8 PAYMENT SERVICES
(27104)
15625/05
+ ADD 1
COM(05) 603
| Implementing the Community Lisbon programme: Draft Directive on
payment services in the internal market and amending Directives 97/7/EC,
2000/12/EC and 2002/65/EC
|
| Legal base | Articles 47 (2) and 95 EC; co-decision; QMV
|
| Document originated | 1 December 2005
|
| Deposited in Parliament |
15 December 2005 |
| Department | HM Treasury
|
| Basis of consideration |
EM of 10 January 2006 |
| Previous Committee Report |
None |
| To be discussed in Council
| June 2006 |
| Committee's assessment | Politically important
|
| Committee's decision | Not cleared, further information awaited
|
Background
8.1 The existing framework for payments and retail payment services
(that is the execution of payment transactions such as transfers
of funds, direct debits, standing orders or money remittance services)
is based upon national rules which differ widely across the Community.
Over the last two years or so the Commission has been consulting
interested parties about possible changes to the regulatory framework.
8.2 In early 2004 the previous Committee considered
a Commission Communication furthering this consultation. Our predecessors
were told that the Government's own formal response to the Commission
Communication was based on five key principles:
- improving transparency;
- increasing competition;
- ensuring proportionality;
- promoting technical neutrality; and
- allowing the payments industry to operate in
an environment that encourages growth and innovation.
The Government commented that "These principles
are interdependent — the development of an efficient and
dynamic payments market is reliant on creating the right conditions
to promote each of them."
8.3 Our predecessors were also told that the Government
had itself conducted extensive consultations with UK interested
parties and that in particular the industry had informed it of:
- the problems applying full
originator information to batch transfers would cause;
- how value dates are used competitively in the
UK and hence the Commission's proposal to harmonise them would
reduce consumer choice;
- how harmonising the point at which a payment
is no longer revocable would lead to a standardisation of payment
products and hence a reduction in competition and consumer choice,
as well as undermining confidence in the finality of the payment;
- how imposing liability on payment providers in
the event of non-delivery or defective delivery of goods bought
online would make payment providers liable for a product or service
over which they had no control and place high burdens upon payment
providers;
- how UK consumers benefit from the receipt of
good quality information regarding their payments transactions
which is determined on a voluntary basis in the UK, as opposed
to the exhaustive lists proposed by the Commission; and
- how the introduction of a third category of licence
that involves prudential regulation could drive many money transmitters
into the unregulated sector.
8.4 The previous Committee said, when clearing the
Commission Communication, that there would be a need to examine
any draft legislation which emerged in the light of the concerns
expressed by UK interested parties.[29]
The document
8.5 The Directive proposed by the Commission is intended
to harmonise the regulatory regime for payments across Member
States, creating a Single Payment Market and allowing payment
service providers, termed "Payment Institutions", to
offer their services Community-wide on the basis of a licence
obtained in any one Member State.
8.6 The Commission suggests that
- efficient and secure payment
systems are the basis of modern economies;
- improvements in payment systems can have a significant
impact on an economy's competitiveness;
- the current state of Community payment systems
is unsatisfactory, with the full potential of the Single Market
remaining unexploited; and
- fragmented national systems impose costs on the
Community as a whole and there is a lack of competition, with
significant entry barriers to the markets for payment services
in many Member States.
8.7 The Commission says its proposal is:
- a key action of the Community
Lisbon programme;[30]
- an essential contribution to
the Lisbon partnership for growth and employment;[31]
- in line with Community financial market policy
objectives such as the Financial Services Action Plan;
- supportive of the payments industry's programme
to complete a Single Euro Payment Area (SEPA) by 2010; and
- potentially beneficial for the Commission's efforts
to increase competition.
