The Payment Services Directive review, although premature at this stage, will significantly impact payment service providers
Article 87 of the Payment Services Directive (PSD) requires the European Commission to carry out a review of the PSD and report its findings to the European Parliament, the European Council representing European Union ( ) Member States, the European Central Bank (ECB) and the European Economic and Social Committee by 1 November 2012. Although it may seem premature, considering that Poland only approved its legislation at the end of 2011 (the last country to complete its national transposition), and implementation of the Single Euro Payments Area ( ) is not as advanced as regulators had projected it would be, the fact remains however, that the forthcoming PSD review will go ahead and will prove to be a time consuming exercise, both for the industry and the regulator throughout 2012. The outcome of this process is likely to have a significant impact on payment service providers ( ).
The mandatory scope of the review
Article 87 of the PSD defines the items which the European Commission must consider in its review. Those who closely followed the start of this Directive, will recall that Article 87 served as a 'parking lot' for issues which could not be resolved when the legislative act was first considered by the legislator between 2001 and 2007. These items are as follows:
- The possible need to extend the scope of the Directive to payment transactions in all currencies and to payment transactions where only one of the is located in the community (so-called 'one-leg' transactions).
- The application and functioning of Articles 69 and 75 (the 'D+1'1 execution time provision and the liability regime in relation to the execution of payment transactions) for all kinds of payment instruments.
- The possible need to revise the scope of this Directive with respect to low value payment instruments and electronic money (not least in relation to the various existing derogations implemented at Member State level with regard to these types of instruments described in Articles 34 and 53).
- The possible impact of the PSD's authorisation requirements of payment institutions (PIs) on competition between PIs and other , as well as on barriers to market entry by new .
- The application of Articles 6, 8 and 9 concerning prudential requirements for PIs, in particular with regards to their 'own funds' requirements and safeguarding requirements (so-called 'ringfencing').
- The possible impact of the granting of credit by PIs related to payment services, as set out in Article 16(3).
Further need for amendment of the PSD results from Recital 25, as included in the 'Regulation Establishing Technical Requirements for Credit Transfers and Direct Debits in Euros' (the Regulation), expected to be adopted by the European Parliament in February 2012. This Recital states that: "In order to ensure broad public support for , a high level of protection for payers is essential, particularly for direct debit transactions. The current and only pan-European direct debit scheme for consumers developed by the [European Payments Council] provides for a no-questions-asked, unconditional refund right for authorised payments during a period of eight weeks from the date on which the funds were debited, while this refund right is subject to several conditions under Articles 62 and 63 of Directive 2007/64/EC [the PSD]. In the light of the prevailing market situation and of the necessity to ensure a high level of consumer protection, the impact of these dispositions should be assessed in the report that, according to Article 87 of Directive 2007/64, the Commission shall (...) present". In other words, the Regulation requires the European Commission to review the PSD with regards to the nature and application of the refund right regime, as defined in Articles 62 and 63 of the PSD.
Additional elements likely to be addressed in the review
In August 2011, the European Commission issued a call to tender for a "study on the impact of the PSD on payment services in the internal market and on the application of Regulation (EC) No 924/2009 on cross-border payments in the Community" (see 'European Commission Contract Notice' under 'related links' below). This study is to be carried out to provide the European Commission with the information required to prepare its report on the PSD. The call for tender provides valuable insight on additional items likely to be addressed in the review, which are not set out in Article 87 of the PSD.
The first point to note is that the study requested by the European Commission covers both the PSD and the application of Regulation (EC) No 924/2009, of the European Parliament and of the Council, of 16 September 2009 on cross-border payments in the Community repealing Regulation (EC) No 2560/2001 (see 'related links' below). Regulation (EC) 924/2009 introduced provisions which, in the eyes of the regulator, further promote financial integration. This has significant impact due to the introduction of the following provisions:
- Price parity requirements are extended to direct debits.
- Clear rules for transaction-based multilateral interchange fees are set until November 2012 (these rules will be amended in line with related provisions included in the Regulation).
- in the euro area, offering direct debits in euro to debtors, have been mandated to be available for cross-border direct debit collections since 1 November 2010.
The review report of the European Commission, on Regulation (EC) 924/2001, is expected to be published by 31 October 2012.
