On 2 June 2015 the final compromise text of PSD2 was released. The updated PSD2

Update on changes to the new Payment Services Directive (PSD2)

broadens the scope of PSD1, captures a wider range of payment transactions, and also addresses some of the concerns raised during the legislative process regarding questions of liability.

Payment service providers (PSPs) will have to ensure that they comply with its provisions by the transposition date around end-2017. In this article, which first appeared in the EPC website, Maria Troullinou of Clifford Chance LLP looks at the key changes that PSD2 will introduce and at how the text has evolved since the initial Commission proposal was published in the summer of 2013.

A similar structure, a much broader scope

The new Payment Services Directive (PSD2) retains the same basic structure as the original Payment Services Directive (PSD1). PSD2 is divided into six titles, each of which focuses on a different subject-matter. Accordingly, title I covers scope and definitions, title II deals with the authorisation and regulation of payment service providers (PSPs), title III focuses on transparency, title IV establishes the respective rights and obligations of payment service users (PSUs) and PSPs and titles V and VI set out provisions on delegated acts and implementation. In addition, the different categories of payment service are set out in the Annex.

Despite retaining the same basic structure, the reach of PSD2 is broader than its predecessor. This is because of the expansion of the territorial scope provisions and the simultaneous narrowing down of the exemptions (commonly known as the ‘negative scope provisions’).

Territorial scope

Most provisions of title III and title IV of PSD2 will now apply to a broader range of payment transactions. Specifically, transactions in non-European currencies where both the payer’s and the payee’s PSP (or the sole PSP in the transaction) are located in the European Union (EU) will be caught, as will ’one leg out’ payment transactions in all currencies (i.e. where only one PSP is located in the EU).

‘One leg out’ transactions were outside the scope of PSD1, but PSD2 now brings them in scope “in respect of those parts of the payment transaction which are carried out in the Union”. This wording operates as a limit to the reach of PSD2 and seeks to offer some comfort to PSPs who would not be able to fulfil their obligations in respect of transactions (or components thereof) taking place outside of the EU over which they have no control (e.g, because these are subject to foreign systems and rules). PSPs will need to carry out an impact analysis and assess which parts of each transaction qualify as having been “carried out in the Union”; in the absence of guidance as to the precise meaning of this wording, this may not be a straightforward exercise.

Negative scope

PSD2 amends some of the exemptions established under PSD1. Changes to the “commercial agent” exemption attempt to address the divergent interpretations taken by some EU Member States, making clear that the exemption applies when agents act only on behalf of the payer or payee (not both).

Where agents act on behalf of both parties (e.g. in respect of e-commerce platforms) the exemption will only apply in cases where the agent does not come into possession, or have control of, clients’ funds.

Moreover, it will no longer be possible to use the same payment instrument within more than one limited network, or to acquire an unlimited range of goods and services and therefore the “limited network” exemption will now only be available to genuinely small networks. PSD2 also limits the scope of the mobile device content exemption to individual payments that do not exceed 50 euros and, on a monthly basis, transactions not exceeding 300 euros in aggregate per subscriber.

The Automated Teller Machine (ATM) exemption set out in Article 3(o) of PSD1 which was removed from the European Commission’s (the Commission) original PSD2 proposal, has now been reinstated. ATM operators will be subject to obligations to provide customers with information on withdrawal charges — both prior to the transaction and on the customer’s receipt — aiming to enhance transparency.

PSD2 seeks to minimise divergent interpretations around the application of certain exemptions. In certain cases, PSPs pursuant to PSD2 will have to notify competent authorities, so that an assessment can be made as to whether the requirements of an exemption have been met.

Expanding the market

PSD2 creates two new types of PSP, commonly referred to as ‘third party payment service providers‘ (TPPs) and attempts to strike a balance between opening up the payments market and maintaining appropriate security standards for online payments.

PSD2 contains provisions requiring EU Member States to ensure that all payment institutions have access to payment account services provided by banks. This is designed to prevent banks from refusing to open and maintain bank accounts for payment institutions. Although the right of a bank to reject account applications on valid grounds (such as anti-money laundering concerns) would not be affected, banks that decline to provide a bank account to another payment institution will have to explain the rejection to the regulator.

