'Significant divergences': EBA publishes report on PSD2 authorisation peer review
Published on 16th Feb 2023
Competent authority practices continue to diverge, according to the review into the directive's authorisation processes
In 2017, the European Banking Authority (EBA) published a report containing guidelines on the information and documentation that should be required from those seeking authorisation as payment institutions (PIs) and e-money institutions (EMIs), or registration as account information service providers (AISPs) under the Second Payment Services Directive (PSD2).
Europe's banking regulator has since been carrying out a peer review examining how well the recommendations were implemented. The EBA has set out its findings in its recent report on the peer review on authorisation under PSD2.
Assessment of implementation
The EBA's review focused on implementation of the 2017 guidelines around: business plans; structural organisation, governance arrangements and internal control mechanisms; the anti-money laundering and combating the financing of terrorism internal control framework; and assessment of shareholders with qualifying holdings.
The EBA concluded that competent authorities (CAs) have overall largely implemented the recommendations. Where implemented, the 2017 guidelines had achieved their objective of providing both consistency and transparency for applicants when going through an authorisation or registration process.
However, a number of CAs have not fully implemented the 2017 guidelines, with gaps in some key areas. Examples of specific CA requirements were listed in relation to each of the guidelines that were examined.
Divergences in practice
The EBA also found significant divergences concerning the assessment of information submitted, as well as the scrutiny given by CAs.
It noted variations in the scope and intensity of assessing business plans and the suitability of shareholders with qualifying holdings. It also noted divergences in the criteria used for assessment of directors and persons responsible for managing applicants, as well as different interpretations of the local substance requirements in PSD2.
Differing supervisory expectations
The EBA is concerned that differing supervisory expectations may result in an increase in forum shopping among prospective applicants. This ultimately undermines the objectives of PSD2 to establish a single EU payments market.
The EBA argues that CAs should be doing more to ensure applicants are effectively managed and controlled from the jurisdiction in which they are seeking authorisation and that they have legitimate reasons to seek jurisdiction authorisation in that particular jurisdiction (including having close links).
It is therefore unsurprising that the EBA found that the number of new applications for authorisation varies significantly across the CAs, with no apparent correlation with the size of the Member State.
There were also variations in the average duration of the authorisation process. While certain authorities have been turning around applications between four to six months, others have taken more than 15 months on average.
The EBA report identifies certain practices that it recommends as beneficial for other CAs. Specific recommendations are also made for particular CAs, which will be the subject of an EBA review in two years' time.
There are also a number of recommendations for the European Commission in the context of its own ongoing PSD2 review work. This includes clarifying: the delineation between different categories of payment services; the applicable governance arrangements for PIs and EMIs; the criteria for authorities to use in assessing suitability of directors and persons responsible for management; and the requirements for local substance rules.
Osborne Clarke comment
Differing supervisory expectations means that where an application for authorisation or registration is brought may still have significant impact both on the consideration of the application and the time it takes to process.
However, prospective applicants should also be aware that we expect these issues to be on the EU Commission's radar in the context of the ongoing review of PSD2.
This Insight was written by Mirshad Ahani, Trainee Solicitor for Osborne Clarke