Payment Services Regulations: Implications for third-party payments

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The CIPP’s Terri Bethel considers the repercussions the European Directive on payment services may have for payroll bureaux and accountants making payments on behalf of clients.

Introduction

The Payment Services Regulations (2017) came into effect on 13 January 2018 and, while much has been said about the banning of credit card fees on transactions, there seems to be less awareness of the possible implications for payroll bureaux and agents making payments on behalf of clients.

The regulations require organisations that provide payment services to register with the Financial Conduct Authority (FCA), with various exceptions. Payments by unauthorised organisations are now illegal. What might this mean for bureaux and agents that make payroll payments to HMRC, pension payments to providers and so on, on behalf of their clients?

Background

The European Directive on payment services in the internal market (2007/64/EC), known as PSD1, intended to establish a Europe-wide legal framework for payment services by setting out the rights and obligations of payment service users and providers and the corresponding information requirements. It defined ‘payment institutions’ as payment service providers unconnected to the taking of deposits or the issuing of electronic money by laying down authorisation requirements. It was implemented in the UK through the Payment Services Regulations (2009).

A second Directive was approved in 2015 (2015/2366/EU), known as PSD2, that updated and replaced the original one. PSD2 takes account of modern payment methods, such as online and mobile payments, and increases consumers’ protection against fraud and other abuses. It introduces the concept of “account information service providers” that provide online services of consolidated account information; such providers need to be registered with the FCA. The Directive has been implemented in the UK by the Payment Services Regulations (2017).

What is a payment service provider?

Whether payroll bureaux, agents and others providing payment services on behalf of clients fall within the scope of the regulations will depend on both the definition of a payments service provider (PSP) and the definition of payment services (see below).

A PSP is an organisation or individual who carries out payment services. There are various categories: Authorised Payment Institutions, Small Payment Institutions (SPIs), credit institutions, and so on. PSPs may be required to be authorised by the FCA before they can provide payment services.

As in the original regulations, SPIs can avoid some of the requirements of authorisation with the FCA by registering instead. There are various criteria for classification as an SPI, including monthly total transactions worth below €3m, not operating in other EU member states (‘passporting’) and being able to prove that people managing the business have not been convicted of any financial crimes.

What payment services are affected?

Payment services are any of the specified activities “when carried out as a regular occupation or business activity”, with certain exceptions.

The specified activities include (but are not limited to):

  • services enabling cash to be placed on or withdrawn from a payment account (and operating a payment account)
  • executing payment transactions (using direct debits, devices such as payment cards and mobile phones, and credit transfers such as standing orders) including funds transfers on a payment account with the user’s PSP or with another PSP, or where funds are covered by a credit line
  • money remittances, which are defined as services for the transmission of money or monetary value without the creation of payment accounts.

There are many exceptions including, for example:

  • transactions in cash with no intermediary
  • transactions based on paper documents such as cheques, bankers’ drafts, paper vouchers and paper postal orders
  • services provided by technical service providers who facilitate the provision of payment services without possessing the funds at any time.

Implications

Payroll and pension payments, by their very nature, represent a recurring payments requirement and therefore count as a payments service. They differ from a one-off payment that an accountant might make through their client money account, for example, a repayment of overpaid tax for a client.

Agents who collect payments from their clients and then pay HMRC, for example, through the agent’s bank account could be acting illegally if they are not authorised as a PSP or registered as an SPI with the FCA. This may affect the care sector in particular: cases have even been identified where local authorities are providing funds to agents to make payments to an individual who is in receipt of benefits so that their carers can be paid directly.

Businesses that suspect they may be affected by these regulations are advised to review the FCA Handbook and to seek specialist advice. If necessary, they must then register with or seek authorisation from the FCA. Note that failure to do so could lead to criminal sanctions and fines.

