NoteMachine UK Limited v The Payment Systems Regulator

Where a regulator’s proposed intervention would affect the conditions on which payment service providers participate in a payment system, the statutory regime governing access to payment systems applies, regardless of who makes the complaint or application. The purpose of the regulator’s intervention, rather than the applicant’s subjective purpose, is decisive.

Fees and the methodology used to calculate them may constitute conditions of participation. Rules must therefore satisfy the requirements of objectivity, proportionality and non-discrimination. Different categories of participant need not be treated alike where their roles are materially different. A regulator’s decision not to investigate a complex competition complaint involving substantial resource allocation is reviewable only on ordinary public-law irrationality grounds.

NoteMachine, an independent ATM operator, challenged three decisions of the Payment Systems Regulator concerning fees payable under the LINK ATM network. The PSR concluded that the complaint fell to be considered under regulation 103 of the Payment Services Regulations 2017, rather than the fee-variation power in section 57 of the Financial Services (Banking Reform) Act 2013. It declined to investigate alleged discrimination and declined to pursue a competition-law investigation under the Competition Act 1998.

The claim raised four grounds: the construction of section 108 FSBRA; the PSR’s duty to consider proceeding under the Competition Act; the meaning of discrimination under regulation 103; and whether the PSR had wrongly assumed that competition law applied only to excessive interchange fees.

1. Ground 1 failed. Section 108 of the Financial Services (Banking Reform) Act 2013 applies where the PSR would exercise powers under sections 54 to 58 for the purpose of enabling a person to obtain or maintain access to, or participation in, a payment system, and regulation 103 applies to that access or participation. The person need not be the applicant. The relevant question concerns the purpose and effect of the proposed regulatory intervention, not the applicant’s subjective purpose.
2. The power to vary fees under section 57 was sought in relation to interchange fees and the methodology used to set them. Payment of those fees was a condition of access to and participation in LINK by payment service providers. Because a fee payable by issuers could not be altered without affecting acquirers, the requested intervention would affect rules governing issuers’ participation. Regulation 103 therefore applied, and section 108 required the PSR to proceed under that regime.
3. Ground 4 failed. The duty in section 62 FSBRA to consider whether it would be more appropriate to proceed under the Competition Act 1998 arose only where the PSR was able to exercise the relevant FSBRA powers. Since section 108 precluded the exercise of section 57, the duty did not arise. In any event, the PSR had considered whether to investigate under the Competition Act.
4. Ground 2 failed. Discrimination requires comparable situations to be treated differently, or different situations comparably, without objective justification. Issuers and ATM operators perform fundamentally different roles: one pays the fee and the other receives it. Their different treatment in setting fees was not, without more, unlawful discrimination. The PSR had addressed objectivity and proportionality as well as non-discrimination.
5. Ground 5 failed. The PSR had not concluded that competition law could apply only to fees set too high. Its reference to Sainsbury’s Supermarkets Ltd v Visa Europe Service LLC was a fair observation that the authorities concerned a materially different payment-card context. The decision not to investigate was principally based on complexity, resource demands and prioritisation. Such decisions are reviewable only for irrationality in the Wednesbury sense, and that threshold was not met.
6. Section 31(2A) of the Senior Courts Act 1981 would independently have applied to Grounds 1, 4 and 5 because it was highly likely that the outcome would have been substantially the same.

The application for judicial review was dismissed.

High Court (Administrative Court): Permission was granted on Grounds 1, 2, 4 and 5 and refused on Ground 3. The claim for judicial review was dismissed.