Payments regulations: ‘It’s time for a rethink’ says P27 board chair

Martin Andersson, chair of the P27 board and former director of Sweden’s financial supervisory authority, explains why payments regulations need a rethink.

As a former financial regulator, Martin Andersson appreciates the importance of payments regulations in maintaining a healthy financial system.

“Payment and clearing systems are a bit like plumbing,” he explains.

“As long as it’s working, everyone is happy, and no one really thinks about it. But it’s really painful when it doesn’t work.”

Thanks to a lengthy career with Sweden’s central bank and as head of Sweden’s financial supervisory authority, Finansinspektionen, Andersson is familiar with the inner workings of central banks and regulatory bodies in the Nordics and across Europe.

Now a senior partner at Oliver Wyman, he also has an insider’s understanding of the policy debates that shape the payments landscape.

His first six months at P27 focused on P27’s ultimately successful efforts to gain approval from the EU Commission for its merger with Sweden’s Bankgirot.

Andersson believes the milestone was an important one for P27’s efforts to launch a cross-border, multi-currency payments platform in the Nordics

“The Nordics are very integrated economically, so it’s only natural that the plumbing that connects the region’s economies is really integrated as well,” he says.

P27 will also help address an extended period of chronic under-investment in payments infrastructure.

“P27 will bring much-needed infrastructure improvements to the entire region that would have otherwise been too costly to implement,” says Andersson.

Seeking alignment in payments regulations

As P27 continues to gain momentum, it has attracted increasing interest internationally from countries and regions grappling with how to help make cross-border transactions more efficient and the regulatory challenges that come with such efforts.

“P27 is something completely new. And we don’t have the same kind of regulatory and practical alignment for payments that we have for banking, insurance, and other areas,” he explains.

While the former regulator admits that rules often lag new innovations, regulatory development for payments clearing has been particularly slow. He adds that P27 will likely trigger several important regulatory discussions moving forward, many of which have uncertain outcomes.

“It’s always a challenge being first,” he says.

For example, EU passporting allows banks with a licence in one EU country to operate in other EU countries. But when it comes to payments, the rules are “not well-articulated” according to Andersson.

“We need to better understand what the expectations are, and the regulators do too. And it’s still unclear how this looks in the different countries,” he says

In addition, new fintechs that offer cross-border payment solutions often have “lighter” licencing requirements than a clearing service like P27. While P27 needs a regulatory licence to carry out batch clearing, for example, a fintech offering instant payments solutions does not.

“Why shouldn’t real-time payments have the same kind of regulatory safeguards as batch clearing?” Andersson asks.

“I think this needs to be rethought.”

Regulating functions, not institutions

After a lengthy career of direct and indirect involvement with payments regulation, Andersson has developed a clear philosophy when it comes to how regulators should approach their mandate.

“What you really want to regulate is functions, not institutions,” he explains.

But achieving that theoretical goal is difficult in practice – especially for entities like P27 that challenge the traditional understanding of what a single company can do in the payments space.

Even if regulators start off looking at functions, institutions are ultimately the legal entities that must deal with payments regulations, Andersson explains.

“The result can be a slightly un-even playing field because it takes time for things to develop,” he says.

“And that’s exactly where we are right now when it comes to P27.”