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ombudsman news

issue 81

November/December 2009

money-transfer operators and the ombudsman

From 1 November 2009, money-transfer operators have been regulated by the Financial Services Authority (FSA) - and automatically covered by the Financial Ombudsman Service. From this date, these businesses should have put in place in-house complaints procedures that comply with the FSA's complaints-handling rules (the 'DISP' rules).

what's the background to this-

Money-transfer operators came under the ombudsman's remit from 1 November 2009 as a result of the Payment Services Directive. This is a new European directive intended to help protect consumers transferring money cross-border and to provide more of a level playing-field in this market.

We focused on the Payment Services Directive - and on the role of the Financial Ombudsman Service as part of the directive's complaints-handling requirements - in issue 74 of ombudsman news (December 2008/January 2009).

what does the Payment Services Directive cover-

The Payment Services Directive requires countries in the European Economic Area to regulate payment services - including, for example, payments by plastic cards, direct debits and money transfers. The directive affects all businesses providing payment services in or from the European Economic Area.

In the UK this includes:

  • banks and building societies - already regulated by the Financial Services Authority (FSA) and covered by the ombudsman;
  • authorised electronic-money (e-money) issuers - already regulated by the FSA and covered by the ombudsman;
  • small (certified exempt) e-money issuers - not regulated by the FSA but now covered by the ombudsman;
  • non-bank credit-card companies - already licensed by the Office of Fair Trading (OFT) and covered by the ombudsman; and
  • money-transfer operators - not previously regulated by the FSA (nor licensed by the OFT) and not covered by the ombudsman before.

what does this mean for businesses that provide payment services-

The Payment Services Directive has been implemented in the UK through the Payment Services Regulations 2009 - which came into force on 1 November 2009. From this date, businesses that provide payment services have had to comply with Europe-wide rules on their "conduct of business" (the way in which they handle payment-services transactions with their customers).

From 1 November 2009, businesses providing payment services have also had to comply with rules on how they deal with customer complaints relating to payment services. These rules include giving consumers the right to refer unresolved complaints to the ombudsman.

Following public consultation last year, the FSA made changes to its rules in order to implement aspects of the Payment Services Directive. These changes involved:

  • introducing an approach to enforcing the Payment Services Regulations that mirrors the FSA's general approach to enforcement under the Financial Services and Markets Act;
  • applying the FSA's complaints-handling rules to payment-services firms; and
  • extending the jurisdiction of the Financial Ombudsman Service, so that we can provide the "out-of-court" redress function required by the directive.

Earlier this year, the FSA published information outlining its approach to authorisation and supervision issues under the Payment Services Directive.

what kind of money-transfer transactions will the ombudsman cover-

From 1 November 2009, the ombudsman's remit has covered transactions carried out by money-transfer operators in or from the UK.

These include transactions starting or ending outside the European Economic Area (EU members plus Iceland, Norway and Liechtenstein) and transactions carried out in non-European currencies.

This reflects the ombudsman's remit in relation to money-transfer complaints we already covered - involving banks, building societies and e-money issuers.

can small businesses also complain to the ombudsman about money-transfer transactions-

Yes. But in order to reflect the definition of "micro-enterprise" used in EU legislation, the eligibility criteria have changed for smaller businesses wanting to bring a complaint to us.

Since 1 November 2009 - the date the Payment Services Directive came into effect in the UK - businesses with an annual turnover of up to 2 million euros (currently approximately £1.8 million) have been able to use the ombudsman service - as long as they have fewer than ten employees.

Previously the turnover threshold was lower, at £1 million, but with no requirement relating to the number of employees. This new eligibility definition for "micro-enterprises" now applies to smaller businesses that bring complaints about everything the ombudsman covers - not just money-transfer complaints.

what information and support services does the ombudsman provide for money-transfer operators-

The free services we offer that will be of particular interest to money-transfer operators new to the ombudsman include:

This is part of our commitment to work with businesses to identify and reduce problems that might otherwise lead to time-consuming complaints.

what contact has the ombudsman had with money-transfer operators so far-

We have taken part in a number of events aimed specifically at money-transfer operators that came under the ombudsman from November 2009. This has included providing speakers for conferences and seminars on the Payment Services Directive held by the FSA and the UK Money Transmitters Association.

We have also had helpful and constructive meetings with the main money-transfer trade associations and the major money-transfer operators - to introduce and explain our work at the ombudsman service.

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ombudsman news gives general information on the position at the date of publication. It is not a definitive statement of the law, our approach or our procedure.

The illustrative case studies are based broadly on real-life cases, but are not precedents. Individual cases are decided on their own facts.