HM Treasury has published a report on the Payment and Electronic Money Special Administration Regime introduced under the Payment and Electronic Money Institution Insolvency Regulations 2021. The report, by Adam Plainer, was commissioned to look at whether the PESAR is achieving its statutory objectives. The report concludes that the regime is a significant step forward in addressing the challenges of insolvency in the sector, but its procedural complexity, high costs and reliance on court processes mean it has in fact led to delays and diminished outcomes for customers – particularly those who are vulnerable or hold low value accounts.
The report highlights 5 key areas of concern and recommends change:
- the lack of a clear hierarchy in the 3 statutory objectives and the need perhaps to prioritise Objective 3 (business rescue and customer transfers) where that would believer the best outcomes for customers – although this would entail encouraging banks not to terminate contracts on a firm’s administration. It also notes that more could be done to incentivise new providers to take on customers of failed institutions on existing terms;
- the often disproportionate costs burden of the court entry and approval of distribution plans – the report suggests an out-of-court entry route could help, but notes that IPs would still want some protection;
- further guidance on how IPs can use the permitted function of interim fund return to customers, and a need to address the gap caused by lack of FSCS protection. The report also recommends reviewing the introduction of de minimis thresholds;
- contingency planning to test how the regime would react if a large provider failed, including how to secure orderly transfers to new providers and/or allowing merchants to continue taking payments while replacements are being found; and
- efficiencies through targeted legislative refinements, clearer comfort mechanisms for IPs and improved creditors’ committee functionality.
The report says PESAR must adapt to stay fit for purpose.
Treasury will now consider the conclusions of the review.