What’s the story so far?

The European Commission published its anticipated PSD3 and PSR proposals to improve the functioning of PSD2 in June 2023. Those texts are now subject to review and amendment by the European Parliament and Council of the EU as well as inter-institutional negotiations (trilogues) with the Commission.

In November 2023, ECON published draft reports on the proposals with recommendations for amendments. ECON has now voted to adopt the texts, and their publication is awaited. This FIS Horizons 2024 article explores some of the key proposed changes in November’s draft ECON reports: 'PSD3: Putting citizens at the heart of EU payments'.

For an overview of the whole June 2023 legislative package, take a look at our article 'Evolution not revolution: European Commission publishes financial data access and payments package' which also links to a full form briefing.

Overview of some key amendments to the Commission’s proposals

As highlighted in our previous article on the November draft reports, many of the suggested changes - which will now go before the European Parliament in plenary - demonstrate a clear commitment to further strengthening the proposals' numerous consumer protection measures. The Parliament’s press release announcing ECON’s votes on the texts summarises some of the key proposed amendments including:

PSD3 proposal

• Authorisation process: MEPs agreed that existing payment and e-money institutions will not have to seek a new authorisation under PSD3, but would follow a simplified process with their competent authority.
• Access to cash: To ensure better access to cash, especially in remote or rural areas, retail stores providing cashback without a purchase (up to EUR 100) should be exempt from the rules. Similarly, independent ATM deployers (ie those which don’t service payment accounts) should be subject to a lighter registration process. On this last point, the Irish government has recently published the General Scheme of an Access to Cash Bill which contains similar proposals for a registration regime for ATM deployers and cash-in-transit companies.

Preservation of access to cash in an increasingly digitalised payments space is an area of regulatory focus in numerous other jurisdictions too, including the UK where both the Financial Conduct Authority (FCA) and the Bank of England have recently consulted on related changes. Take a look at this Engage article for more information: ‘UK access to cash: FCA and Bank of England consultations’.

• Level playing field for new and established market players: There was agreement that new players should be able to enter the EU payment services sector, subject to authorisation based on strict and comprehensive conditions. In addition, the same conditions should apply Union-wide to the activity of providing payment services, including electronic money services, and the legislation should remain technology neutral.

PSR proposal

• APP fraud: A customer’s right to a refund in APP fraud “spoofing” cases has been expanded so that it covers not just situations where fraudsters pretend to be from the customer’s bank but from other organisations too. Payment service providers (PSPs) should keep a watching brief on this proposed increase in liability risk.

Another proposal that PSPs should, by contrast, welcome is that online platforms would be liable if they were informed about fraudulent content on their platform and did not remove it.

• Data security: When provision of payment services involves the processing of personal data, it should only be carried out with the customer’s permission.
• Transparency of charges: Customers should be informed about all charges (eg in relation to currency conversion or fixed fees for cash withdrawal) in a clear, transparent and accessible format before the initiation of a payment transaction.

What's next?

The Parliament is expected to vote on both texts during the first plenary session in April (the indicative plenary sitting date is 10 April), to close the first reading without agreement with the Council. According to the Parliament’s press release, negotiations between the Parliament and the Council are then expected to start after the European elections taking place in early June.

The Council has not yet published its proposals on the Commission’s draft legislation, although we are expecting to have a general approach before the end of the Belgian Presidency on 30 June 2024. After that, trilogues (inter-institutional negotiations) will begin, where there will be compromise found between the texts of the three institutions. There is added complexity to this given the European elections, which not only delay the ability to enter into trilogues but should the key personnel (rapporteurs and ECON chair) not be re-elected, our past experience suggests there could be some deviation in the negotiations if a new rapporteur takes over.

In light of the European elections and the European Commission having to be sworn in before the trilogues can start, our current view is that the PSR could take effect in H2 2026, with PSD3 taking full effect in early 2027.

The Commission’s June 2023 legislative package also included a proposal to create a financial data access (FIDA) framework. ECON published a draft report on the FIDA proposal in December 2023 and next steps on this are awaited.

If you have any questions arising from this article, please get in touch with any of the listed people or your usual Hogan Lovells contact.

In other EU payments news…

On 7 February 2024, the European Parliament announced that it had adopted the proposed Regulation amending the Single Euro Payments Area Regulation ((EU) 260/2012) and the Cross-Border Payments Regulation ((EU) 2021/1230) as regards instant credit transfers in euro. It also published the adopted text of the proposed Regulation.

The Regulation is now awaiting adoption by the Council, after which it will be published in the Official Journal of the European Union. It will enter into force 20 days after its publication, following which there will be phased implementation deadlines, modified for the different components of the initiative and to allow for euro area and non-euro area member states. The Parliament’s press release highlights that PSPs located in the euro area will have 9 months to be ready to receive instant credit transfers in euro and 18 months to send them.

Authored by Eimear O'Brien, Virginia Montgomery and Lavan Thasarathakumar.