Independent report

Terms of Reference: Independent Review of the Payment and Electronic Money Institution Insolvency Regulations 2021

Published 12 December 2024

Terms of Reference

1. The review must consider (a) how far the regulations are achieving their objectives (specified in regulation 12 of the Payment and Electronic Money Institution Insolvency Regulations 2021) (b) how far the regulations are achieving the objectives specified in section 233(3) of the Banking Act 2009 and (c) whether the regulations should continue to have effect.
2. The review must consider what, if any, changes to law, practice, practical or non-legislative measures, would better deliver the objectives of the PESAR. In particular, it should consider whether any changes could improve the effectiveness of the PESAR’s statutory objective on return of customer funds.
3. The review must engage with stakeholders, including but not limited to, HM Treasury, the FCA, the Bank of England, the Insolvency Service, insolvency practitioners, the FSCS, the court service, the Financial Ombudsman Service, and payment and electronic-money firms. There is no expectation that the review will undertake a formal public consultation.
4. The review must assess the impact that the PESAR has had on individual customers, payment and e-money firms, insolvency practitioners, and other stakeholders, in administration cases where it has been used. These impacts must be benchmarked against the difficulties experienced during administration cases of payment and e-money prior to the introduction of the PESAR.

5. The review must consider the extent to which the PESAR would effectively manage the failure of a large payment firm which falls in the scope of the PESAR regime, noting that the PESAR has so far been used for the administration of small to medium-sized payment and electronic-money institutions. In particular, it should consider:

   • The extent to which the requirement under the PESAR for the administrator to prioritise the return of customer funds objective over continuity of service is appropriate for larger payment firms. Consideration should also be given on whether prioritising return of funds over continuity of service is appropriate for smaller firms.

   • How effectively the PESAR could deliver continuity of service for a large payment firm. This should include considering how the firm’s participation in a payment system may be impacted by entry into the PESAR.

6. The review must consider whether the co-operation between different government authorities, principally HM Treasury, the Bank of England, the FCA and the Insolvency Service, and the co-operation between government authorities and the insolvency practitioner, work effectively and if anything further can be done to improve collaboration.
7. The review must assess the effectiveness of the co-operation between UK authorities and authorities from other jurisdictions, where relevant to the use of the PESAR, and suggest any ways in which this could be improved.
8. Following HM Treasury’s Payment Services Regulations Review and Call for Evidence which called upon the FCA to consult on safeguarding reforms, the FCA has published changes to the safeguarding regime for payments and e-money firms. Where appropriate, this review should take into account the FCA’s proposals, in so far as they are relevant to the PESAR.
9. The reviewer should have regard to wider developments in the payment and electronic money sectors which may affect the operation of the PESAR, such as developments in the cryptoassets sector. However, the reviewer should note and maintain a distinction between the PESAR review and any ongoing policy development work associated with the financial services regulation of cryptoassets.
10. Given that the design of the PESAR was influenced by the Investment Bank Special Administration Regulations 2011 (IBSAR), the review may highlight any findings that are directly relevant to the IBSAR. However, this will not be a review of the IBSAR, which applies to a different population of firms to the PESAR.
11. Any suggested changes to improve the PESAR should clearly reference what the SAR is designed to achieve.
12. This is an independent review however secretarial and administrative support will be provided by HM Treasury. If you wish to submit evidence or to otherwise contact the Chair please use the following mailbox: psar.review@hmtreasury.gov.uk. Submissions of evidence will be accepted until 30th May 2025.