If affected payment services make up a small element of the business, such that the cost of registration or authorisation cannot be justified, the bureau or agent will have to adapt the services provided to ensure that they are no longer within the scope of the regulations. For example, where a bureau may have paid remittances to HMRC on behalf of its clients, its service may stop at the final calculation, requiring the clients to make the payment transaction themselves.

Conclusion

HM Treasury and the FCA both say that the revised regulations do not introduce any additional requirements than before. However, there may be many payroll and pensions service providers that are unaware of the need to be registered or authorised by the FCA if they fall within the scope of the regulations.

While the UK remains a member of the EU, the Government is obliged to implement European Directives. The exit negotiations will determine the extent to which arrangements will apply after the UK leaves the European Union. However, given the size of the financial services industry in the UK and its interconnectedness with the EU, it is perhaps unlikely that these regulations will be altered substantially in the future.

About Terri Bethel

cipp

Terri is lead technical material author for the Chartered Institute of Payroll Professionals.

Replies

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24th Jan 2018 10:16

Does this include for example travel agents who collect money from people on behalf of the tour operators or property letting agents who collect rents from tenants on behalf of the landlord?

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24th Jan 2018 10:33

What about funds held in our client's money account being paid to HMRC for example?

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24th Jan 2018 10:44

I pay the annual £13 filing fee to Companies House for our company clients. Is this caught too?

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24th Jan 2018 11:02

I don't have a clients' bank account and any payments made are through the clients' bank accounts - does this fall inside the scope?

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24th Jan 2018 11:39

What about auto-enrolment work place pension payment dealt with by the payroll agent. I run the payroll for clients, upload a pensions file to the pension providers website and press the 'Pay by Direct Debit' button.

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By PALacc
to paulinleeds
25th Jan 2018 12:02

This is exactly what i was wondering. The client has set up a direct debit with the provider and we would upload the contributions due. I have emailed the FCA to see if they can shed any light on it.

If it does come under the scope, then we will have to advise clients of the liabilites and the need to upload themselves on to the pension scheme.

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24th Jan 2018 12:08

Will this affect payroll bureaux which make the payments to client's employees and, in some cases HMRC, either through the clients' own bank accounts or their own client accounts?

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By tedbuck
24th Jan 2018 13:06

Absolute gibberish - you can tell it comes from the EU.

What is a payment account?

HM Treasury and the FCA have their heads in an inappropriate place if they think this doesn't introduce new requirements. It does and again it slows down the flow of commerce by putting another heap of tick boxes for people to deal with. When HMRC make it difficult for people to pay by cheque especially CT payments it just adds more time wasting to the process.

We should all give up work as it is not worth the hassle of compliance and we can then live off the state presumably financed by Corbyn's money tree. Great idea!

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24th Jan 2018 13:51

Some timely and important questions there - many thanks everyone. I'm going to gather them up and see if the CIPP are willing to answer some (or hopefully all) of them in a follow-up piece.

*edit: apologies for getting people's hopes up - I got a little over-excited and jumped the gun with the above post.

As set out by the author, the article is intended as guidance, and the CIPP can't comment on individual circumstances. Professional advice should be sought depending on the facts of each case.

Thanks all,

Tom

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By PALacc
25th Jan 2018 12:11

Does this for example include VAT submissions.
We submit VAT returns to HMRC on behalf of a few clients. These clients are registered with HMRC to pay by Direct Debit so upon submitting through our agent account would we effectively be authorising the payment from our clients bank account which would fall under the scope of the regulations?

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29th Jan 2018 20:59

On the subject of auto enrolment, you may find it useful to know that The Lighthouse Pensions Trust accepts payments from Non UK bank accounts if you're concerned about the new PSP rules

Mark 07773 150664 [email protected]

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31st Jan 2018 13:45

We pay salaries and paye direct from our clients bank accounts as we have been set up by them with their bank. Is this still ok? We also upload pensions and tick the direct debit box but the client has already set up the direct debit themselves. Can we do this?

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