Each member state used its own standards and practices in the respective market. The difference of payment service regulation was a serious obstacle in the cross-border payment market. The EU Payment Services Directive 2007/64/EC (PSD) in 2007 was the first step seeking to create a more efficient and secure path for a pan-European payment market.
Currently valid and already implemented in the national legislation of member states, the PSD aims to ensure consistent consumer protection and to improve transparency and enhance competition in payment markets. At the same time, it ensures a legal platform for the Single Euro Payments Area. The PSD codifies mandatory requirements for information and conduct of business as well as rights and obligations of each party in the network of payment services.
The provisions of the PSD have been transposed into Lithuanian law by enacting and amending a number of laws and regulations. The main pieces of legislation implementing the provisions of the PSD are the Law on Payment Institutions and the Law on Payments. The Law on Payment Institutions stipulates the main requirements for payment institutions, whereas the Law on Payments sets forth general rules on the provision of payment services. In addition, the Association of Lithuanian Banks has issued the Recommended Payment Service Rules establishing voluntary higher requirements for the provision of payment services by banks.
According to the latest public report of the Bank of Lithuania, there are currently twenty-one payment institutions that have obtained a licence to provide payment services. Nineteen of them have also acquired a license to perform money transfers. It should be noted, however, that the provision of payment services is the main business activity only for four licensed payment service providers. The remaining payment service providers are engaged in other businesses and the provision of payment services is an auxiliary one.
In 2011 payment service providers earned LTL 55m income from payment services, which constitutes 4% of their total income. Moreover, it is worth mentioning that to date there have not been disputes with consumers in respect of payment services and nor have any other infringements regarding the provision of payment services been revealed.
To sum up, it could be concluded that the implementation of the PSD in Lithuania passed smoothly without bringing much difficulties for Lithuanian entities. The fact that providers successfully carried out business activities related to payment services in accordance with the existing statutory requirements confirms that the PSD has been implemented properly.
Estonia implemented the PSD from 1 May 2011. New regulation concerning the establishment, authorisation and governance of payment institutions was enacted by the Payment Institutions and E-Money Institutions Act. Regulation concerning the execution of single payment transactions and provision of payment services was incorporated in the Law of Obligations Act 2002.
The Latvian Law on Payment Services and Electronic Money (previously: the Law on Payment Services) is the main law which implemented the PSD provisions. The respective law came into force on 31 March 2010. It creates a legal framework applicable to payment service providers and governs their relationship with clients. The law defines the duties and right to information of users, mandatory provisions of contracts with clients, as well as payment enforcement procedures and deadlines.
However, changes of the PSD are expected to knock on the door very soon. In accordance with Article 87 of the PSD, the European Commission is required to review the PSD by 1 November 2012. The European Commission will present a report on the implementation and impact of the PSD accompanied, where appropriate, by a proposal for its revision.
The PSD provides for the legal basis for Regulation (EC) No 924/2009 on cross-border payments in the Community (SEPA Regulation). Thus, the up-coming review should be considered as a possibility to correct the oversights and deficiencies currently hindering the full development of the SEPA Regulation. After announcement of the contract award notice, London Economics — institut für finanzdienstleistungen e.V. commenced the respective study. According to public documents*, the European Commission is planning to obtain a wider view of the matters and in fact goes beyond the mandatory elements set out in Article 87 of the PSD.
Accordingly, it can be expected that the European Commission’s review will address and have impact on the following issues:
Subject matter, scope and definitions (Title I of the PSD and Annex). Inter alia: the possible need to revise the scope of the PSD with respect to low value payment instruments and electronic money; the possible need to extend the scope of the PSD to payment transactions in all currencies and to payment transactions where only one of the payment service providers is located in the EEA. Currently the PSD covers euro and national currency payments of EEA member states where both the payer's payment service provider and the payee's payment service provider are, or the sole payment service provider in the payment transaction is, located in the EEA (the exclusion of so-called “one-leg transactions”).
Market access, structure and prudential rules (Title II PSD). Inter alia: the assessment of the newly created European licensing regime for payment institutions, in particular, as regards own funds requirements and safeguarding requirements (ring-fencing); authorisation requirements of payment institutions and their impact on competition between payment institutions and other payment service providers as well as on barriers to market entry by new payment service providers; granting credit to payment institutions for the provision of payment services.
Transparency and information requirements (Title III of the PSD). Inter alia: assessment whether currently valid requirements have led to improved user confidence, facilitated a better informed user choice and “ability to shop around”; as well as assessment to what extent the standardised information requirements have made it easier for providers to offer standardised and fully-automated services across borders within the EU.
Rights and obligations of users and providers (Title IV of the PSD). Inter alia: the application and functioning of the Articles on execution time of payment transactions to a payment account and non-execution or defective execution of payment transactions for all kinds of payment instruments; assessment whether the rules governing framework contracts (Article 40 et seq.) have proven adequate for the purpose – the good functioning of the rules governing changes in the conditions of framework contracts (Article 44) and the fact that the provision does not address the situation where the user does not agree with the changes.
Additionally, the SEPA Regulation requires the Commission to review the PSD in respect to the nature and application of the refund right regime, as defined in Articles 62 and 63 of the PSD. The Commission has noted that in order to ensure broad public support for SEPA, it is essential that a high level of protection for payers is maintained, particularly for direct debit transactions. Accordingly, the Commission is also going to review the existing direct debit refund rights in the EU under Article 87 of the PSD.**
It should also be noted that the methods for preparing the above mentioned study will include, in particular, desk research, interviews and questionnaires. Besides, the interviews and questionnaires are expected to cover at least banks/payment institutions, retailers and consumers, small and medium size enterprises and public administrations.
To conclude, the on-going review process of the PSD makes it necessary to keep one’s eyes open and at the same time provides an excellent opportunity for industry players to raise concerns regarding the PSD by means of close cooperation with the European Commission and consultants preparing the study on the application and impact of the PSD and SEPA Regulation.
*Tender documents available at: http://ec.europa.eu/dgs/internal_market/calls_en.htm#tender
**Procedure file: Single Euro Payments Area: technical requirements for credit transfers and direct debits (2010/0373(COD)) available at http://register.consilium.europa.eu/pdf/en/12/st06/st06574-ad01.en12.pdf
Inese Hazefusa, Head of Banking & Finance in Latvia
TGS Baltic