In brief | Payments law round-up

Written on 8 Apr 2020

In this Insight we highlight recent developments from across the EU that payments firms need to be aware of.

FCA declares ‘safe and accessible payments’ a priority in its Business Plan

On 7 April 2020, the Financial Conduct Authority (FCA) released its Business Plan for 2020/21.

Making payments ‘safe and accessible’ is one of four priorities the regulator will be focussing on over the next one to three years. According to the Business Plan, this means ensuring that consumers and small and medium-sized enterprises can safely access a variety of payments services. The FCA has also expressed concern over the impact that Covid-19 is having on payments firms’ financial strength and consumers’ ability to access cash and payment services.

Firms should not be surprised to hear that issues such as operational resilience, minimising payment fraud, and safeguarding customer funds continue to feature heavily on the FCA’s agenda and will be subject to increased regulatory scrutiny. Where firms fail to meet their regulatory requirements, they can expect the FCA to act swiftly.

Will money laundering regulations apply to providers of AIS and PIS?

HM Treasury intends to publish a document setting out its position on whether the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLRs) apply to payment service providers providing account information services (AIS) and/or payment initiation services (PIS).

By way of reminder, the MLRs apply to regulated providers of AIS and PIS (authorised payment institutions and registered account information service providers as “obliged entities”). However, given the nature of AIS and PIS, the money laundering risk is very low (if non-existent) in relation to these services. Many market participants therefore consider that they should either be exempt from the MLRs requirements (in particular around Customer Due Diligence (CDD)), or that they should be able to take a risk-based approach and not apply CDD measures to payment service users receiving AIS and/or PIS.

In the meantime:

  • the European Supervisory Authorities have jointly published a consultation paper proposing to add sectoral guidelines for providers of PIS and AIS. The draft guidelines set out common expectations in respect of their AML/CTF compliance efforts, in particular regarding monitoring, and stress that in most cases, simplified customer due diligence will be the norm.
  • the Joint Money Laundering Steering Group (JMLSG) has published a proposed new sectoral piece in Part II of its Guidance, which takes into account The Money Laundering and Terrorist Financing (Amendment) Regulations 2019 which brings cryptoasset exchange providers and custodian wallet providers into scope of the MLRs.

Fifth Money Laundering Directive not yet implemented in all EU Member States

The Fifth Money Laundering Directive (5MLD) has now been transposed into the national laws of the UK, Italy and Germany. However, despite 10 January 2020 being the deadline for all EU Member States to do this, The Netherlands, France, and Belgium (and others) are still playing catch-up.

This has prompted the European Commission (Commission) to send letters of formal notice to the following member states urging them to transpose 5MLD: Cyprus, Hungary, the Netherlands, Portugal, Romania, Slovakia, Slovenia and Spain.

The Commission states that without a satisfactory response from these member states within 2 months (i.e. by mid-Aril 2020), the Commission may decide to send them reasoned opinions (a formal request to comply with EU law). If the member states continue not to comply, the Commission may decide to refer the matter to the European Court of Justice.

It is envisaged that 5MLD will be implemented in the Netherlands in spring 2020. See here for more detail on this from Osborne Clarke’s Financial Regulation team in the Netherlands.

Lex Apple Pay

Germany has shoehorned provisions relating to Lex Apple Pay into its new law transposing 5MLD. This was done at a very late stage – 13 November 2019 – leaving many market participants baffled and without time to pass comment. The substance of the new laws is even more surprising than the legislator’s approach. There is concern that Lex Apple Pay may have unintended consequences by capturing business models that were not intended by the legislator. It may, however, be some time before we see Lex Apple Pay being applied and the competition law aspects of this new law put to test.

Can you charge for PayPal?

Following a recent German court case, German merchants can charge customers for paying by PayPal or SOFORT, while UK merchants cannot.

Under the Payment Services Directive (PSD) 2, a payee should not charge for accepting payments using:

  • payment instruments subject to interchange fees regulation; or
  • payment services subject to Single Euro Payments Area (SEPA) regulation.

An agreement will therefore be invalid if the payer is charged when making:

  • card-based transactions subject to interchange fee capping (i.e. not commercial cards, card-based cash withdrawals or cards issued under three-party schemes); or
  • direct debit or credit transfers denominated in euro within the European Economic Area (EEA) and between EEA-based payment service providers.

The UK government confirmed the UK prohibition extends to all retail payment instruments, including PayPal and SOFORT. The contrasting position reached by the German court is striking given that both SOFORT and PayPal transactions are underpinned by credit transfers and direct debits, respectively, both of which are widely considered to be payment services subject to SEPA regulation.

What’s going on within Osborne Clarke International?

In Germany, Dr. Daniel Walter, a partner in the Banking & Capital Markets practice, has co-authored the second edition of a legal guide for banks, credit card companies and payment and electronic-money institutions who are subject to The Payment Services Supervision Act. It provides a clear and detailed review of the regulations, the latest commentary on interpretative and other legal disputes, together with the authors’ views on a variety of topics. It will be published this month.

In Italy, Umberto Piatelli, Head of Financial Services Osborne Clarke, Italy, has published a legal guide for payment and electronic money institutions entitled ‘The regulation of new finance technology: From new payment systems to artificial intelligence’. It covers a broad spectrum of topics, from PSD2, FinTech and anti-money laundering to the legal frameworks for crowdfunding, blockchain, cryptocurrencies and artificial intelligence.

See also Umberto Piatelli’s latest insight on the draft Regulation of the Italian Ministry of Economy and Finance on the FinTech sandbox.

Find out about the new money laundering guidelines published by the Dutch Central Bank and the EBA’s consultation on institutional risk in this insight from our Financial Services Regulatory team in the Netherlands.