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Payment Matters 18: Europe and beyond

  • United Kingdom
  • Financial services - Payment services


In this issue:

European Commission sends formal charges to MasterCard concerning competition law infringements

On July 9, 2015 the European Commission formally charged MasterCard with alleged infringements of EU competition law under TFEU, Article 101(1) which prohibits anti-competitive agreements.

The Commission has taken the preliminary view that MasterCard and the financial institutions that issue MasterCard branded cards to cardholders, or process transactions with those cards for retailers, form an association of undertakings. The specific concerns which form the Statement of Objections (SO) relate to MasterCard’s rules on cross-border acquiring - which prevent banks offering lower interchange fees to retailers from other Member States for services to receive card payments -  and the levels of MasterCard’s inter-regional interchange fees.

What this means for you

The SO is a statement of the Commission’s case and is not a decision.  MasterCard is now able to prepare a response and may request an oral hearing.  After considering MasterCard’s response, the Commission will publish its final decision. If the Commission concludes that there has been an infringement and MasterCard does not make changes voluntarily to address the Commission’s concerns, the Commission has the power to impose fines on MasterCard of up to 10% of its group world-wide turnover.


Treasury consults on the implementation of the EU payment accounts directive

On June 23, 2015 HM Treasury announced a consultation on the proposed steps that the government will take in order to make sure that the UK meets its obligation to transpose the Payment Accounts Directive (2014/92/EU) into UK law. The consultation invites views on the draft Payment Accounts Regulations 2015, which set out to minimise any negative impact on the UK industry and consumers as far as possible.

A summary of the UK’s proposed approach to implementing the Directive is available here, which includes details of the proposed approach in relation to comparison website requirements, packaged accounts and switching. A number of required changes to the Financial Services and Markets Act 2000 have been identified, including amendments to the FCA’s powers in respect of information gathering and sharing, investigations and discipline. There are also proposed limited changes to the Financial Services (Banking Reform) Act 2013 in order to confer a new power on the PSR in respect of designating alternative switching arrangements in accordance with the requirements of Article 10(1) of the Payment Accounts Directive. Amendments will also be required to the Financial Services and Markets Act (Service of Notices) Regulations 2000 and Financial Services and Markets Act 2000 (Disclosure of Confidential Information) Regulations 2001.

The Directive was adopted on August 28, 2014 and member states are required to transpose its provisions into national law by September 18, 2016. The UK is aiming to finalise the measures needed to implement the Directive before the end of 2015.

What this means for you

Firms are advised to carefully read the consultation and to respond before 3 August 2015. The consultation provides more clarity on how the Directive will be transposed into UK law and, in particular, which types of accounts will fall within the scope of the UK regulations. This puts firms in a better position to assess the impact that the Directive will have on their business. For further information please contact Richard Jones or Ruth Fairhurst.

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EBA outlines its upcoming initiatives for the regulation of retail payments

On May 21, 2015 the European Banking Authority announced that it is preparing to develop requirements that will harmonise regulatory and supervisory practices to ensure secure, easy and efficient payment services across the EU by fulfilling mandates under the upcoming revised Payments Services Directive (PSD2) and the Interchange Fee Regulation. The EBA will be approaching the industry and other interested parties to gather their input at an early stage of the regulatory development process.

In summer 2015 the EBA will also develop Regulatory Technical Standards pursuant to the Interchange Fee Regulation to ensure that payment card schemes and processing entities are independent from one another in terms of accounting, organisation and decision making processes.

What this means for you

Firms should keep abreast of announcements from the EBA and are advised to fully engage in the process of providing input at the relevant time. 

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Spotlight on... PSD2

Big changes are on the way for the laws and regulations on payment services. These changes will have an impact throughout the payments community, including for banks and building societies, cards issuers, merchant acquirers, previously unregulated payment facilitators and merchants.

The changes will arrive in the form of a second Payment Services Directive (PSD2). PSD2 is part of a package of measures intended to modernise and improve the European retail payments regulatory framework. It is a response to new innovative payment services across all channels, including internet and mobile devices, which seeks to improve security and consumer protection and address various areas of legal uncertainty in the original Payment Services Directive (PSD1).

The original PSD2 proposal was published in July 2013, with the final compromise proposal having been published in June 2015. It is anticipated that Member States will be required to transpose PSD2 into national law by sometime in 2017. Therefore it is essential that the industry is considering now the technical and compliance challenges that are posed by PSD2 and how they will respond.