Under PSD2, payment initiation service providers (PISPs) are required to be authorised but are subject to a reduced minimum own funds requirement of 50,000 euros. Account information service providers (AISPs) are expressly exempt from authorisation, but are subject to a registration requirement. Both types of entity have to hold professional indemnity insurance or a comparable guarantee in order to ensure that they are able to meet liabilities arising in relation to their activities, as PSD2 aims to achieve a level of supervision commensurate with the risk such new entrants introduce into the system. PISPs that want to provide different payment services involving holding users’ funds will need to obtain full regulatory authorisation.

The post Update on changes to the new Payment Services Directive (PSD2) appeared first on Accourt Payments Specialists.

However, the regulatory landscape has evolved and while compliance remains a primary

Can you turn regulatory and payment scheme compliance into a competitive advantage?

focus, there is now an opportunity to gain a larger foothold in the payments value chain and seize a competitive advantage – writes Jamie Merritt, Partner, Accourt – Payments Specialists.

Historically, the ability to become principal members of the payment schemes has primarily been the domain of the traditional bank players. However, as a result of the Payment Services Directive (PSD) and its driving desire to create a broader competitive landscape, opportunities now exist for smaller, more agile organisations and those with bespoke niche propositions to operate in a space usually occupied by the traditional banks. For example, prepaid issuers and PSPs have been able to apply to the FCA for Payment Institution Licences (PI’s) or E-money Licences and principal membership of the Schemes, dispensing with the need for a traditional banking partner.

The rationale and potential barriers to enter into this space have been both commercial and regulatory, as access requires both principal membership of the payment schemes and a licence from the FCA. Whilst these remain unchanged, the opportunity to gain a stronger foothold in the payments value chain – and ultimately a greater share of the revenue pool – is worth consideration.

Traditional issuing and acquiring models have focused on a number of key players taking clearly defined roles.  Both prepaid issuers and acquirer PSPs have changed the landscape here, with additional organisations fulfilling both key operational/regulatory roles whilst providing additional value to the end customer. Consequently, there are a number of points to consider, namely:

1. The regulators and the European Commission are striving towards both greater competition and transparency on the various fee structures
2. With greater transparency, the quest for value provision to the consumer is paramount
3. An increase in the number of constituent parts of the payments value chain, whether from an issuing or acquiring perspective, will ultimately result in increased pricing for the end customer.

Therefore, organisations participating in this space – or those that have an appetite to do so – must have the ability to positively address these points. The key question is: how?

Fundamentally, they need a clear and full understanding of the implications associated with both the Regulator and scheme membership and/or accreditation. These implications fall into three broad categories:

1. Commercial – How can you build a business case that factors in both incremental revenues and the costs associated with regulator and payment scheme approval and on-going management of the business?
2. Operational – What infrastructure changes do you need to make to your business to demonstrate an understanding of, and compliance with, both the application and day-to-day management of the regulatory and scheme requirements?
3. Compliance – How can you demonstrate that the written policy and procedural documents are a living, breathing part of the company’s DNA?

It is also imperative to evaluate how responses to these questions will be viewed by a regulator. The FCA has summarised its role as four key functions:

• Regulation – A supervisory role of the overall conduct of regulated companies
• Best Practice – Upholding the highest operational and ethical standards
• Protection – Ensuring customer protection
• Enforcement -Taking the required punitive action against organisations who fail to meet these standards

The FCA’s overall objective is to drive better consumer protection, greater integrity of the payments system and enhanced customer experience by increasing competition. Consequently you will need to demonstrate regulatory compliance in line with all the JMLSG guidelines and all legal requirements through both the application phase and on-going management of the day to day business.

A similar level of due diligence is also required to support principal membership applications with the individual payment schemes, either as an acquirer or an issuer. The development of the supporting business case is key, both from the perspective of potential collateral requirements and in demonstrating a comprehensive understanding of the compliance obligations and fee structures.

Once you understand the rationale to embark on this journey you will need to work through how to best achieve the desired result.  The reality here is that this is extremely difficult to do well.  A critical factor is the selection of the right partner to assist you with the development of this road map and to help navigate through this extremely complex commercial and regulatory maze.

How Accourt can help:

• Assist in the development of the requisite supporting business case
• Develop a risk assessment and gap analysis on the supporting operational infrastructure
• Review and/or create supporting operational procedural documentation, including all the required regulatory and compliance documents
• Support and manage the application process to the regulator and provide all subject matter expertise
• Create supporting documentation for principal scheme membership
• Manage the application process
• Provide subject matter expertise and provide support for the scheme risk review
• Provide subject matter expertise and provide support for the go-live project

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