It is important to note, that the scope of the study far exceeds the mandatory elements to be addressed in the PSD review, as set out in Article 87. The European Commission expects this study to provide "a comprehensive picture of the economic and legal consequences arising from the application of the PSD", including whether the PSD has "helped to lower the costs of payment systems / services" and has "provided the basis for the development of more efficient payment services within the ". These are important questions however, answering them will be challenging given the limited time the PSD has been in place. The study will also examine how Member States used the many options available to adapt PSD provisions in line with national preferences2 and how this has impacted the objectives of advancing integration and increasing competition in the European payments market. These options, such as the possibility to treat micro-enterprises as consumers, were included in the PSD to ensure political support by governments for this regulatory intervention.
In addition, the study will revisit the PSD provisions, specifying which payment services are out of scope and assess whether it would be appropriate to extend the Directive to include additional emerging payment services, such as 'overlay' services.
Timelines and next steps
As previously mentioned, the European Commission is required to present its report by 1 November 2012. It is expected that the organisation conducting the study on the application of the PSD and Regulation (EC) 924/2009, will use a combination of desk research, interviews and questionnaires, reaching out to , PIs and stakeholders on the demand side, such as public administrations. The European Commission has also requested to receive an interim report within four months of the date of signature on the contract, which has very recently been awarded. The organisation chosen to conduct the study will have to deliver a draft of the study within seven months and the final study within nine months. Given the complexity of the subject, this is an ambitious timeline.
Engaging in the review process
Given the wide range of items to be addressed in the PSD review, it is likely that this process will result in change to this piece of legislation, thereby having a significant impact on the European payments industry. With regards to the tight deadlines set by the regulator, the effects of this regulatory development will be amplified due to the fact that the PSD review comes at a time when stakeholders in the euro area are managing the process to become compliant with the Regulation by 1 February 2014. Another factor to keep in mind, as regards allocation of resources required to implement potential regulatory changes, is the consultation launched by the European Commission in January 2012 on its Green Paper 'Towards an integrated European market for card, internet and mobile payments' (see 'related links' below). The European Commission announced that it will communicate further measures based on this consultation in the summer of 2012. Such measures might well include changes to the PSD in other areas than the ones mentioned in Article 87 of the PSD.
Against this background it will be important for the payments industry to work closely with the European Commission and the consultants who will be preparing the study on the application of the PSD and Regulation (EC) 924/2009. The review process therefore provides an opportunity for industry players to voice any concerns they have on aspects of the PSD, which may not yet have delivered the intended results, or points of ambiguity in the original PSD text and identify inconsistent applications. Consequently the topic of the PSD review will feature strongly on the 2012 agenda of the Payment Regulatory Expert Group (PREG), which comprises representatives of the banking industry. The PREG is currently in the process of identifying the key points of common concern or interest at a pan-European level which should be fed into the debate with the European Commission as appropriate.
Last but not least, any developments which might lead to an expanded scope of the Directive must be closely monitored. At the same time, dialogue with national regulators throughout the review process should be ensured as Member States can be expected to put forward their own requirements to be included in the next version of the PSD.
The bottom line is, further regulatory intervention impacting the European payment industry is just around the corner.
Ruth Wandhöfer is a member of the Plenary. She also chairs the Information Security Support Group.
European Commission Contract Notice: Study on the Impact of Directive 2007/64/EC on Payment Services in the Internal Market and on the Application of Regulation (EC) No 924/2009 on Cross-border Payments in the Community
Related articles in this issue:
SEPA Regulation: European Legislator Mandates Migration to SEPA by 1 February 2014 in the Euro Area and Transfers the Responsibility for SEPA Scheme Management to the European Commission. EPC Chair comments on the new regulatory reality governing the integration of the euro payments market
The New European Decision-Making Landscape: How the European Commission Rules Through 'Delegated Acts'. SEPA Regulation empowers the European Commission to mandate technical requirements applicable to SEPA payment schemes
Related articles in previous issues:
Payment Services Directive Delayed Onset: Getting Ready for 'D + 1'. As of 2012 a payment must be credited to the account of the payee´s bank by the next business day ( Newsletter, Issue 12, October 2011)
PSD in Practice: a Follow-Up. Further clarification of key PSD concepts required to ensure full legal harmonisation ( Newsletter, Issue 6, April 2010)
PSD in Practice. Discrepancies in national transposition pose a challenge to banks ( Newsletter, Issue 5, January 2010)
Newsletter articles published in the section 'Legal and Regulatory Issues'
1For details on the 'D+1' requirement see the article 'Payment Services Directive Delayed Onset: Getting ready for 'D + 1', published in the October 2011 edition of the Newsletter.
2An Directive - as opposed to an Regulation - does not apply directly, but is implemented based on transposition laws defined at the level of each Member State. Directives generally allow for a degree of derogation.
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