The Financial Stability Board (FSB) wants banks and payment service providers (PSPs) involved in cross-border payments to enhance the consistency of their regulatory and supervisory practices. In a report released in July, the FSB outlined six key recommendations along with steps for implementation. Here’s a summary from MBK Search:
Conduct Comprehensive Risk Assessments
The FSB urges regulatory, supervisory, and oversight bodies (collectively called “competent authorities”) to identify, understand, and assess risks linked to cross-border payment services. These assessments should cover PSPs’ business models, operational resilience, service types, target markets, and dependencies on third parties. The evaluations should consider the entire payment process, the risks of payment instruments, activities, channels, technologies, and the role of intermediaries. Regular reviews and updates are recommended to keep pace with market changes.
Review Frameworks and Make Risk-Proportionate Adjustments
Authorities should examine existing regulatory and supervisory regimes to ensure they adequately address key risks, especially operational risks like fraud, cyber threats, and third-party vulnerabilities, as well as money laundering and terrorist financing risks. This might involve updating laws, regulations, and oversight models to achieve consistent, risk-based frameworks.
Design Regimes to Promote Consumer Protection and Address Harms
Consumer protection should be a priority. Regulatory frameworks for cross-border payments should include robust consumer protection measures, ensuring service delivery and pricing transparency, and efficient error and dispute resolution processes. Consumer protection standards should be consistent across the PSP sector, guided by principles from the G20/OECD on Financial Consumer Protection.
Develop and Communicate Clear Payments-Related Expectations
Competent authorities need to establish, publish, and communicate clear supervisory and oversight expectations for payment services, promoting safety and efficiency. These guidelines should take a risk-based approach and might differentiate between domestic and cross-border payments. Authorities are encouraged to consult with PSPs and stakeholders on best practices and provide support such as seminars and workshops to help PSPs comply with new regulations.
Incorporate Risk-Proportionate Criteria into Licensing/Registration
Licensing or registration criteria for PSPs should include risk-based requirements to enhance consumer protection and address new services like digital wallets and account information services. The process should involve fit and proper tests, AML/CFT compliance reviews, and supervision of agents and intermediaries. The goal is to balance regulatory demands with the benefits of innovation and expanded access.
Implement or Expand Information-Sharing Arrangements
Authorities at both local and international levels should collaborate to share information that helps assess risks, identify problems, and take appropriate actions. Establishing information-sharing systems is crucial for PSPs operating across borders, keeping legal constraints in mind. Within each country, authorities should form interagency task forces for risk assessment, industry engagement, and coordination. Internationally, cooperative groups or colleges should be set up to develop a shared understanding of risks, set common goals, and facilitate communication.
The FSB is seeking public feedback on these recommendations by September 9, 2024.
