Payment Matters: No. 25 - Europe and beyond

• United Kingdom

• Financial services - Payment services

11-10-2016

• EBA launches consultation on fee terminology and disclosure documents under Payment Accounts Directive
• EBA launches consultation on draft guidelines on the criteria for minimum amount of professional indemnity insurance under PSD2
• Monetary Authority of Singapore consults on changes to payments regulatory framework and establishing a National Payments Council
• Spotlight: The Fourth Money Laundering Directive (4MLD)

EBA launches consultation on fee terminology and disclosure documents under Payment Accounts Directive

The Payment Accounts Directive (PAD) aims to improve transparency and comparability of fee information on payment accounts for consumers so that they can shop around and switch providers more easily. To that end, it seeks to standardise the most relevant terminology at member state level and at Union level and it provides for the creation of templates for the presentation of certain fee information to be used by payment service providers.

In line with its obligations under PAD, the European Banking Authority (EBA) has developed in parallel, and on 22 September 2016 launched a consultation in respect of, the following draft technical standards: 

• draft Regulatory Technical Standards setting out the Union standardised terminology for those services that are common to at least a majority of member states;
   
• draft Implementing Technical Standards on the standardised presentation format of the fee information document (FID) and its common symbol; and 
   
• draft Implementing Technical Standards on the standardised presentation format of the statement of fees (SoF) and its common symbol.

What this means for you

The EBA invites comments on all the proposals set out in the consultation paper. The EBA is planning to hold a public hearing on 21 November 2016 and the consultation period ends on 22 December 2016.

Following the adoption of the draft regulatory technical standards by the European Commission, payment service providers will be required to use the proposed standardised terminology in the two disclosure documents to be issued to consumers namely:

• the FID which must be provided to consumers in good time before entering into a contract for a payment account; and
   
• the SoF which must be provided to consumers free of charge at least annually after entering into a contract for a payment account.

The FID must contain the standardised terms in the final list of the most representative services linked to a payment account and, where such services are offered by a payment service provider, the corresponding fees for each service. The purpose of the FID is to enable consumers to compare easily the offerings of different providers and to choose the option that best reflects their needs and uses of the accounts.

The SoF will provide the consumer with a statement of all fees incurred in order to provide the consumer with a general overview of all fees paid during the year to assist consumers in understanding what the fees relate to and to assess whether they should change their consumption patterns or move to another provider.

EBA launches consultation on draft guidelines on the criteria for minimum amount of professional indemnity insurance under PSD2

The revised Payment Service Directive (PSD2) includes a requirement for providers of payment initiation services and account information services to hold professional indemnity insurance (PII) or a comparable guarantee against specified liabilities as a condition for their authorisation or registration.

In line with its obligations under PSD2, on 22 September 2016, the European Banking Authority (EBA) issued a consultation on its draft guidelines on the criteria which competent authorities should consider when stipulating the minimum monetary amount of PII or comparable guarantee to be held by such providers.

In addition to the criteria to be considered, the consultation paper sets out the EBA’s proposal to use a formula for the calculation of the minimum monetary amount of the PII or comparable guarantee, explains when and how the lowest tier should be used, provides details on indicators for the criteria set out in PSD2 and explains the calculation method proposed for some of the indicators.

What this means for you

The EBA invites comments on all the proposals set out in the consultation paper. The consultation will remain open until 30 November 2016. The final Guidelines will be published after consultation. This will be relevant for credit institutions as well as payment institutions given their increased interaction with providers offering the new types of regulated payment services under the new PSD2 regime.

European Banking Authority holds public hearing for PSD2 Consultation paper

As part of the European Banking Authority’s (EBA) draft regulatory technical standards on strong customer authentication and secure communications under the PSD2 consultation paper, a public hearing was held on 23 September 2016. The hearing took place at the EBA’s London office where Dirk Haubrich and Geoffroy Goffinet of the EBA delivered a presentation to attendees.

As part of the consultation process, the purpose of the public hearing was to provide a summary of the consultation paper and re-iterate the questions within. The attendees were also offered the opportunity to gather additional explanations and further clarifications from the EBA in order to assist them with their responses to the consultation paper. The hearing was not an opportunity for attendees to provide feedback, rather the EBA encouraged attendees to formalise their responses to the consultation in writing.

