FSB Recommends Steps to Address Cross-Border Payment Inconsistencies

The Financial Stability Board ("FSB") outlined policy recommendations to address inconsistencies in the legal, regulatory and supervisory frameworks that apply to banks and non-banks providing cross-border payment services.

In a final report, the FSB highlighted the following issues: (i) regulatory divergence which concerns jurisdictions that have adopted varying and sometimes conflicting approaches to regulating and supervising payment service providers ("PSPs") and which results in complex compliance requirements that increase costs and slow processing times; (ii) operational risks, including fraud, cyber threats and third-party vulnerabilities; and (iii) "regulatory arbitrage" in which PSP's take advantage of opportunities to operate under less stringent regimes.

The FSB outlined six recommendations aimed at fostering greater consistency across jurisdictions to reduce costs, improve processing speed and establish a level playing field. The FSB stated:

• "[r]ecommendations 1 to 3 detail steps that should be taken to identify, understand, and assess risks across the PSP sector; to evaluate the effectiveness of existing laws, regulations, and supervisory frameworks in addressing these risks to identify needed adjustments; and to ensure the protection of consumers who use cross-border payment services."
• "[r]ecommendation 4 addresses the need for clear guidance on supervisory expectations across the sector to promote the safe and efficient provision of cross-border payment services."
• "[r]ecommendation 5 covers the role of licensing or registration requirements in ensuring a risk-proportionate level playing field from the time a PSP enters the sector."
• "[r]ecommendation 6 emphasizes the need to foster expanded information and data sharing both within and across jurisdictions, which is critical to conducting comprehensive risk assessments and, as needed, taking regulatory or supervisory actions."

The FSB also emphasized the importance of international cooperation and a risk-based approach to regulation to mitigate fragmentation and enhance the accessibility, speed and cost-effectiveness of cross-border payments.