The ECB seeks to harmonise and bring clarity to PSD2
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A version of this article first appeared in E-Finance & Payments Law & Policy - March 2014
On 5 February 2014, the European Central Bank (‘ECB’) published its opinion on the proposal for a directive on payment services in the internal market (COM (2013) 547/3) (‘PSD2’), following a request from the Council that it examine the draft text of the legislation. In this article, John Worthy and Clare Burman of Field Fisher Waterhouse LLP consider the ECB's comments and how they are likely to impact on the final text of PSD2.
Role and opinion of the ECB
Among its many roles, the ECB is tasked1 with promoting the smooth operation of payment systems in the EU and is permitted2 to be involved in the legislative process by giving opinions on draft EU and national legislation which is of relevance to the European System of Central Banks (‘ESCB’). As such, it is understandable that the Council would seek the ECB's opinion on the draft text of PSD2.
The ECB is broadly supportive of the objectives and contents of the proposed directive and makes some useful suggestions to clarify the Commission's (sometimes flowery and confusing) drafting.
Broadly, three main themes run through its proposals: addressing administrative/house-keeping aspects of the proposed directive; enhancing consumer protection and security; and ensuring harmonisation – internally within the proposed directive, with other European legislation, and between the Member States. Taking these in turn:
Administrative proposals
Many of the ECB's proposals, such as tidying up the definitions in the proposed directive, or adding Europol as one of the additional authorities with whom competent authorities can exchange information (Article 12(1)) are unlikely to be controversial and have also been suggested by others (see below). The ECB has also suggested that the existing system for sharing information between competent authorities and others could be improved by making the European Banking Authority (‘EBA’) responsible for coordinating information sharing, with the ECB notifying the ESCB as regards issues relevant to payment systems and payment instruments (Article 85).
Harmonisation
The ECB's opinion flags some inconsistencies within the proposed directive. It suggests, for example, creating a coherent compensation policy by aligning the financial compensation to be paid by third party service providers (‘TPPs’) to the account servicing PSP following an unauthorised transaction (Articles 65 and 82) with that which would be available for non-execution, defective or late execution. The ECB also notes that the services offered by a TPP which issues cards and one which uses payment account information are not essentially different, so proposed rules relating to access to, and the use of, payment account information ought to be merged to ensure consistency.
Many of the ECB's comments are mindful of the wider SEPA project. For example, it suggests that consumers using payment initiation services should enjoy the same level of protection that debtors already enjoy under SEPA and be able to instruct their provider to establish specific positive or negative lists of TPPs (new Article 59a). Similarly, it argues that Recital 57 and Article 67(1) proposed by the Commission, far from strengthening consumer protection, would prevent consumers from benefiting from the unlimited refund rights under the current SEPA direct debit scheme, and may also be so unwieldy as to be unworkable. It suggests instead introducing an unconditional refund right on all consumer direct debits for a period of eight weeks, with scope for opting out where goods or services are meant for immediate consumption. Finally, several of the ECB's proposals seek to reduce the scope for Member States to apply different interpretations of PSD2. To that end, the ECB has recommended removing Member States' discretion regarding national payments transactions (Articles 35(2) and 56(2)) and recommended that the EBA should develop common guidelines on complaint procedures for competent authorities (Article 89).
Consumer protection and security
Security is a theme that the ECB is developing more broadly, having also published its ‘Assessment Guide for the Security of Internet Payments’ in February 2014.
The ECB notes that the core principle of IT security is that credentials used to authenticate the payment service user are not shared with any third party. To that end, it strongly advocates the use of a strong customer authentication system by TPPs, via a standardised European interface for payment account access, based on an open European standard which will allow any TPP to access payment accounts throughout the EU. While the ECB's opinion lists certain minimum criteria for such a system, aimed at protecting account holders' data, and suggests that the detail should be defined by the European Banking Authority in consultation with the ECB, it also recommends that the main aspects (including a liability regime) ought to be clarified in the proposed directive.
In addition to its proposals (see above) to ensure consistent protection of consumers, the ECB is keen to ensure that safeguarding obligations are extended. It recommends that there should be a consistent obligation to safeguard in Article 9(1) and it should be irrelevant whether the payment institution is engaged in other business activities or not.
In one particular area though the ECB's enthusiasm for consumer protection seems likely to result in practical difficulties for the payments industry: the ECB (like ECON – see below) recommends that Title IV of the proposed directive should apply to payment services in any currency and also (aside from Articles 72 and 74(1)) apply to so-called ‘one-leg’ transactions. This will need more thought: as an example, Article 69 requires Member States to ensure that a payment order is deemed to be received when the payment order is received by the payer's PSP. The ECB does not elucidate what it expects will (or should) happen where the payer's PSP is outside the EU and a different time for receipt may be deemed under local law.
One voice among many
The ECB's opinion is just one of a plethora that have been generated by European institutions, as PSD2 is currently being reviewed by both the European Parliament and also by the Council of the EU, which represents the EU's Member States. This parallel process has resulted in recommendations being made:
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to the European Commission by the European Data Protection Supervisor on 5 December 2013 and by the Commission's European Economic and Social Committee on 11 December 2013; and
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to the European Parliament by its Committee on Legal Affairs for the Committee on Economic and Monetary Affairs on 18 December 2013 and its Committee on Economic and Monetary Affairs (‘ECON’), in a report adopted on 20 February 2014.
Each entity has focussed on different angles, although there has been little comment on the proposed exemptions from PSD2, which is perhaps surprising given the concerns within the industry as to the lack of clarity in this regard. However, collectively, they have made a wealth of suggestions: the ECON report alone contains nearly 600 proposed amendments, many of which are similar or identical to those recommended by the ECB3, but the majority of which differ in approach or go beyond the areas commented upon by the ECB.
What next?
The European Parliament considered ECON's report and voted on 3rd April 2014 to adopt its recommendations; it is now for the Commission, the Council and the Parliament to agree on a final text for PSD2.
Although the aim has always been for PSD2 to be agreed during 2014, this will be a challenging timeline and PSD2 cannot, of course, be seen in isolation - it is part of the Commission's ‘payments legislative package’ and will need to be agreed in parallel with the proposed Regulation on Interchange Fees, the NIS Directive and updated data protection rules. With elections to the European Parliament looming on 22 - 25 May and the subsequent reconstitution of the Commission on 1 November, the Parliament, the Council and the Commission have a relatively narrow window within which to address the many concerns voiced by industry and bodies such as the ECB and to agree the final text of PSD2 and the other legislation in the payments package. The European Parliament's decision on 3rd April to consolidate the work done so far and hand it over to the next Parliament (which ensures that the newly elected MEPs can decide to build on the work already done rather than starting from scratch) is a pragmatic and necessary response designed to maintain the legislative momentum.
Closing thoughts
While the eagerness for legislative change is commendable, it would perhaps be better for the legislators to reach a considered agreement on the payments package, taking into account the advice supplied by experts such as the ECB and the European Data Protection Supervisor, rather than rushing the process and losing the opportunity to create a coherent suite of payments legislation. A delay to 2015 could result in legislation worth waiting for.
In the meantime, we must wait to see the degree to which the ECB's opinion carries weight with the legislators and is taken into account in the agreed text of PSD2.
1. See Article 127(2) of the Treaty of the Functioning of the EU (‘TFEU’) and Articles 3 and 22 of the Statute of the European System of Central Banks (‘ESCB’) and of the ECB.
3. Such as changes to certain definitions, the extension of most of Title IV to one-leg transactions, Europol becoming an additional authority, and various improvements to security features.
