2023/0209/COD: Proposal for a DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL on payment services and electronic money services in the Internal Market amending Directive 98/26/EC and repealing Directives 2015/2366/EU and 2009/110/EC

In 2015, the Payment Service Directive 2 (PSD 2), Directive (EU) 2015/2366, brought about significant changes to the retail payment services market to adopt to digital payment functionalities (e.g. digital wallets) and new financial market players. The Covid-19 pandemic and other market developments, however, further increased the importance of (secure) digital payments which is another reason why the European Commission conducted a review of the directive.
The Commission thereby found that while the PSD 2 achieved many of its objectives, there were implementation and enforcement issues leading to regulatory arbitrage. In detail, EU member states interpreted existing law differently, leading to more relaxed supervision of Payment Institutions (PIs) in some member states. To address these issues and to no longer classify Electronic Money Institutions (EMIs) as separate PIs and thus require an entirely own directive for EMIs (Directive (EU) 2009/110/EC), the EU Commission is now proposing a new DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL on payment services and electronic money services in the Internal Market amending Directive 98/26/EC and repealing Directives 2015/2366/EU and 2009/110/EC, the so-called PSD 3.
The new PSD 3 would combine the previous EMI Directive and the PSD 2 to set out an entirely new framework for payment institutions that would include provisions as to the authorization of PIs, the supervision of PIs, and the cash withdrawal services offered by retailers. As compared to the previous standalone PSD 2 and the EMI Directive, the following key changes or additions would be made. Please note that the list is far from complete which is why we refer to the original legal draft for more detailed comprehensive information:
– Electronic money institutions would now be classified as a subcategory of payment institutions. In the following, the term PI is also used interchangeably with Payment Service Providers (PSPs).
– Payment institutions would have to comply with Regulation (EU) 2022/2554 on digital operational resilience in relation to their business continuity arrangements. This would require a detailed risk assessment, including the risk of fraud and illegal use of sensitive data. PIs would need to implement measures for sharing fraud-related data as introduced under the PSR (Payment Services Regulation).
– Payment institutions would also have to provide wind-down plans to their national competent authorities proportionate to their respective size and scope of activities. The plans should permit the orderly wind-down of activities in accordance with national law. The plans should also facilitate the „continuity or recovery of any critical activities performed by outsourced service providers“.
– PIs would also have to adhere to stringent governance guidelines to be developed by the European Banking Authority (EBA) to ensure that their governance arrangements are in line with their business size and scope and the risks applicable to individual institutions.
– According to the accompanying recitals, the capital requirements of PIs other than Account Information Service Providers (AISPs) would be adjusted (upward) to reflect inflation during recent years.
– AISPs could now hold EUR 50,000 of initial capital instead of obtaining professional indemnity insurance as previously required.
– The use of payment volumes for the computation of own fund requirements is the most appropriate one, so the Commission. Therefore and to improve consistency and ensure a level playing field among PSPs in the EU, this method of calculating own funds should be designated as the default method by national competent authorities. PIs would, however, be able to use alternative methods, subject to criteria specified by EBA.
– Retail stores could offer cash withdrawals without having to obtain an authorization as a PI so long as the withdrawal amounts are below EUR 50 and occur within the store premises. Independent ATM operators would also be exempt from the authorization requirement.