STOP PRESS – EU AMLA seat announced: On 22 February 2024, it was announced that the Council of the EU and the European Parliament had reached an agreement on the seat of the future European authority for anti-money laundering and countering terrorist financing (AMLA). AMLA will be based in Frankfurt and will begin operations in mid-2025. For more on this development, take a look at this Engage article.

In this Newsletter:

• Regulatory Developments: Payments

• Regulatory Developments: Digital Assets

• Market Developments

• Surveys and Reports

For previous editions of the Payments Newsletters, please visit our Financial Services practice page.

Regulatory Developments: Payments

Ireland: Government publishes General Scheme of Access to Cash Bill

On 23 January 2024, the Irish Minister for Finance, Michael McGrath TD, published the General Scheme of an Access to Cash Bill (the Bill) following approval by the Government.  The Bill follows the Government's November 2022 Retail Banking Review (RBR) which recommended the development of a National Payments Strategy (the NPS) with a roadmap for the future evolution of the entire payments system, including guiding how future changes should be made to access to cash criteria.

While there is currently a reasonable level of cash access in Ireland, the RBR noted that there is no framework to maintain future reasonable access to cash. It recommended that the Department of Finance develop access to cash legislation and prepare Heads of a Bill (the Heads), and that ATM operators and cash-in-transit companies (CITs) should be required to be authorised and supervised by the Central Bank of Ireland (the CBI) in respect of their financial services related activities.

The overarching aim of the Bill is to:

• ensure the continuation of reasonable access to cash;
• establish a framework with which to manage future changes in the cash infrastructure in a fair, equitable and transparent manner; and
• bring ATM deployers (defined as independent deployers of ATMs, excluding credit institutions) and CITs within the regulatory perimeter of the CBI.

The Heads will now be scrutinised by the Oireachtas Committee on Finance, Public Expenditure and Reform before the Bill is finalised.  The Committee is likely to invite stakeholders to participate in this stage.  The Committee will  then produce a report with recommendations and lay it before the Houses of the Oireachtas.

The Government’s consultation on the future NPS – which considered access to cash issues including cash usage in Ireland and the access to cash legislation currently being developed - closed on 14 February 2024 and the NPS is due to be published in 2024. We covered the Irish NPS consultation in the December/January edition of this Newsletter.

European Union: European Parliament’s ECON Committee adopts draft reports on PSR and PSD3  

On 14 February 2024, the European Parliament announced that its Economic and Monetary Affairs Committee (ECON) had adopted draft reports on the European Commission's legislative proposals for a Directive on payment services and electronic money services (PSD3) and a Regulation on payment services in the EU (PSR). The Parliament’s press release summarised 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.
• 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.
• 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.

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 of the EU. 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. For more on the next steps and the key proposed amendments in the ECON reports, please see our recent Engage article.

European Union: Council of EU and European Parliament adopt proposed Regulation on instant credit transfers in euro

On 26 February 2024, the Council of the EU announced that it has adopted the proposed Regulation on instant credit transfers in euro.  The Council also published a note (dated 14 February 2024) setting out the adopted text of the Regulation.

As outlined in the Council’s announcement, the new Regulation aims to:

• Improve the strategic autonomy of the EU economic and financial sector by helping to reduce any excessive reliance on third-country financial institutions and infrastructures.

• Make instant payments in euro fully available to consumers and businesses in the EU and the European Economic Area (EEA).             

Provisions introduced by the new Regulation include:

• A requirement for payment service providers (PSPs) such as banks, which provide standard credit transfers in euro, to offer the service of sending and receiving instant payments in euro. The charges that apply (if any) to such instant transfers must not be higher than the charges that apply for standard credit transfers.
• A requirement for instant payment providers to verify that the beneficiary’s IBAN and name match in order to alert the payer to possible mistakes or fraud before a transaction is made. This requirement will also apply to regular transfers.

The European Parliament announced its adoption of the Regulation on 7 February 2023.

The Regulation is now awaiting publication in the Official Journal of the EU. It will enter into force 20 days after 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. 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.

United Kingdom: Bank of England consults on RTGS operating hours and access policies

On 8 February 2024, the Bank of England (BoE) published two discussion papers considering changes to the operation of Real-Time Gross Settlement (RTGS):

• Discussion Paper on longer RTGS and CHAPS operating hours: The BoE is considering changes to the operating hours because a change could:

• • support the BoE’s strategy to facilitate sustainable innovation in the UK financial system;

  • help to address frictions currently affecting cross-border payments; and

  • leverage the technical capabilities of its renewed RTGS service.

The discussion paper closes to responses on 30 April 2024. BoE plans to issue a formal consultation paper in 2025 with a proposal on the end-state for future operating hours alongside an implementation plan.  The BoE has committed to giving at least one year's notice if it decides to make any change.