8.8 The proposed Directive would establish a licensing
regime for Payment Institutions, to apply to firms offering payments
services which are not currently licensed as credit institutions
or electronic-money issuers. It includes rules on administrative
procedures and business plans and a right of access to payment
schemes. It would also introduce conduct of business rules for
all payment service providers to apply to new Payment Institutions
as well as credit institutions and electronic-money issuers and
to include requirements on transparency, authorisation of payments,
execution of payments and liability.
The Government's view
8.9 The Economic Secretary to the Treasury (Mr Ivan
Lewis) tells us that the Government supports the aim to create
an internal market in payments for two principal reasons:
- UK firms currently face significant
entry barriers to the markets for payment services in other Member
States, where regulatory requirements tend to be far higher. The
draft Directive should open up access to new markets for such
firms; and
- the SEPA should provide greater efficiency and
better processing of payments within the Community with the potential
significantly to increase productivity. Without harmonisation
of at least some legal and technical provisions, it would be hard
for the European banking industry to agree voluntarily on a common
infrastructure solution that suits all Member States and it would
be difficult, if not impossible, for creation of a true SEPA.
8.10 But the Minister comments that if rules are
to be harmonised they must be set at a level that is proportionate.
He says many Member States currently have far more stringent regulatory
regimes for payments than the UK and the Government believes its
lower level of regulation to be appropriate. He adds that the
risks involved in the provision of payment services are entirely
different to those in deposit taking, both for users and for the
economy. Furthermore, payment service providers do not pose a
systemic risk to the stability of an economy.
8.11 The Minister says the Commission's approach
is closer to that of the Government than that of Member States
where payment service providers must hold a banking licence. It
also proposes a lighter-touch regime than the ones that currently
exist at Community level for both credit institutions and electronic-money
issuers. He adds that in discussions during the evolution of the
draft Directive the Government has secured a number of changes
it believes would be of significant benefit to the UK and would
avoid disproportionate costs. For example there is now:
- an exemption for small firms
from the licensing regime — of particular importance to
the UK with nearly 2,000 small money transfer companies, many
of which could well be forced out of business or underground by
heavy licensing costs; and
- reduced liability requirements
for a bank's relationship with corporate customers and for payments
going outside the EU — both original requirements would
have risked providing an incentive for fraud or a reduction in
services offered to customers.
8.12 Finally the Minister tells us that:
- the Government has already
consulted extensively in the UK on this matter; and
- consultation on the draft Directive has already
begun. A consultation document and partial Regulatory Impact Assessment,
which is in preparation and which will contain initial estimates
of costs and benefits of the proposal, should identify a number
of areas where the Government will seek further drafting and policy
changes to the Commission's proposal.
But the Minister adds that the Government's initial
impression, shared by many interested parties, is that the changes
made during development of the proposal have left the proposal
significantly improved. He says that, given that many Members
States — particularly those where only holders of a banking
licence can offer payment services — would have preferred
a stricter regime, the draft Directive may be the best outcome
for the UK.
Conclusion
8.13 As both the Commission and the Government
indicate, this is an area of business activity important to the
economy. We are grateful to the Minister for the information he
gives us about the implications of and possible need for changes
to the draft Directive. We will want to consider this matter further
in the light of the department's initial Regulatory Impact Assessment
and of the response to its consultation document. Additionally
it would be helpful to know from the Minister to what extent the
draft Directive meets the criteria set out by the Government and
the concerns expressed by UK interested parties in the context
of the Commission's December 2003 consultative Communication (see
paragraphs 8.2, 8.3 and 8.4 above).
8.14 Meanwhile, whilst awaiting this information,
we do not clear the document.
29 See (25133) 15832/03: HC 42-ix (2003-04), para 15
(4 February 2004), HC 42-xii (2003-04), para 6 (10 March 2004)
and HC 42-xvi (2003-04), para 9 (31 March 2004). Back
30
See (26765) 11618/05: HC 34-x (2005-06), para 22 (16 November
2005). Back
31
See (26351) 5990/05: HC 38-xii (2004-05), para 12 (23 March 2005). Back
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