With the Payment Services Directive II (PSD2) needing to be implemented by 13 January 2018, the UK payments sector is gearing up for the biggest regulatory changes since the Payment Services Directive (PSD) was implemented in 2009. Earlier this month HM Treasury published its consultation (PDF) on implementing PSD2 – we take a brief look ahead of the consultation closing on 16 March 2017.
Evolution in payments, supported by an evolving framework
PSD provided a fairly solid base to work from. As a result, PSD2 is one of few legislative acts that is ahead of current practices – “technology neutral” is the trend du jour for more recent EU legislation. This has led to a general approach of simply widening the net under PSD2 in order to keep ahead of the rapid technological and consumer-driven changes in the payments landscape.
The provisions of PSD2 reflect a natural evolution of the original PSD principles by:
- retaining the benefits of transparency and certainty of operational requirements such as execution times and liability.
- providing additional clarification and protections for consumers and business to continue to ensure that the market operates effectively and efficiently.
New PSD2, continued use of derogations and interpretation to retain regulatory flexibility
The PSD was implemented in the UK through the Payment Services Regulations 2009. Despite the incremental nature of many PSD2 changes, the Payment Services Regulations 2009 will be completely repealed and replaced by a new set of Payment Services Regulations. A key goal is minimising the cost to businesses and consumers. HM Treasury has also confirmed:
- it will "copy-out" the text of PSD2 into the new regulations, where possible
- for the most part, it will carry forward as many of the existing rules set out in the Payment Services Regulations 2009 as possible
- continued use of derogations exercised in the implementation of the PSD, “in order to ensure continuity and consistency with the implementation of the PSD in the UK and that the payment services regime remains, as far as is possible, tailored for the UK payments market”.
This will be welcome news for many wanting to avoid a spaghetti junction of overlapping regimes that plague other financial services legislation (such as collective investment in funds!) and increase barriers to entry which hit innovation and competition.
For example, PSD2 allows member states to exercise derogations in respect of:
- waiving all or parts of the directive for certain institutions, which HM Treasury proposes should continue to include the National Savings Bank, credit unions and municipal (as it mirrors a parallel derogation in the Capital Requirements Regulation that is in force)
- Small Payment Institutions, by continuing to allow them to become registered rather than fully authorised and benefit from reduced prudential requirements
- “micro-enterprises”, by continuing to afford them the same protections (from charges for information) as consumers which should support small businesses in accessing a wider range of payment methods
- low value payments under a framework contract, HM Treasury proposes to exercise its flexibility by doubling the thresholds (in order to lower the administrative burden and encourage more prolific use) for individual payments from €30 to €60, with the spending limit increasing to €300 and the max storage of funds increasing to €500.
Where PSD2 provides new provisions and obligations that weren't covered in PSD, the HM Treasury will seek to interpret those provisions broadly. For instance, the consultation contains confirmation that the government will interpret "account information service" and "payment initiation service" broadly so as to capture as many service providers in this area as possible (including price comparison service providers and dashboard service providers that show aggregated information across a number of payment accounts). This approach is consistent with the UK keeping its options open as payment technologies evolve and the uncertain nature of the arrangements in relation to EU legislation, once negotiations are concluded.
Termination of credit agreements on overdrawn current accounts – a surprise?
Generally, it is fair to say that the consultation reflects the UK's approach to act in the best interests of the UK payments sector – so much of this has been played out in the negotiations that led up to PSD2 being finalised during the EU legislative process.
The government's proposal to grant the right of termination to regulated credit agreements in respect of overdrawn current accounts was perhaps not on everyone’s radar. This right does not currently exist under the Consumer Credit Act (which interacts quite closely with the Payment Services Regulations 2009 in this area) and would allow a customer the ability to terminate a framework contract and switch current accounts even whilst in overdraft. Whilst this presents some obvious advantages for consumers, it means that the Payment Service Provider that provides the terminating product will have to rely on contractual rights to recover the outstanding debt. As the consultation points out, there "is already a market practice for this through the Current Account Switching Service, which allows customers to switch current accounts even if the account is overdrawn”. How this plays out in the availability of current account overdrafts will be interesting to see.
A post-Brexit approach to EU regulation?
Taken as a whole, the questions and proposals in the consultation begin to paint the picture of the implementation of PSD2 – it looks to make the transition from PSD as simple as possible retaining the familiarity of existing rules. At the same time, it seeks to ensure that any new rules continue to promote the interests of consumers as strongly as possible. That won't be a surprise to many in light of the considered push by legislators and regulators towards innovation and competition balance against (or increasingly aligned) with consumer protection.
It appears that the UK government will continue as much as possible to transpose any new regulatory regimes on a similar basis. And that it will broadly interpret areas that are not governed by existing rules in order to build a competitive advantage, whilst still being aligned with EU legislative policy. It could be legislation-specific in the case of PSD2, but given ongoing discussions around adequacy and equivalence in a post-Brexit world, the likelihood is that this basis of implementation will continue for the foreseeable future.
We have advised payment service providers, electronic money institutions and credit institutions on the existing Payment Services Regulations 2009 regime. If you provide services that are or may be captured by PSD2 and would like to discuss how it will affect your business, please contact your usual Burges Salmon lawyer.
This article was written by Gareth Malna and Adrian Shedden.