• Discussion Paper on RTGS access policies: Following reviews into the BoE’s access arrangements for non-bank payment service providers (NBPSPs), financial market infrastructures (FMIs) and foreign banks, it has identified four priority areas for further work to facilitate wider access for these participants:

• • enhancing the BoE/FCA process for consideration of NBPSPs seeking access to RTGS;

  • understanding demand of foreign banks for access to RTGS to support payment system settlement;

  • clarifying requirements for FMIs to access RTGS; and

  • review of the CHAPS value threshold.

It is on these priority areas that the BoE is keen to hear the views of stakeholders.  Stakeholders have until 30 April 2024 to respond to the paper and the BoE will aim to publish its response on the matter by 30 April 2025.

Qatar: Central Bank to launch instant payment service in March 2024

On 19 February 2024, the Qatar Central Bank announced that it will launch a new instant payment service, FAWRAN, in March of this year. The application will let users instantly send and receive funds, using alternative identifiers such as a mobile phone number in place of an IBAN. The service can be accessed 24/7 and forms part of Qatar's broader "Third Financial Sector Strategy".

Tunisia: Banque Centrale de Tunisie joins PAPSS

On 12 February 2024, Afreximbank, on behalf of the Pan African Payment and Settlement System (PAPSS), announced that Banque Centrale de Tunisie (BCT) had joined PAPSS as its thirteenth member. Tunisian commercial banks are now able to begin their onboarding process for the PAPSS system. BCT is the first member to represent a North African country.

PAPSS, a centralised financial market infrastructure which looks to facilitate cross-border payments in Africa between its central bank members, was launched in January 2022. More central banks are expected to join the network in 2024.

United Kingdom: PSR publishes letter to Pay.UK on proposals for monitoring PSPs' compliance with APP fraud mandatory reimbursement requirement

On 23 February 2024, the Payment Systems Regulator (PSR) published a letter (dated 21 February 2024) to Pay.UK which sets out the basis on which it will assess Pay.UK's proposals for monitoring compliance with the Faster Payment System (FPS) reimbursement requirement to fight authorised push payment (APP) fraud.

In the letter, the PSR notes that significant work is still needed to be ready for the 7 October 2024 deadline for industry to comply with the new mandatory reimbursement obligations, and it would welcome sight of draft proposals in March 2024, before Pay.UK formally provides them by 5 April 2024 in accordance with Specific Direction 19 (which imposes a number of obligations on Pay.UK as the FPS payment system operator).

In addition, the PSR states that as Specific Direction 19 does not give Pay.UK the power to require the provision of data or information from payment service providers (PSPs), the PSR will consult in April 2024 on a direction that will require all PSPs in scope of the reimbursement policy to report data to Pay.UK so that it can effectively monitor compliance with the FPS reimbursement rules.

For more on the PSR’s mandatory reimbursement requirement for APP fraud, see the December/January edition of this Newsletter and our related Engage article.

Regulatory Developments: Digital Assets      

European Union: European Commission adopts new Delegated Regulations under MiCA

On 22 February 2024, the European Commission adopted four new Delegated Regulations which provide greater clarity as to how MiCA will operate. The Delegated Regulations - draft versions of which were published for consultation on 8 November 2023 - are:

• A Delegated Regulation, made under Article 137(3) of MiCA, specifying the fees charged by the EBA to issuers of significant asset-referenced tokens (ARTs) and issuers of significant e-money tokens (EMTs);
• A Delegated Regulation, made under Article 134(10) of MiCA, specifying the procedural rules to be complied with where the EBA imposes fines or periodic penalty payments on issuers of significant ARTs and issuers of significant EMTs;
• A Delegated Regulation, made under Article 43(11) of MiCA, providing the criteria with which to determine whether an ART or EMT is significant; and
• A Delegated Regulation, made under Articles 103(8), 104(8) and 105(7) of MiCA, specifying the criteria and factors to be taken into account by ESMA, the EBA and competent authorities in relation to their intervention powers.

The Council of the EU and the European Parliament will now scrutinise the Delegated Regulations and, if neither objects, they will be published in the Official Journal of the European Union.

Italy: Ministry of Economy and Finance launches two public consultations on draft decrees on MiCA and TFR

On 22 February 2024, the Italian Ministry of Economy and Finance (MEF) opened two public consultations seeking feedback on the draft decrees adapting Italian rules to the Regulation on markets in cryptoassets (MiCA) and the Regulation on information accompanying transfers of funds and certain cryptoassets (TFR).

The public consultations, available here and here (in Italian only), close on 22 March 2024.

For more on this development, take a look at our Engage article.

