourcebook) contains detailed rules relating to the information banks must provide to their customers when accepting deposits from them. This takes effect from 1 November 2009, replacing the non-lending aspects of the previous, voluntary, Banking Code and Business Banking Code (see "Banking conduct regime”, Bulletin, Banking, this issue).

Although payment services providers which are established in the UK must be authorised or registered by the FSA irrespective of the origin or destination of any payments they may receive or make, most of the conduct of business provisions only apply to transactions where the payment service providers of both the payer and the payee are located within the EEA and where the payment transactions are in euros (or the currency of an EU member state that has not adopted the euro).

Transitional arrangements allow existing operators a degree of latitude. Certain firms may be able to delay authorisation or registration until after 1 November 2009, provided that they were providing payment services in the UK before 25 December 2007. Applications for authorisation from certain PIs are subject to less onerous information and evidential requirements in the short term only (regulation 121, 2009 Regulations).

Certain PIs may be able to continue their activities without authorisation until 1 May 2011, and certain SPIs may not need to be registered until 25 December 2010 (regulations 122-123, 2009 Regulations). However, firms wishing to take advantage of the general transitional arrangements will still need to apply for authorisation or registration in good time before the relevant transitional arrangements expire, in order to allow the FSA time to process their application.

Vitally, the transitional provisions only apply to authorisation and registration. The conduct of business provisions come into effect for all payment service providers on 1 November 2009, even for firms taking advantage of the transitional provisions.

Equally, firms must be aware that if they take advantage of the transitional provisions, they cannot also apply for a passport to conduct cross-border activities. Any firms wishing to offer their services throughout the EEA on the basis of their passport will need to have obtained authorisation (and followed the appropriate notification procedures to their home state) before doing so.