What this means for you

The Consultation period remains open until 12 October 2016. Following this:

• The EBA will assess the responses to the consultation paper, make changes where appropriate, and plans to publish the final draft regulatory technical standards in early 2017;
   
• The EU Commission will then carry out a legal review before it is adopted, for which the EU Council and EU Parliament will hold scrutiny rights; and 
   
• The EBA have advised that given the relevant timelines of the implementation procedure, the application date of the regulatory technical standards will be in October 2018 at the earliest.

ECB website updates

The European Central Bank (ECB) has updated its website to provide more information about instant payments. Pan-European instant payments will be launched across Europe in November 2017, which will dramatically increase the speed at which payments are made and received in Euros throughout the European Union.

What this means for you

More information is now available on the introduction of the instant payments scheme, including:

• The instant payments page summarises the nature of instant payments and how they will benefit consumers, businesses, governments and payment service providers;
   
• The Tell Me More page outlines the changes that will take place after the launch of instant payments and the ECB’s role in preparing for its launch; and 
   
• A further page provides information on future market infrastructure, including the full programme of Sibos 2016, which began on 26 September 2016 with the Eurosystem’s community session entitled "The future at your fingertips – the European market infrastructure of tomorrow."

CPMI establishes wholesale payments security taskforce

The Committee on Payments and Market Infrastructures (CPMI), which promotes the safety and efficiency of payment, clearing and settlement services, announced on 16 September 2016 that it has established a security taskforce.

What this means for you

The taskforce has a broad remit to look at the security of wholesale payments involving banks, financial market infrastructures and other financial institutions.  Cyber fraud is a significant concern to the financial services sector and the creation of the taskforce builds on previous work undertaken by the CPMI on cyber security and operational risk.

According to CPMI Chairman, Benoît Cœuré, the “first phase of this work is seeking to review current practices in this area and based on this input, the CPMI will decide how to proceed.  It is premature to speculate what will result from this work”.

Launch of new European Cards Stakeholders Group

The European Cards Stakeholders Group (ECSG) was launched on 14 September 2016.  The ECSG is picking up the work of the Cards Stakeholders Group which has now reached maturity and the new multi-stakeholder group will focus on the promotion of card harmonisation in the Single Euro Payments Area. 

Representation within the ECSG covers the 5 main industry sectors: retailers/wholesale; vendors (cards, payment devices, related IT systems); processors of card transactions; card schemes and the payments service providers (represented by the European Payments Council).  The ESCG is comprised of 32 organisations, with 4 observers including the European Commission and the European Central Bank.

What this means for you

As part of its promotion of card harmonization, the ESCG will maintain, develop and promote conformance with the SEPA Cards Standardisation Volume (the Volume), a key document for the card industry which defines guidelines for card standardisation, interoperability and security in Europe.

Version 8 of the Volume is currently being prepared for its release and will be the first to be published by the ECSG. 

Monetary Authority of Singapore consults on changes to payments regulatory framework and establishing a National Payments Council

The Monetary Authority of Singapore (MAS) opened a consultation on 25 August 2016, proposing changes to the payments regulatory framework and also the setting up of a National Payments Council.

With developments in technology and the creation of FinTech, the distinction between remittance and payments is becoming less clear with emerging providers not fitting categorically into the two classes.

This consultation, the first in a series of planned consultations, focuses on plans to combine the Payment Systems (Oversight) Act and the Money-changing and Remittance Businesses Act under one framework.

The consultation will look to create a single framework that will license, regulate and supervise all payment services. The framework will include store value facility holders, remittance companies and virtual currency intermediaries.  

MAS also are looking to establish a National Payments Council (NPC). The NPC’s role would be to coordinate key developments within Singapore’s payments services market. In particular it will have a focus on promoting interoperability and adopting common standards throughout the various platforms. It is anticipated that the NPC will be made up of members from payment solutions users and providers and stakeholders to assist the drive in the payment solutions industry. 

What this means for you

The anticipated regulation will be applied on an activity basis and entities transacting in Singapore will be required to apply for a single license to undertake multiple payment activities. It is hoped that a new framework will strengthen consumer protection, anti-money laundering and cyber security related payment activities whilst at the same time increasing the prospects of innovation and system interoperability.

