EBA Seeks PSD2 And E-Money Merger

June 27, 2022
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The European Banking Authority (EBA) believes the “opportunities vastly outnumber the potential challenges” of merging the revised Payment Services Directive (PSD2) and the Electronic Money Directive (EMD2), although not all agree.

The European Banking Authority (EBA) believes the “opportunities vastly outnumber the potential challenges” of merging the revised Payment Services Directive (PSD2) and the Electronic Money Directive (EMD2), although not all agree.

The EBA proposal comes in response to the European Commission’s consultation on PSD2, which could pave the way for a future PSD3.

The EBA said it was “strongly supportive” of the merger, calling it an “opportunity to harmonise” the legal framework, “streamline and simplify” requirements for payment institutions (PIs) and e-money institutions (EMIs), and ensure a “future-proof” regulatory framework that created a technological and commercial “level playing field”.

The EBA was also confident the resulting merger would “resolve the significant number of challenges faced by the industry and supervisors in delineating between the two legal frameworks”.

This would allow for “further harmonisation, simplification and consistent application of the legal requirements for PIs and EMIs”.

In analysing the pros and cons, the EBA noted a number of issues that having the two frameworks in parallel caused, which “would be resolved by their merger”. These are:

  • Distinguishing between payment and e-money accounts and services.
  • Distinguishing between scriptural money and e-money.
  • The difference in legal requirements, such as authorisation, own funds and safeguarding.
  • The status of distributors of e-money.
  • Treatment of pre-paid instruments and whether they are based on e-money in all cases.

The EBA goes on to explain that the two types of accounts are “very similar, if not identical, in nature” but do not have similar or even equivalent legal frameworks, which has caused a “lack of clarity”.

For example, on safeguarding funds, EMIs are given five days whereas PIs only have until the end of the next business day.

The EBA has, therefore, put forward specific proposals for the upgraded directive to:

  • Cover “electronic money services in existing payment services due to their very similar nature and applicable risks”.
  • Apply “identical legal requirements for PIs and EMIs”, particularly around authorisation, safeguarding, initial capital and own funds.
  • “[C]larify the nature and status of distributors of electronic money and apply a coherent framework to agents and distributors”.

Apples and pears

Not everyone is convinced by these proposals, with the Electronic Money Association (EMA) telling VIXIO that a merger “wouldn’t help” payments firms.

“We think there’s a distinction to be made”, arguing that products were best left in their respective legal frameworks and that trying to combine them was like “trying to combine apple and pears”.

It “extends the remit of PSD2 beyond payment services, into product regulation”, which the EMA was not in favour of.

However, one thing the EMA does think can be improved is continuation of licensing, where firms would be able to expand into new products without giving up or trading existing licences.

To take an example, the EMA believes that buy now, pay later (BNPL) should be in the Consumer Credit Directive and not be under the remit of PSD2.

This would allow existing credit firms to expand into BNPL products without having to apply for a payments licence, for example.

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