The Payment Services Directive (PSD) is a key piece of payments-related legislation in Europe. Published in late 2007, it was designed to:
- Help develop the Single Euro Payments Area (SEPA);
- Set common standards for terms and conditions;
- Regulate payment institutions (to encourage non-banks to enter the market);
- Provide increased consumer protection and transparency;
- Establish maximum processing times for payments in euro and other EU currencies including sterling.
The PSD was implemented in the UK through the Payment Services Regulations 2009 (PSRs) and was the first European law to affect sterling payments.
After reviewing the PSD in 2012, the European Commission proposed revised legislation, widely known as the Payment Services Directive II (PSD2), in July 2013. The agreed final text of PSD2 was published in the Official Journal of the European Union in December 2015 and entered into force in January 2016. PSD2 will introduce further changes to the legislative framework governing payments, further information can be found here.
Payment Services Regulations 2009
The Payment Services Regulations 2009 (PSRs) came into force on 1 November 2009, monitored and enforced by the Financial Conduct Authority (formerly the Financial Services Authority).
The Office of Fair Trading (and subsequently the Competition and Markets Authority) were previously responsible for supervising and enforcing the Regulations regarding payment systems access. After an amendment to the PSRs, these functions transferred to the Payment Systems Regulator on 1 April 2015.
Scope and definitions
The PSRs define key terms used throughout the regulations like ‘payment account’, ‘business day’ and ‘payment instrument’.
The primary regulated payment services activities are:
- Cash deposits and withdrawals;
- The execution of payment transactions:
- Credit transfers, including standing orders;
- All direct debits;
- Payment card transactions.
- Issuing payment instruments (e.g. debit cards) or acquiring payment transactions;
- Money remittance;
- Payments sent through the intermediary of a telecom, IT system or network operator.
Meanwhile, the Regulations also list some of the activities that are out of scope of the legislation:
- Cash only transactions (although cash transactions to or from a payment account are caught);
- Cheques and paper instruments;
- Transporting cash (e.g. cash deliveries by commercial security companies);
- Payment transactions related to securities asset servicing;
- Technical services including independent ATM deployers.
The Regulations (except regulation 73) currently apply to payments where:
- the payment service providers (PSP) of both the payer and the payee are in the European Economic Area (EEA); and
- the transaction is being made in euro or another Member State currency.
Conduct of Business Requirements
Parts 5 and 6 of the Regulations together form the conduct of business requirements.
These place requirements upon PSPs regarding what information they must provide to customers before a contract is concluded and before and after payment transactions occur. They also set out the rights and obligations of both PSPs and customers when it comes to providing and using payment services.
The provisions set common standards across the EU by governing the relationship between the payment service provider and the customer. But PSPs can always offer better services to their customers as long as they comply with the regulations, such as applying the rules to products and services that aren’t covered under the legislation. If there is a conflict between the PSD and consumer credit provisions then consumer credit legislation, (provided by the Consumer Credit Act (CCA) or the Consumer Credit Directive (CCD)), will take precedence.
Maximum Execution Time
The PSRs introduced a default maximum timescale for execution of D+1 (i.e. the business day after the business day the payment was made) in cases where:
- payments are in euros; or
- in the domestic currency of the EU Member State concerned; or
- where there is only one currency conversion between euro and the domestic currency, and the transfer is cross-border and denominated in euro.
However, until 1 January 2012 PSPs could agree an execution time of up to the third business day after the payment order was received (D+3) with their customers.
For transactions in a Member State currency other than those described above, the Regulations allow PSPs and customers to agree an execution time of up to four business days (D+4).
More information about using the UK payment schemes to meet the maximum execution time can be sought by contacting us at email@example.com
Treatment of different customers
The PSD was written with consumer protection in mind. But it also applies to banking relationships with corporate businesses, which have different needs and requirements.
Therefore, the option of a ‘corporate opt-out’ exists for certain provisions, which can be agreed between a PSP and its corporate customer. Because a corporate opt-out is a competitive matter decided at PSP level, individual PSPs should discuss and agree appropriate actions with their corporate customers.
Elsewhere, the PSD contains a Member State option (known as a “derogation”) that allows national governments to treat micro-enterprises (with fewer than 10 staff and an annual turnover of less than €2 million) like consumers.
In the UK, HM Treasury not only used this option when the PSD was transposed into national law but also extended it to small charities (with an annual income of less than £1m).
These consumers, micro-enterprises and small charities have access to the Financial Ombudsman Service (FOS) for complaints concerning payment services.
For more details, go to:
- The Payments UK industry best practice publication on this topic which can be sought by contacting us here firstname.lastname@example.org
- The FAQs on payment services and information about the FCA’s approach to its role under the PSRs.
- The European Commission’s Information about the Payment Services Directive and its review.