Introduction
On 28 June 2023, the European Commission published a number of draft proposals as part of its ambitious plan to open up financial data and reform digital payments. One of these draft proposals relates to a Payment Services package which is aimed at replacing the current PSD2. The proposed draft Payment Services package is comprised of two legislative acts, namely the Payment Services Directive 3 (PSD3) and the Payment Services Regulation (PSR).
The aim of the draft Payment Services package is to try and address some of the shortcomings brought about by PSD2 and keep up with the fast evolvements in the world of payments.
On PSD3, the EU Commissioner for Financial Services, Financial Stability and Capital Markets Union, Mairead McGuinness, outlined that “Today we are taking concrete steps to modernise not only the EU’s retail payments industry but the financial service sector as a whole. In doing so, we are putting the best interests of citizens and consumers at the heart of financial services.”.
Background
Whilst PSD1 (introduced in 2007) was aimed at creating a unified EU payments market by harmonising legal regulations, PSD2, which was introduced in 2015, established rules for retail payments within the European Union, covering both domestic and cross-border transactions in both euro and non-euro currencies. It was also aimed to address barriers to innovative payment services while also enhancing consumer protection and security measures.
In 2022, the European Commission conducted an evaluation of PSD2, seeking feedback from the European Banking Authority, the public as well as independent consultants.
Aims of PSD3 and PSR
On the basis of this evaluation, the European Commission proposed amendments to PSD2, as well as an impact assessment to improve the functioning of the European payment markets. This assessment is aimed at tackling the following:
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- improving non-bank PSPs access to payment systems and bank accounts;
- more protection for payment service users against fraud risk, whilst improving their confidence in payments;
- improving competitiveness in the payment services sector by protecting Open Banking Service providers against obstacles such issues relating to data access interfaces, which hinders their scope to innovate and grow, whilst also reducing their competitive disadvantage when compared to banks; and
- tackling the disparity in regulation of Member States, which results in forum shopping and the fragmentation of the market, whilst also addressing inefficiencies in regulatory obligations and costs.
Most of the existing direct regulatory obligations on payment service providers will be moved to the PSR so that they apply directly and consistently across the EU. Generally, the PSR will provide rules in relation to (i) rights and obligations in relation to the provision and use of payment services and (ii) transparency of conditions and information requirements for payment services. PSD3 will, on the other hand, remain an EU Directive and provides rules for the authorization of payment institutions.
Some other key proposals under the draft legislation relate to the following:
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- Integrating e-money institutions as a sub-category of payment institutions and introducing a new definition of “electronic money services”;
- Diversification in relation to safeguarding; and
- Extending IBAN verification to all credit transfers.
Next steps
Member States will be required to transpose the Directive into national laws within 18 months of the publication of the final proposal. These proposals will undergo a review by both the Council and the European Parliament. It is envisaged that the final texts, once agreed upon and adopted, could potentially start to apply in 2025 or 2026.
A specific transitional period will apply for the rules of the PSR, whilst PSD3 would need to be implemented into national legislation within a timeframe to be determined by the EU legislator.
Start assessing!
Under the authorization regime introduced by PSD3, authorizations already granted to PIs and EMIs will remain valid for an additional 24 months, from the date of entry into force of PSD3. However, a similar process to the one followed when PSD2 was introduced, will have to be followed by PIs and EMIs whereby they will have to submit a new application at the latest 18 months after the entry into force of PSD3, thereby providing the home regulator with sufficient time to assess compliance with the new requirements.
As a firm, we will be heavily engaged in the assessment of the draft proposals during the coming months, whilst also sharing our views and engaging with industry players. In the meantime, we would strongly suggest that stakeholders which could potentially be affected by these proposals engage in some form of assessment in order to try and gauge the impact that this will possibly have on their business.
Our team dealing specifically with PSD3 and PSR will be more than happy to help out in case of any questions, so do feel free to get in touch with us.
Author: Paul Falzon