IBS Journal January 2018


33


which run to a longer timescale.” Transactions that would currently be seen as intra-European Economic Area (EEA) payments in a currency of an EEA Member State may, post-Brexit, be treated as ‘one-leg out’ (OLO) payments (by the EU party). This means only some of the legal protections in PSD2 would apply, or could fall entirely outside the scope of the legislation. Exchanges of information cross-border may also need to be investigated, writes Payments UK, but should be considered “in the context of any withdrawal agreement”.


In a speech to the Westminster Forum on PSD2 earlier this year, European Banking Authority (EBA) chair Andrea Erina said that “the UK, its national authorities and financial institutions remain legally bound by the provisions of the directive, from its application date of 13 January 2018 until the exit from the EU; this remains true for PSD2 itself and for the technical standards and guidelines the EBA is developing in support of the directive.”


She added that the UK is home to “over a third of the payment and electronic money institutions in the EU”, and that many of these businesses “will probably wish to continue carrying out business with the EU in some form” once the UK has withdrawn. According to Erina, the sheer amount of work put into the development of PSD2 by UK- based regulatory bodies, including the FCA, would mean there would be little reason to “drastically change” policy approaches when the UK exits the European Union.


Strategies for survival


Open infrastructures will drive digital business for years, and will continually blur the boundaries between sectors and industries. Banking has already experienced the effects of a rapidly digitising customer base and the kinds of disruption that can cause. The leading banks will take the new regulation as an opportunity, rather than a threat, and address customer needs


by developing free-form, modular internal systems that can handle the implementation of APIs. Vendors should also take the opportunity to position themselves as operators of platforms, rather than services. Finastra, for example, utilises its FusionFabric architecture to connect its applications [see pages 14-15], and is preparing to offer its capabilities to banks needed to knit disparate platforms together and pepper them with APIs.


“It comes down to a key question around the core system and other key infrastructure: patch up or replace? Replacing one’s core system is a monumental task and gives rise to considerable risk, including around service levels and regulatory compliance,” says Blampied. “In some cases though, this is the only viable long-term option to be able to exchange large amounts of data in real-time and apply AI and analytics to properly harness it.”


“Many businesses have been compliant pre-release, but the reality might be post-PSD2 sees them lacking,” adds Lawlor. What will be interesting, he states, will be how the regulators react to those businesses needing to make the step up and the stance they take on those businesses that appear “sluggish’.


“Increased competition could well pave the path for more nimble, faster moving fintech innovation to come to market – those earlier stage companies that can adapt to changing conditions more easily than larger organisations with legacy systems.”


The question facing banks is: do you want to be a leader or a follower? This is a year that will see institutions competing to capture and maintain the attention of an increasingly wayward customer base. It’s an “adapt to survive” ultimatum the like of which this industry has never faced before, and we all know what happens to animals which fail to evolve in time.


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