In this thought piece, Oliver Hanmer reflects on his first six months as Head of Supervision and Compliance Monitoring at the PSR.
I am Oliver Hanmer, Head of Supervision and Compliance Monitoring at the Payment Systems Regulator (PSR). In my first six months here, I’ve had the opportunity to meet many of our key stakeholders to understand more about the challenges for the sector and how our Supervision and Compliance Monitoring division can support greater understanding about the PSR’s work and what our requirements mean.
With significant regulatory experience behind me, you can expect that I have a particular focus on delivering good outcomes for consumers through pragmatic and reasonable regulatory interventions.
So, I wanted to give some initial reflections on regulation of payments. Let me start with, perhaps, the safer territory of compliance monitoring – a common function across most regulators, whatever the sector or the type of regulator you are. Done well, monitoring is an effective means of assessing whether regulatory requirements or initiatives have been implemented and adhered to in the way the regulator intended. Monitoring is therefore both a deterrent to non-compliance and a vehicle to support policy or regulatory evaluation. It is, though, a bit more nuanced than that. Good levels of compliance aren’t necessarily a proxy for a view that a policy is delivering its desired outcomes. Similarly, good policy outcomes can be achieved even if the letter of regulation has not been strictly followed. It is important therefore to have a robust policy evaluation framework that sits alongside compliance monitoring to assess the success of policy development.
Before issuing any formal directions, we will have given careful and considered thought to how they address the issue they seek to remedy. A firm’s first thought should be to adhere to any directions we issue as they have been written. That said, our approach to monitoring is focussed on addressing how firm’s compliance may impact the desired outcome of the relevant regulation. A very prescriptive approach has the potential to create unhelpful or unintended consequences. Accordingly, we will focus most of our attention on firms whose conduct carries the most significant risk to the outcomes we are seeking. That means where we see a firm taking committed steps to sorting out compliance issues, including providing ways to manage the risk to our objectives, we are more minded to take a collaborative approach rather than to make a more stringent intervention.
Take for example our monitoring of directions arising from the Card Acquiring Market Review. Within these directions we set some clear expectations for improving merchant experience when engaging with acquirers. Where we have found evidence of non-compliance, we have engaged proactively with each institution to understand what steps they are taking to move quickly to compliance. We are not prescribing those steps, but we will hold the institution to account against them. But we have also been clear that in doing so we retain the right to use any of our more stringent regulatory powers in the light of non-compliance and we are prepared to bring enforcement action where there is evidence of persistent or serious non-compliance. This tried and tested approach is proving successful. Institutions are engaging positively with us; we’ve been clear in our expectations and those firms which were not compliant six months ago have taken positive action ahead of full compliance.
So, an example of monitoring in action. But, what about supervision? How is that different to monitoring?
Supervision is a common regulatory term, but which is applied differently by different regulators. I spent much of my career before joining the PSR regulating the conduct of barristers, including the introduction of a supervision regime. Getting there required building effective relationships between the regulator and regulated, developing a better understanding of the way in which barristers worked and sharing our priorities and expectations. We took a risk-based approach, by which I mean, we focused our supervision where we had evidence of a need to do so. Importantly, we were able to demonstrate the value of a regulatory relationship outside of policy development – supervision created a more regular means of contact and a place for clarity from the regulator. We aimed to reduce regulatory burden by a more efficient, streamlined means of engagement and information requests.
I see supervision in payments systems similarly. The PSR operates in an already heavily regulated environment. There is therefore no merit in duplicating what other financial services regulators are doing. Equally, the PSR should not be defensive about exercising its regulatory remit – we have a clear mandate to regulate payments systems and the organisations that operate them. We should be explicit in setting out our expectations and in holding regulated firms to account against them. Supervision done well will mean that there are effective, ongoing relationships between the PSR and those we regulate.
My engagement with stakeholders to date has been positive. My sense from these conversations is that there is appetite for a reframing of the relationship between the PSR and those it regulates along the lines I have described above. There is a shared desire for a more streamlined means of engagement which creates opportunities for informal and regular dialogue, which can be used to build a more collaborative relationship which serves the interests of both the regulator and the regulated. More opportunities to share emerging thinking or to discuss problems and find solutions is likely to move the regulatory relationship forward. This openness doesn’t create a threat of regulatory capture. We won’t always agree with views we receive, and we may need to make unpopular decisions. However, it does mean that formal regulatory intervention can be focussed on where it is most needed and where it is the most proportionate approach to deliver the required outcomes. To help with that, we are proposing a more structured approach to financial/regulatory reporting. This will give us evidence upon which to base decisions about where to prioritise our regulatory efforts. It will also provide clarity to firms about the data we want to collect, when and for what purpose it will be used.
The establishment of our Supervision and Compliance Monitoring division is a great opportunity to build on the relationships already in place and make them as effective and efficient as possible. In April, we will put out a call for views on our approach to supervision and will run a similar exercise on the compliance monitoring framework later in 2024. There will be formal and informal opportunities to engage with the detail of these. Do look out for them and provide your views.
In the meantime, if you have any specific questions, you can always reach out to the team at psrsupervisionteam@psr.org.uk.