United Kingdom: Law Commission consults on draft Property (Digital Assets etc) Bill

On 22 February 2024 the Law Commission of England and Wales launched a consultation on a draft Property (Digital Assets etc) Bill that would implement the recommendation in its June 2023 final report on digital assets that legislation should confirm the existence of a "third category" of personal property into which crypto-tokens and potentially other assets could fall. The draft Bill, which only contains two clauses, seeks to allow for digital assets falling into this separate category to still be capable of being regarded as personal property.

The consultation closes on 22 March 2024.

Also on 22 February 2024, the Law Commission launched a call for evidence on Digital assets and ETDs in Private International Law: which court? which law?, in connection with their project on private international law in the context of cross-border disputes involving digital assets and electronic trade documents (ETD). The call for evidence closes on 16 May 2024.

Hong Kong: HKMA issues guidance on provision of custodial services for digital assets

On 20 February 2024, the Hong Kong Monetary Authority (HKMA) issued guidance for firms interested in offering custodial services for digital assets. The guidance covers issues such as governance and risk management, segregation of client assets, safeguarding, outsourcing, disclosure requirements, record keeping, AML, and ongoing monitoring of compliance.

Philippines: Central bank announces non-blockchain CBDC plans

On 12 February 2024, it was reported that, during a briefing with journalists, Bangko Sentral ng Pilipinas (BSP) Governor Eli Remolona Jr. stated it was his aim to launch a central bank digital currency (CBDC) product within the next two years.

The CBDC will reportedly be focused on wholesale application with banks being the only counterparties to transactions. The BSP anticipates that there would still be retail possibilities for the CBDC but considers the risks of launching a retail focused CBDC to be too high.

Governor Remolona also confirmed that blockchain or distributed ledger technology will not be used.

European Union: ESMA consults on 'reverse solicitation' and classification of cryptoassets under MiCA

On 29 January 2024, ESMA published two consultation papers seeking comments on draft guidelines under the Regulation on markets in cryptoassets (MiCA).

ESMA’s proposals relate to guidelines on (i) reverse solicitation and (ii) the qualification of crypto-assets as financial instruments as defined in the Markets in Financial Instruments Directive (MiFID II), two significant areas which will be critical to clarifying the scope of the regulatory framework as set out under MiCA.

The consultations are open until 29 April 2024 and ESMA expects to publish a final report based on the feedback received in Q4 2024.

For further information on the consultations, see our Engage article.

As a reminder, MiCA is expected to apply fully by 30 December 2024, although member states may have the option of granting entities already providing cryptoasset services in their jurisdictions up to an additional 18-month “transitional period” during which they may continue to operate without a MiCA licence. Further details on ESMA’s statement regarding the implementation timeline for MiCA can be found in our previous Engage article.

United Kingdom: Bank of England and HM Treasury respond to digital pound consultation

On  25 January 2024, the Bank of England (BoE) and HM Treasury (HMT) published a response to their February 2023 joint consultation paper setting out the case for a retail central bank digital currency (CBDC) (a "digital pound").

The response concludes that it is still too early to decide whether a digital pound will be required, but does discuss what considerations would need to be taken into account if a digital pound were to be introduced - specifically in relation to ensuring public trust:

• Primary legislation: Given the potential significance of introducing a digital pound, the Government has committed to introducing primary legislation prior to its launch, giving Parliament the opportunity to vote on the design and regulatory framework.​
• Privacy and data protection: The consultation had set out a commitment to ensuring a digital pound would be at least as private as current forms of digital money.
• Users’ control over their money: The response further clarifies that future legislation will guarantee that the BoE and Government would not program the digital pound, and technological safeguards against programmability will be explored during the design phase.​
• Safeguarding access to cash: The response emphasises that a digital pound would complement, not replace, cash or other forms of digital payment.​

During the design phase, the BoE and HMT will embark on a programme of public engagement to develop public trust and collect relevant feedback. The design phase is expected to conclude in 2025/2026, culminating in a decision on whether or not to proceed to the build phase. ​

See this Engage article for more on this development.

Market Developments

India: Mastercard expands agreement with the Bank of Punjab

On 13 February 2024, Mastercard announced that it had expanded its partnership with the Bank of Punjab (BOP) to cover the commercial segment, ranging from large corporate entities and small and medium enterprises (SME) to freelancers and gig workers. This increased partnership will allow BOP to:

• Become the first bank in Pakistan to issue Mastercard business cards for SMEs;
• Launch the first foreign currency business debit card; and
• Introduce the Mastercard corporate card.

Global: Klarna launches new “Sign in with Klarna” product

On 14 February 2024, Klarna announced that, following a successful limited release in Sweden, it would roll out its new "Sign in with Klarna" product to 23 countries.  The product allows customer details to be automatically filled in at check-outs without using third-party cookies.

The product is now available in the U.S., UK, Ireland, Canada, Mexico, Australia, New Zealand, Sweden, Norway, Finland, Denmark, Germany, Austria, Belgium, Netherlands, France, Italy, Spain, Portugal, Greece, Poland, Czech Republic, and Romania.