The NPC should see the Singapore payment services market streamlined to provide clarity for entities transacting in it. This is opposed to the current market which, whilst providing a variety of payment solutions for consumers, can be perceived as fragmented.

MAS Deputy Managing Director, Ms Jacqueline Loh said that the consultation is “an important step for MAS and the payments industry to co-create the future of Singapore’s payments landscape; one where payments are swift, simple, and secure, supported by streamlined regulation and inclusive governance”. The conclusion should hopefully boost confidence in the Singapore payment services market.

The consultation closes on 31 October 2016.

PSD: New ECJ Case on Durable Medium, Provide or Make Available

Introduction

Austrian Bank, BAWAG, have been challenged on the format of their communication with customers through their e-banking mailbox by consumer association, Verein fur Konsumenteninformation.

Facts

Two questions were posed, firstly, whether an e-banking mailbox constitutes the criteria of a ‘durable medium’ and if notices of variation were either provided or made available to customers if given via an e-banking mailbox.

Durable Medium

There are four elements of the definition under Article 4(25) of the Payments Services Directive (PSD), which form the criteria of a durable medium, as follows:

0. Must enable the storage of information personally addressed to the customer;
0. That is accessible for future reference;
0. For an adequate period of time; and
0. Guarantees the unchanged reproduction of the information.

The Advocate General (AG) stated that the durable medium is independent from physical structure. Instead the focus is on its functionality and features; thus developing the concept of durable medium which would vary according to technological evolvement.

The AG’s conclusions were:

Information transmitted by a provider to an e-banking mailbox of a customer constitutes information in a durable medium. The key reasoning is below: 

• In order to be a durable medium, it must satisfy the criteria above. However, AG stated there were two elements of concern, whether the information can be stored for an adequate period, and whether unchanged reproduction is guaranteed. It is fundamental that the customer must be able to retain the information received, in a safe format which could be viewed at a later point.
   
• On the first element, the AG found the existence of the e-banking mailbox enables a format for a secured independent storage space that a customer can access with a username and password.
   
• On the second element, in order to guarantee unchanged reproduction, it ought to be impossible for the bank to change or delete the information. It will not be certain that a bank will meet this criteria as it will be under their control as administrators of the e-banking mailbox.
    
• With this in mind, the AG went on to say that payment service providers should be able to deal with this issue because the electronic documents should be capable of being stored separately, and allow the customer to download or print the document. Once in the customer’s possession on their hard drive, or on a printed version, this would then satisfy the element of unchanged reproduction.

Provided or made available

The difference between the two concepts is that information being provided, places the onus on the bank to actively communicate the information to the customer; whereas when the information is made available, the customer has taken a more active role in seeking this information from the bank, which, according to Recital 27 of the PSD, includes logging into a e-banking mailbox.

The AG emphasises the importance of effective transmission of the information – stating that it must go outside of the bank’s control and enter the sphere of the customer’s awareness. For BAWAG, emails were sent directly to the e-banking mailbox, but there was no outside communication to the customer’s personal email address. As the e-banking mailbox may not be regularly checked, it is questionable as to whether this goes far enough to make the customer aware of any unread messages in their e-banking mailbox.

BAWAG’s process was deemed to be sufficient to make available the information to the customer, but not sufficient to meet the more stringent requirement to be classified as providing the information. The AG stated the establishment of an alert to a private email address to advise

that the message had been sent to the mailbox may enable it to be deemed to be provided as well.

What this means for you

Payment service providers may need to revisit their digital communication strategies in terms of how they send required information to their customers on the back of this opinion. However, the opinion is not binding and will be referred to a chamber within the Court of Justice of the European Union for consideration.

Spotlight: The Fourth Money Laundering Directive (4MLD)

What is the 4MLD?

The 4MLD was published in the European Union (EU) Official Journal on 5 June 2015 to give effect to updated standards set by the Financial Action Task Force (FATF), an inter-governmental body which promotes standards to combat money laundering and terrorist financing. 

On 15 September 2016, Her Majesty’s Treasury (HMT) published a consultation on the transposition of the 4MLD into UK law. 

