BaFin announces implementation of new European Banking Authority (EBA) guidelines on determining the scope of the “limited network exemption” under the Payment Services Directive (PSD2).

The German Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht - BaFin) has announced on its website, in the in-house BaFinJournal, that it will implement the revised EBA guidelines on the limited network exemption under PSD2 and is therefore adjusting its administrative practice. The guidelines clarify, among other things, how national competent authorities should assess whether a network of service providers is limited (in this case called limited network exemption) or a set of goods and services qualify as "very limited" (in this case called limited range exemption) and are therefore not covered by PSD2.

The new EBA guidelines aim to eliminate the significant differences in the previous application of the exclusion rule in the EU member states, to contribute to the single market for payment services in the EU and to ensure transparency for supervisors and customers. In this context see also our Payments Group's contribution to the EBA consultation.

Significant novelty - applicability of area exception for pure online stores

In its previous Guidance Notice on the ZAG, BaFin stated that the limited network exemption only applies to internet offerings where the same goods or services are also offered on site. Due to the EBA guidelines and their implementation by BaFin, the area exception now also applies to online-only stores. This means that a limited network of service providers can now, unlike before, consist only of online stores. BaFin is transferring this assessment to its administrative practice; however, the BaFin Guidance Notice on the ZAG has not yet been adapted.

However, BaFin is holding on to its previous administrative practice to the extent that internet marketplaces that only mediate between buyers and sellers cannot benefit from the exemption. This was previously justified by the fact that the exemption only applies to goods and services that are also available on site. BaFin has not yet provided any new justification (such as, e.g., that an Internet marketplace is not a limited network because it aims to include as many sellers as possible).

Mandatory notification

Deadline: September 1st 2022

Under the current legal situation, companies using the limited network exemption or the limited range exemption must notify BaFin if the total value of payment transactions in the previous twelve months exceeds 1 million Euro. This notification requirement will be retained, but the EBA guidelines set out new requirements for the notification procedure.

The EBA guidelines will apply from 1 June 2022, but companies that already benefit from the exemption will have to submit a new notification to BaFin by 1 September 2022 at the latest. In this respect, (only) the issuers of the payment instruments covered by the exemption are obliged to do so.

The form provided online by BaFin should be used for the notification.

(New) notifications must now be submitted by the companies directly to BaFin (electronically). Submission of the notification by associations, as was a common practice in the past, is no longer permitted and ineffective.

Consequence in case of disregard of the deadline

The existing register will be deleted on 1 September 2022. If no or only a late notification is submitted by then, the existing entry will be deleted. Notifications that are not submitted on time will be treated as first-time notifications and a new decision will be taken, possibly with a waiting period of several months.

Extended information on the business model

With the redesign of the EBA Guidelines, there is now an increased need for information for entrepreneurs who rely on the area exception of a limited network of service providers or very limited range of goods and services.

For businesses relying on the "limited network of service providers" exemption, information must now be provided, in addition to the previous notification requirements, on:

  • the relevant geographic area for the supply of goods and services;
  • the volume and value of payment transactions to be made annually with the payment instruments;
  • the maximum amount to be credited to the payment instruments;
  • the maximum number of payment instruments to be issued; and;
  • the risks to which the customer is exposed when using the relevant payment instrument.

With the exception of the information regarding the geographic area, merchants relying on the "very limited range of goods and services" area exception must provide the same information as just presented above.

Other novelties and clarifications

Separation of regulated and unregulated payment instruments

Due to the new EBA guidelines, it is now not possible to combine regulated and unregulated payment instruments on one carrier. It is necessary to place them on different carriers. It is still permissible to combine several payment instruments covered by the exception on one carrier.

One payment instrument - one exception to the scope of application of PSD2 respectively ZAG

A single payment instrument that claims an exemption from PSD2 / ZAG may not be combined with any other exemption. Only one exception can be used per payment instrument.

Issuance of Unregulated Payment Instruments - Obligation to Provide Information

Payment instruments outside the scope of PSD2 respectively ZAG may also be issued by payment service providers. However, such payment instruments must be provided with a simple and clearly understandable notice that the payment instrument is unregulated and not supervised. It must also be made clear that the protection of the PSD2 respectively ZAG and the civil law payment service regulations therefore do not apply.

Involvement of third parties

The company issuing the payment instrument may transfer the conclusion of contractual agreements to third parties, who then act on behalf of the businesses. It should be noted that, depending on the activity transferred and the agreement reached, third parties may themselves become providers of payment services subject to authorization. This applies, for example, in the context of prepaid offers. If the third party is involved in the loading of payment instruments and carries out the loading, the network or product exemption from PSD2 resp. ZAG should not apply, as the loading does not directly serve the acquisition of goods or services.

Perspective

Implement specifications promptly

In addition to the above-mentioned changes, BaFin's administrative practice remains unchanged, as it has already previously been strongly oriented towards the EBA guidelines. The changes should be implemented by the affected companies as soon as possible, i.e., within the next few months.

Caution when resorting to BaFin Guidance Notice

The BaFin Guidance Notice on the ZAG, which also contains information on the understanding and scope of the exceptions, has not yet been updated. It is still dated as of 2017 and therefore does not reflect the current administrative practice of BaFin. Caution should therefore be exercised when relying on the BaFin Guidance Notice for internal audits as to whether or not the company's own payment instruments meet one of the exemption criteria.

The BaFin bulletin emphasizes that the geographic dimension is irrelevant in the context of the exception to the limited range of goods and services. This is a contradictory statement to the currently applicable legal situation. According to the current legal situation, information on the geographical location must also be provided as part of the notifications to be made, as shown above. If this information is not provided, BaFin will not process a possible application. Thus, this requirement is a mandatory element to assume the applicability of the exception.