Payment and Electronic Money Institution Insolvency Regulations 2021

Lord Davies of Brixton Excerpts

Thursday 10th June 2021 Grand Committee

[Lord Davies of Brixton (Lab) [V]]

My Lords, many thanks to the Minister for her introduction and the opportunity to consider the regulations. I welcome the opportunity to say something about a continuing subject of interest: the significant shift to electronic money that has led to these regulations. As outlined by the Minister, the background to these regulations is the rapid change over recent years with people increasingly using cards, mobiles and electronic wallets to make payments. This shift is now unstoppable and, in general terms, is to be welcomed. The ease of using online technology is a good thing so long as no one gets left behind—but perhaps that is a subject for another day.

We have the Chancellor’s ambition for a digital economy and, only three days ago, the Bank of England published an important discussion paper, New Forms of Digital Money. The paper notes:

“Over the past decade, there has been rapid innovation in how people make payments … The use of physical cash in payments continues to decline, and demand for convenience, especially with regard to e-commerce, has fuelled public appetite for digital payments. Fintech firms, and in some cases big technology firms, are developing alternatives to traditional forms of money.”


The Bank’s paper also notes, crucially in this context, that

“Presently, payments typically rely on the use of either cash or deposits held in commercial banks —referred to as ‘commercial bank money’. If new forms of digital money are to become widely used as a trusted form of retail payments, it is essential that the public can have the same confidence in them as they have in existing forms of money”.


I take it that the Government’s intention in introducing these changes is to help to protect customers in the event of a payment or electronic money institution being put into insolvency, and I welcome that. This in turn will strengthen confidence in the payment and e-money sectors, by improving customer and market outcomes.

I understand that these draft regulations, if made, will create a new special administrative regime for payment and electronic money institutions. The Explanatory Memorandum states that this new regime

“will give insolvency practitioners administering … insolvencies”

at these institutions

“an expanded toolkit. This will allow the insolvency practitioner to keep an insolvent institution operational with the aim of ensuring continuity for consumers and prioritising the return of their funds.”

The Explanatory Memorandum then says that the draft regulations

“will also extend the full suite of Financial Services and Markets Act 2000 … Part 24 provisions to all payment and electronic money institutions entering the standard insolvency process. This will provide”

the FCA

“with specific powers to participate and protect consumers in the event of an insolvency of a payment or electronic money institution as it does for other FCA supervised firms.”

The implication is that these powers will go well beyond what is in these regulations, so perhaps the Minister could say something about what putting these regulations into a wider context might involve. What is it envisaged that the FCA will undertake that goes beyond these regulations?

I fully support the objectives of the regulations. The return of funds as soon as is reasonably practicable, the timely engagement of system operators and the emphasis on the best interests of the creditors are all obviously right. I admit that, to a considerable extent, I have to take it on trust that the 75 pages we have before us will achieve these objectives. However, it is also clear that they depend in practice on what is meant by “reasonable”, “timely” and “best interests”. Initially, I assumed that these terms will be interpreted by the administrator and are not unique to these circumstances. Can the Minister tell us anything about what discussion of guidance there might be about what these terms mean in the specific circumstances of these institutions? Is this something that will be left to the courts in the end?

Having these objectives set out in the Explanatory Memorandum and the regulations leads to another question: are there any circumstances involving an insolvency where these three objectives do not apply? I do not claim to be an expert in this area. Are there insolvencies where it is not intended that they should be resolved as soon as is reasonably practicable? Are there insolvencies where timely engagement is not appropriate?

More specifically, can the Minister tell us a bit more about the way in which Regulation 12(10) will be used? This relates to small institutions and the wording involves a double negative, which leaves me at a bit of a loss. Do we have information on what specific provisions will be applied to small institutions?

Finally—this is proof that I am paying attention—I can point out what I assume is a typo in the Explanatory Memorandum. Paragraph 3.1 refers to “s34”, which I take to mean the correct Section 234. Even without the typo, I must admit that I struggled with this paragraph. It certainly gives the impression that the Treasury is grasping at straws here, with what appears to be some recursive reasoning. This suggests that, at some stage, despite the statement that these regulations do not need to be consolidated, it would be a good idea to start again—particularly given the growing importance of this area of regulation.