In July 2016, in the wake of recent terrorist attacks and the Panama Papers revelations, the European Commission adopted a proposal to amend the 4MLD in an attempt to further enhance the EU’s anti-money laundering/counter-terrorist financing (AML/CTF) framework.  These proposed amendments to the 4MLD are still subject to negotiation by the EU Member States.  As such, the current HMT consultation does not address these proposed amendments and is very much focused upon the original 4MLD agreed in June 2015.

In addition to the 4MLD, the EU has also published the new Fund Transfer Regulation (FTR) which updates the rules on information on payers and payees accompanying transfers of funds where at least one of the payment service providers involved in the transfer of funds is established in the EU.  The FTR will repeal and replace the current Wire Transfer Regulations.

It is proposed that the current Money Laundering Regulations 2007 (MLR 2007) and the Transfer of Funds (Information on the Payer) Regulations 2007 will both be revoked and replaced with a new piece of legislation – the Money Laundering and Transfer of Funds (Information on the Payer) Regulations 2017. 

When will the 4MLD come into force?

Member States are required to bring into force the relevant provisions by 26 June 2017.

The recent proposed amendments to the 4MLD propose to bring forward the transposition date to 1 January 2017, however this has given rise to concerns being expressed by a number of Member States and regulatory bodies (particularly in the context of virtual currency exchange platforms which will fall within scope of the AML regime for the first time and for which there is no current AML supervisory regime). 

The UK Government is currently working towards a transposition date of 26 June 2017.

What are the key changes subject to consultation?

Simplified due diligence (SDD)

Currently the MLR 2007 enable regulated institutions to conduct SDD in specific circumstances (for example, where a customer is a company whose securities are listed on a regulated market or where specific products are offered). The UK government proposes to remove the list of customers and products that can be subject to SDD and instead require all regulated institutions to apply SDD only where a business relationship or transaction is determined to be of low risk, taking into account factors which are listed at Annex II of the 4MLD - which include customer risk factors, product, service or delivery channel risk factors and geographical risk factors.  This means that, where regulated institutions wish to apply, SDD justification will be required and should be documented.

Politically Exposed Persons (PEPs)

Currently the MLR 2007 define a PEP as a person who is, or who has been (in the last 12 months), entrusted with a prominent public function in (1) a state other than the UK, (2) an EU institution or (3) an international body.  All PEPs must be subject to enhanced due diligence (EDD).

The 4MLD removes the distinction between domestic and foreign PEPs. As such, EDD measures will be applicable to a wider scope of PEPs. This has caused some concern and the UK government has enacted s. 30 of the Bank of England and Financial Services Act 2016 which requires the Financial Conduct Authority to issue guidance on the requirement to take a proportional and risk based approach to conducting transactions with each category of PEP. The guidance must specify categories of persons which are to be included and excluded within any new definition of a PEP. The HMT consultation specifically seeks views on the expansion of PEP status to UK members of parliament and the governing bodies of political parties.

Beneficial ownership

The 4MLD requires all Member States to ensure that a central register is kept of all information relating to beneficial ownership of all legal entities incorporated within them.  In light of this, the UK government amended the Companies Act 2006 to require all UK companies (except those exempted due to being listed on a recognised stock exchange) to establish and maintain a People with Significant Control (PSC) Register, which records details of all entities and individuals who meet the definition of an ultimate beneficial owner (UBO).  Every company is required to update their register with Companies House on an annual basis.  The aim of the PSC register is to increase transparency in respect of ownership and control.  

The UK government is also proposing to establish a public register of beneficial ownership of all foreign companies who own or purchase property within the UK and proposes certain approaches to trusts within the consultation.

Extension of “fit and proper” test to Money Service Business (MSB) agents

Many MSBs operate by way of an agent network.  Currently agents of MSBs are not subject to a “fit and proper” assessment and the government is seeking views as part of the consultation as to whether the “fit and proper” test should be expanded so that agents are included within scope.

What does this mean for you?

HMT’s consultation closes on 10 November 2016.  Regulated firms should consider its content and, where appropriate, consider responding to the specific questions raised.  Engaging in the consultation process now will allow firms to gain an understanding of how the proposed changes to the current legislation will affect their business, enabling them to conduct a gap analysis and update risk assessments in order to ensure that they are ready for compliance once the 4MLD is brought into effect.