Key changes include:

  • Many obligations contained within PSD1 will now apply to a broader range of payment transactions (i.e. they will apply to all currencies where both the payer’s and payee’s payment service providers (PSPs) (or the sole PSP) are located in the EU and will also apply to transactions carried out where only one of the PSPs is in the EU (in respect of the parts of the transaction which are carried out in the EU).
  • There are new types of payments services being brought within the remit of the directive in order to regulate types of PSPs which have become prevalent in the market since PSD1 was put in place in 2007. These new regulated providers will be known as payment initiation service providers (PISPs) and account information service providers (AISPs) and detailed provisions around their obligations and interaction with account servicing PSPs (i.e. banks and building societies) are included in the text.
  • There are amendments to the exemptions in PSD1 to address differing approaches across Member States and close down unintended loopholes in previous exemptions which allowed certain entities to remain unregulated when this should not have been the case. Amended exemptions include the “commercial agent” exemption, the “limited network” exemption, the “mobile device content” exemption and the ATM exemption.
  • There will be new security requirements including the obligation for PSPs to apply “strong customer authentication” and establish a framework with appropriate mitigation measures and control mechanisms to manage operational risks. There will also be additional notification obligations where major security incidents arise.
  • The liability provisions are amended to reduce a payment service user’s liability for an unauthorised payment transaction from €150 to €50. There are also amendments to the liability provisions to take account of the interaction between an account servicing PSP and the AISPs and the PISPs to make it clear where liability should sit depending on where in the payments chain the issue has arisen.

Although it is clearly some time until the relevant provisions will enter into local law, our international payments practice has already been busy advising a large number of payment providers on how the new regime will impact on their business. This has included bespoke training sessions, advice on lobbying as the Directive has progressed, reviews of terms and conditions to advise on likely changes, advice on changes to business processes and technical solutions, assistance with analysis of whether previously unregulated entities will require an authorised payment institutions license and analysis of security requirements in comparison to the EBA’s security of internet payment guidelines.

In addition to the above, PSD2 contains a number of other interesting changes from the original legislation and we would be happy to discuss those with you if required. The international payments group also advises day to day on putting in place terms and conditions which reflect the current regime (such as for current accounts, cards products and merchant acquiring arrangements), FCA authorisation/licensing issues, the directive’s passporting regime and advising on the contractual arrangements between financial institutions and technology providers as they look to take advantage of new innovative technology and payment services whilst remaining compliant (e.g. Apple Pay and Paym).

For further information on any of the above, please contact Richard Jones, Jonathan Master or Ruth Fairhurst.

Key PSD2 dates

24 July 2013 Publication of a proposal for PSD2 by the European Commission
18 Dec 2013

Publication of the Opinion of the Committee on Legal Affairs for the Committee on Economic and Monetary Affairs on PSD2

05 Feb 2014 Opinion of the European Central Bank
12 Mar 2014 Publication of a Committee report tabled for plenary, 1st reading/single reading
02 April 2014 Debate in Parliament
03 April 2014 Decision by Parliament
20 June 2014 Council issues State of play
27 June 2014 Presidency compromise published by the Council of the European Union as a result of the discussions during the Hellenic Presidency
23 July 2014 Presidency compromise published by the Council of the European Union as a result of the discussions at the 9 July Working party meeting
12 Sept 2014 Presidency compromise published by the Council of the European Union as a result of the discussions at the 25 July Working party meeting
24 Sept 2014 Presidency compromise published by the Council of the European Union as a result of the discussions at the 16 September Working party meeting
14 Oct 2014 Presidency compromise published by the Council of the European Union as a result of the discussions at the 29 September Working party meeting
20 Oct 2014 EBA Consultation Paper on the implementation of guidelines on the security of internet payments
31 Oct 2014 Presidency compromise published by the Council of the European Union as a result of the discussions at the 16 October Working party meeting
21 Nov 2014 Presidency compromise published by the Council of the European Union to be discussed at the 24 November Working Party meeting
01 Dec 2014 Presidency compromise published by the Council of the European Union as a result of the 24 November Working Party meeting
01 Dec 2014 Approval of a negotiating mandate
09 Dec 2014

Debate in Council

16 Jan 2015 Approval of final compromise text by Council
05 May 2015 Trilogue
02 June 2015

Confirmation of the final compromise text with a view to agreement as a result of the Trilogue of 5 May 2015

09 June 2015 Publication of statements regarding final compromise text
Autumn 2016

Based on current progress, Member States will have until then to transpose the Directive into national law

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