Global: Visa expands its digital wallet offering with Visa Commercial Pay

On 12 February 2024, Visa announced that it was expanding Visa Commercial Pay, a range of business-to-business payment solutions offering built in partnership with Conferma Pay.  This new offering will allow financial institutions to add virtual corporate cards to an employee’s digital wallet.  Visa Commercial Pay will also now provide a commercial token account with configured payment controls allowing for an efficient payment experience across both Point of Sale and Card-Not-Present (CNP) payment methods.

The expanded Visa Commercial Pay is now available in the Asia-Pacific, Europe, Middle East and Africa and North America regions, and will be available in Latin America and the Caribbean later in 2024.

United Kingdom: Revolut developing new cryptoassets exchange for "advanced traders"

On 16 February 2024, it was reported that Revolut has told customers it is testing a beta version of a cryptocurrency exchange targeted at "advanced traders."  This new offering will offer lower fees (between 0% and 0.09%) than trading through the Revolut app, alongside enhanced market analytics.

Europe: IDnow joins consortium aimed at further cryptoassets compliance

On 13 February 2024, IDnow announced they had joined a consortium of firms (IOTA Foundation, walt.id, SPYCE.5, and Bloom Labs) with the aim of helping cryptoasset service providers’ (CASPs’) and self-hosted wallets’ compliance with the EU Anti-Money-Laundering Regulation (AMLR) and the EU Transfer of Funds Regulation (TFR).

The consortium will work together to address challenges such as how to meet the new AMLR and TFR requirements while remaining GDPR compliant.

United Arab Emirates: Alipay+ expands digital services to UAE transportation and tax refund

On 1 February 2024, it was reported that Alipay+ had expanded its services to the UAE, allowing Chinese visitors to use it for taxi payments and receive instant tax refunds at major airports, enhancing travel convenience.

United States: Mastercard and The Clearing House extend partnership on real-time payments

On 24 January 2024, Mastercard announced an extended multi-year partnership with The Clearing House (TCH) which continues Mastercard’s role as the exclusive instant payments software provider for TCH’s real-time payments network.

United States: Klarna launches Klarna Plus

On 24 January 2024, Klarna announced the launch of a new subscription product, Klarna Plus (issued by WebBank) in the U.S.  The new product will see customers pay a monthly fee of 7.99USD in return for waived service fees, double rewards points, and access to promotional deals with third party brands.

United Kingdom: Comic Relief partners with GoCardless

On 23 January 2024, GoCardless announced that they had extended their relationship with Comic Relief until 2026, enabling Comic Relief to continue using GoCardless for Direct Debit to easily collect recurring donations all year round.

Global: George Osborne joins Coinbase's global advisory council

On 31 January 2024, it was reported that George Osborne, the UK's former Chancellor of the Exchequer (2010-2016), had joined Coinbase's global advisory council.

Global: Bitunix partners with MoonPay for cryptoassets trading

On 17 January 2024, crypto derivatives exchange Bitunix announced that they have partnered with the crypto payment service MoonPay to improve accessibility and user experience within Bitunix’s cryptoassets trading offering.  The partnership will allow Bitunix users to benefit from a smoother onboarding process as well as an expanded array of payment options. Bitunix and MoonPay have indicated that they intend to expand their partnership in the future, with plans to introduce the capability for users to sell cryptocurrencies for fiat currencies using MoonPay.

Surveys and Reports

Global: The Paypers' Global Payments and Fintech Trends Report 2024

On 9 February 2024, the Paypers published their Global Payments and Fintech Trends Report 2024.  The Paypers, and their contributors, consider that:

• Embedded Finance (the integration of financial services into non-financial offerings) will continue to experience significant growth;
• The cross-border payments industry will see further innovation and change with a focus on real-time, interoperability, and cost-effectiveness, alongside the growing significance of central bank digital currencies (CBDCs);
• Account-to-account payments will directly challenge card payments in the ecommerce sector; and
• Banks will continue to invest in progressing the Open Banking ecosystem.

International: AutoRek's Global Payments Report 2024

On 22 February 2024, AutoRek published its Global Payments Report 2024.  The Report includes the thoughts of 500 payments professionals across the UK and U.S. payments industries.  Some key takeaways were:

• More than half of respondents believed their organisation would grow by at least 50% this year;
• Customer acquisition, customer experience and retention, and reducing operating costs are the top priorities for firms this year;
• 95% of respondents expect more jurisdictions to adopt measures similar to what has been seen in the UK and the EU in the next two years; and
• The number of payments organisations expecting their cost of compliance to increase over the next 12 months has doubled since 2023, jumping from 38% to 80%.

Authored by Virginia Montgomery, Grace Wyatt and Lewis Campbell.

^{Hogan Lovells (Luxembourg) LLP is registered with the Luxembourg bar.}