The Payment Services Directive 2007/64/EC (the PSD) will become effective in Ireland on 1 November 2009 and will introduce a new EU-wide licensing regime for many firms and business that have up until now operated in an unregulated environment.
To date the payment services market in the EU has been operated on a national level. The objective of the PSD is to remove this fragmented system and create an EU wide single market for payments, so encouraging competition and efficiency in payment systems. The PSD also provides the necessary legal platform for the Single Euro Payments Area and will reinforce the rights and protection of all the users of payment services.
In summary, the PSD will:
- Introduce a list of firms entitled to provide 'payment services', including credit institutions, credit unions, electronic money institutions and post office giro institutions. These entities are not required to obtain further authorisation under the PSD but must comply with certain of its provisions.
- Create a new category of firm, a 'payment institution', that must obtain prior authorisation from the Financial Regulator before providing payment services. Payment institutions are firms which provide one or more payment services, such as facilitating deposits and withdrawals from bank accounts, executing direct debits and standing orders, money remittance and certain services provided through mobile phones or other digital and IT devices.
- Impose new prudential requirements and detailed conduct of business rules on all payment service providers (including payment institutions).
Subject to the implementation of the European Communities (Payment Services) Regulations, the Financial Regulator will be the competent authority for the authorisation and supervision of payment institutions.
Payment Institution Authorisation
As mentioned above, a new authorisation procedure for non-bank payment institutions has been created by the PSD.
The new regulatory regime for payment institutions is a lighter version of the regime currently applicable to banks and investment firms. Applicant firms must send a detailed application form to the Financial Regulator together with supporting documents including a Business Plan, Programme of Operations, questionnaires for key managers and details of qualifying shareholders. Financial stability needs to be demonstrated and firms will be subject to initial and ongoing capital requirements. Payment institutions will be entitled to passport their services throughout the EU once authorised by their home Member State.
The PSD allows Member States to waive all or part of the authorisation conditions in relation to firms which, in general, execute less than €3 million worth of payment transactions per month, however these firms will not be able to passport their activities.
New Conduct of Business Rules
All payment service providers will need to comply with the new conduct of business rules introduced by the PSD. These rules are designed to provide transparency so that users of payment services can shop around and compare and contrast different payment service providers. Under the PSD, certain information including fees, rates of currency conversions and changes in terms and conditions must be provided or made available to the users of payment services.
The PSD also sets out the rights and obligations of parties in relation to payment service activity and covers areas such as refunds, disputes between parties and liability issues. The PSD introduces new rules which will govern the movement of funds from the placement of an order through to execution. This will include rules governing the execution time for payment transactions, which must be no more than 3 business days after the payer instructs the payment institution to effect the payment transaction. After 2012, payments will have to be completed within 1 business day after the payment instruction is given.
Payment service providers can opt out of certain of the requirements aimed at consumer protection, by agreement with end users that are acting solely for purposes related to their trade, business or profession.
The PSD provides certain transitional arrangements for persons providing payment services who were active before 25 December 2007. The rights provided for under the transitional arrangements do not extend to passporting rights.
The PSD is a significant development for the payment services market and should enhance efficiency and create a level playing field for the provision of payment services. However, any person who provides payment services after 1 November 2009 without an appropriate authorisation may risk committing a criminal offence. Accordingly, firms which believe their existing business activities may be impacted by the introduction of the PSD, or are considering entering the market as a payment institution, should start reviewing their activities carefully to ensure they are PSD compliant.