Code of Practice
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7. Funding arrangements
For the purposes of this Section, the following definitions shall apply:
- ‘outpayments’ are sums payable by network operators to intermediary providers or merchant providers in respect of revenue generated by PRS;
- ‘revenue’ is the sum received by a network operator from consumers in respect of the provision of a PRS, gross of any sum that may be due to third parties arising from the provision of the PRS;
- ‘financial year’ means the financial year of the PSA as set from time to time, which at the date of publication of this edition of the Code is 1st April to 31st March; and
- ‘own service’ refers to any PRS provided by a network operator also operating as a merchant provider, whether directly or through any associated company, or a connected company or person.
The PSA may issue directions to any PRS provider where, in accordance with paragraphs 6.1.1- 6.1.2 above, it requires information to ensure that the provisions of this Section of the Code are being complied with and/or where the PSA has the power to require a network operator to perform any obligation or action under this Section of the Code.
The PSA’s funding arrangements are approved by Ofcom in accordance with section 121(2)(c) of the Act. The PSA will fund its activities by means of a levy which will be calculated by reference to a defined rate or proportion of the financial value of PRS transactions.
The PSA may, in addition to or instead of a levy, fund its activities by other means including (without limitation) by means of:
- monies received through sanctions imposed under paragraph 5.8.5(d) above;
- fees charged by the PSA for registration and registration renewal under paragraph 3.8.8 above;
- fees charged for any other services provided by the PSA; and
- bank account interest.
Where the PSA, in accordance with paragraph 7.2.2 above, decides to fund its activities by means other than a levy, it will publish its proposals for consultation and scrutiny.
The PSA will hold reserves in such amounts as it deems reasonable and necessary to ensure the smooth and continued operation of the organisation and the performance of its regulatory functions.
As far as is reasonably practicable, by 31 December each year, the PSA will publish a proposed business plan and budget for the forthcoming financial year for consultation and scrutiny.
Having considered the comments received under paragraph 7.3.1 above, the PSA will review and then present its proposed business plan and budget to Ofcom for comment and approval.
The PSA will then announce its approved budget for the forthcoming financial year. In so doing, the PSA will specify how it will fund its budget having regard to its available and required reserves. This will include any amount it intends to collect through a levy imposed in accordance with paragraph 7.2.1 above and/or any other funding sources.
The PSA and Ofcom may agree an alternative timeframe for the consultation and consideration of the PSA’s business plan required by paragraphs 7.3.1 and 7.3.2 above. Where such an alternative timeframe is agreed the PSA will publish a notification on its website accordingly.
Where the PSA is funded by a levy in accordance with paragraph 7.2.1 above, it will:
- define the levy as a proportion of financial transactions in the PRS value chain that are required to be collected by the network operator;
- determine which financial transactions in the PRS value chain the levy applies to;
- determine the rate or proportion of the value of PRS transactions at which the levy is set;
- require network operators to collect the levy on behalf of the PSA and pay it to PSA in accordance with the provisions of paragraph 7.6 below;
- notify network operators of the determinations made at sub-paragraphs 7.4.1(b) and (c) above as early as reasonably practicable following approval by Ofcom of the PSA’s business plan and budget for the forthcoming financial year; and
- require network operators, following receipt of a notification under sub-paragraph 7.4.1(e) above, to inform every PRS provider to which they make outpayments of the determinations made at sub-paragraphs 7.4.1(b) and (c) above, and of the fact that the relevant network operator will deduct the levy from each outpayment at source and pay the deducted amount to the PSA. Where a network operator fails to deduct the levy due in this manner, the network operator will remain liable to the PSA for the full amount of the levy due.
Network operators must provide to the PSA such financial transaction information as the PSA from time to time determines to be necessary in order to enable it to calculate estimated and actual income for the purposes of the levy. This information will include (but will not be limited to) revenues and outpayments, including those relating to a network operator’s own service.
Outpayments in respect of own service revenues should be calculated by deducting only those costs incurred by the network operator that are identified as being network-related costs associated with the direct provision of the relevant PRS. This deduction should not include the merchant-related costs of providing the relevant PRS.
Any information required under paragraph 7.5.1 above must be provided in accordance with the timetable published by the PSA from time to time. The timetable will specify the dates by which various activities are to be carried out by network operators and/or the PSA. The PSA may, upon giving reasonable notice to interested persons, vary some or all of the dates set out in the timetable.
Network operators must ensure that the information they provide to the PSA is accurate. The PSA may require:
- an individual with seniority and authority within the network operator’s organisation to sign off the information provided by the network operator;
- direct confirmation from a network operator, by way of an audited statement, of the financial transaction information supplied in accordance with paragraph 7.5.1 above. Audited statements may be provided by a network operator’s auditors, and must be provided within such reasonable time as the PSA may direct;
- a network operator or a network operator’s auditors to supply such further information and/or explanation of such matters as the PSA may consider necessary to satisfy itself as to the accuracy of the network operator’s figures in such a format as may be prescribed by the PSA (including by means of a further audited statement);
- a network operator to subject itself to assessment by an independent auditor nominated by the PSA for the purpose of establishing whether the network operator has fully complied with its obligations under this Section of the Code. The costs of any such assessment shall be borne by the network operator.
The PSA will use information supplied in accordance with paragraph 7.5.1 above to estimate the amount of the levy that must be collected by each network operator for the forthcoming financial year.
The PSA will advise each network operator of the estimate made at paragraph 7.6.1 above and of the payment schedule for the estimated levy. The payment schedule will be determined by the PSA based on the size of the estimated levy and its consideration of any relevant administrative thresholds it may have relating to payment and/or timing. Payment of the levy will generally be required in 12 equal monthly instalments or in a single payment. However, the PSA may set such alternative payment schedule as it determines to be appropriate in the circumstances.
The PSA will issue invoices for payment of the estimated levy, which will set out any relevant terms for payment. All invoices provided by the PSA to network operators will add a charge for VAT where appropriate at the applicable rate.
Following completion of the financial year, the PSA will use the information supplied in accordance with paragraph 7.5.1 above to calculate the levy due to be collected from each network operator for that financial year. The method of calculation will be determined by the PSA, and will involve (but will not be limited to) consideration of:
- the absolute value of financial transactions to which the levy applies in each network operator’s case, as determined under paragraph 7.4.1(b) above; and
- each network operator’s relative share of the total value of financial transactions to which the levy applies, as determined under paragraph 7.4.1(b) above.
The PSA will reconcile the calculation made at paragraph 7.6.4 above with payments made in respect of the estimated levy during the relevant financial year under paragraphs 7.6.1–7.6.3 above and make any necessary adjustments. In particular:
- where a network operator’s total payments in respect of the estimated levy for the relevant financial year exceed the calculation made at paragraph 7.6.4 above, the network operator is entitled to have the excess amount repaid by the PSA; and
- where a network operator’s total payments in respect of the estimated levy for the relevant financial year are less than the calculation made at paragraph 7.6.4 above, the network operator will be liable to the PSA for the difference which will be payable forthwith on demand.
Network operators may, in exceptional circumstances, seek the agreement of the PSA to a recalculation of their estimated levy and the consequential payments required of them under paragraph 7.6.2 above.
If a network operator fails to pay to the PSA monies due in line with the payment schedule set by the PSA in accordance with this section of the Code and/or in accordance with any other directions issued by the PSA, the network operator will be liable to pay interest on any outstanding sums due at the rate of 3% above the prevailing Bank of England base rate from the date on which each relevant payment became due.