6 Payment services
| (a)
(27104)
15625/05
+ ADD 1
COM(05) 603
(b)
(27503)
8758/06
—
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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
Opinion of the European Central Bank (ECB) of 26 April 2006 on a draft Directive on payment services in the internal market
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| Legal base | Articles 47 (2) and 95 EC; co-decision; QMV
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| Document originated | (b) 26 April 2006
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| Deposited in Parliament | (b) 18 May 2006
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| Department | HM Treasury |
| Basis of consideration | (b) EM of 6 June 2006
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| Previous Committee Report | (a) HC 34-xvi (2005-06), para 8 (25 January 2006)
(b) None
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| To be discussed in Council | Not known
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| Committee's assessment | Politically important
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| Committee's decision | Not cleared, further information awaited
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Background
6.1 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.
6.2 Document (a) is a draft Payment Services Directive
(also referred to as the New Legal Framework or NLF) 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. It would establish (in Title
II) a licensing regime for Payment Institutions, to apply to firms
offering payments services and 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. The second section of the proposal would introduce
(in Titles III and IV) 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.
6.3 The draft Directive is also intended to support
the work of the European payments industry in establishing a Single
Euro Payments Area (SEPA).
6.4 When we considered this proposal in January 2006
we said we would 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. We added that it would
be helpful to know from the Minister to what extent the draft
Directive met the concerns expressed by UK interested parties
during consultations by the Commission and met the criteria set
out by the Government:
- improving transparency;
- increasing competition;
- ensuring proportionality;
- promoting technical neutrality; and
- allowing the payments industry to operate in
an environment that encourages growth and innovation.[22]
The new document
6.5 Document (b) is the European Central Bank's formal
Opinion on the draft Directive, document (a). The Bank welcomes
the objective of establishing a comprehensive legal framework
for payment services for the Community and highlights the importance
of the NLF to the timely introduction of SEPA-compliant payment
services by the European payments industry. However, it examines
critically the scope of Title II and its ramifications for regulation
and supervision of new Payment Institutions, holding that the
title does not adequately balance between scope of activities
of Payment Institutions, the risks these activities might pose
and the supervisory safeguards required to counter the risks.
The Bank suggests two options for redressing this balance.
6.6 The Bank's preferred option would restrict provision
of payment services to credit institutions and e-money issuers
only. It thinks the draft Directive does not make clear whether
Payment Institutions may hold funds having similar "economic
and legal characteristics" to deposits or e-money and uses
a recent European Court of Justice ruling to argue that Payment
Institutions receiving funds from customers, even if the funds
are re-paid after being held for a limited period of time, are
effectively engaged in "deposit-taking" activity. The
Bank therefore finds it difficult to subject Payment Institutions
to a separate and lighter supervisory regime from credit institutions,
which take deposits and other repayable funds from the public.
6.7 Under the second option the Bank envisages Payment
Institutions being subject to a lighter-touch regime. But they
would be restricted to money remittances services only —
they would not be able to offer cash withdrawals, direct debits,
credit transfers, payment cards and the execution of payments
transactions through mobile phones or other digital or IT devices.
Payments Institutions would be required to keep customers' funds
separate in their books identifying each user's funds under an
account name, known as ring-fencing, rather than commingling funds.
6.8 The Bank also recommends that, if the adoption
of the Directive — and by implication, the implementation
of SEPA — is delayed by differences over Title II, that
part should be omitted to ensure that Titles Ill and IV can be
adopted as a basis for introducing SEPA-compliant products. But
this would be on the basis of subjecting Payment Institutions
to separate legislation at a later stage.
The Government's view
6.9 The Economic Secretary to the Treasury (Ed Balls)
reminds us that generally the approach taken by the Commission
in the draft Directive is closer to that of the Government's position
than that of Member States with more stringent regulatory regimes
for payment service providers. Some of these Member States require
payment service providers to hold a banking licence, whereas in
the UK there is no prudential regulation of such firms. The Government
believes this lower level of regulation to be proportionate to
the lower level of risk to financial stability posed by payment
service providers as compared to deposit-taking institutions such
as banks.
6.10 On the Bank's preferred option the Minister
says that the Government holds that the risks involved in the
provision of payment services are entirely different to those
in deposit-taking, both for payment service users and the wider
economy. Payment service providers, such as money transfer companies,
generally pay out funds immediately, if not instantaneously. They
do not re-invest, or more importantly, lend out the funds received
at relatively high risk, as deposit-takers usually do.
6.11 In relation to the Bank's second option the
Minister comments that the Government continues to believe that
the proposed Directive should open up the Community's payment
market to non-bank payment service providers and encourage these
and credit institutions to genuinely compete in providing a wider
variety of payment services to consumers. He adds that ring-fencing
has been raised as an alternative to some Member States' preference
for stipulating capital requirements in the Title II licensing
regime. The Government will continue to consult extensively on
this and other issues to seek an outcome that will be of significant
benefit to the UK and will avoid disproportionate costs to the
payments market.
6.12 The Minister also tells us that his department
is continuing its consultations with interested parties and is
close to publishing a Regulatory Impact Assessment of the proposal
and a consultation document on the Government's negotiating strategy.
Conclusion
6.13 We are grateful to the Minister for the information
he gives us on this document and on the original proposal. However
we remind him that we will not be considering this matter further
until we have seen the department's initial Regulatory Impact
Assessment, the response to its consultation document and his
assessment of to what extent the draft Directive meets the criteria
and concerns we drew attention to in our earlier report on this
issue.
6.14 Meanwhile, whilst awaiting this information,
we do not clear the documents.
22 See headnote. Back
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