In line with the EU Digital Finance Strategy and the EU Retail Payments Strategy, the European Commission has just launched a series of consultation documents primarily aimed to collect market feedback on open finance rules and on any potential amendments to the EU Payment Services Directive 2015/2366 (“PSD 2”) – which directive sets out the legal foundation for the development of an integrated internal market for payment services within the EU and inter alia sets out rules on licensing regimes for payment institutions, open banking, and rights and obligations of payment services users and providers.
PSD 2 was adopted in 2015 however most of the rules were transposed in Malta and implemented in 2018. Across the years since the adoption of PSD 2, the payments market has generally witnessed an influx of new market players, such as FinTech and BigTech firms employing a vast array of new payment technologies, including digital or pass-through wallets, mobile payment apps and electronic payment systems such as buy-now-pay-later (BNPL) solutions and venturing into the world of crypto assets – all market developments which are potentially rendering PSD 2 somewhat outdated.
The increase of new technologies and globalisation has also resulted in increased international payments which may require further regulation, in particular due to the amplification of cyber-risks and payment fraud. While strong customer authentication rules remain relevant, it is becoming apparent that in order to combat newer forms of payment fraud and to further secure payment data (especially within the open banking context) regulation needs to be updated and be kept abreast with novel market trends and technologies.
Hence, the European Commission has launched the consultation documents to obtain feedback from stakeholders in the financial services industry in order to determine whether PSD 2 requires amendments to cater for the aforementioned considerations and if so, how such amendments should be made. The consultation is mainly divided into three segments:
- a public consultation on the review of the revised payment services directive (PSD2) and on open finance (the ‘‘Public Consultation on PSD2 and Open Finance’’);
- a targeted consultation on the review of the revised PSD 2 (the ‘‘Targeted Consultation on PSD2’’); and
- a targeted consultation on open finance framework and data sharing in the financial sector (the ‘‘Targeted Consultation on Open Finance and Data Sharing’’),
collectively the ‘‘Consultations’’).
The Public Consultation on PSD2 and Open Finance is targeted at the market generally and does not contain technical questions on the relevant payment services legislation. However, the Targeted Consultation on PSD2 and the Targeted Consultation on Open Finance and Data Sharing are targeted at professional stakeholders in the payment services sector.
The Targeted Consultation on PSD2 seeks to obtain information on the practical application and impact of PSD 2, including its effectiveness, efficiency and coherence as well as determining whether PSD 2 caters for emerging payment technologies which are rapidly evolving. The results of this Targeted Consultation should provide a strong indication of the practicality and relevance of PSD2 and whether it needs to be updated in view of the aforementioned changes and challenges, including the increase in FinTech and BigTech, newer payment services and payment fraud risks.
On the other hand, the Targeted Consultation on Open Finance and Data Sharing is focused on open finance. This Targeted Consultation seeks to determine the manner in which open finance can impact customer protection including data protection as well as views on data sharing among financial firms.
The deadline for responding to both the Targeted Consultation on PSD2 and the Targeted Consultation on Open Finance and Data Sharing is 5th July 2022 while the deadline for responding to the Public Consultation on PSD2 and Open Finance is 2nd August 2022.
Besides launching the Consultations, the EU Commission in October 2021 issued a call for advice from the EBA in relation to PSD2, including its scope and definitions, licencing of payment institutions and their supervision, transparency of conditions and information requirements, strong customer authentication requirements, and access to payment accounts in relation to payment initiation services and account information services as well accounts with credit institutions. The EBA has until 30th June 2022 to respond to this call for advice.
It is anticipated that the Consultations and the EBA’s response to the call for advice will result in legislative proposals, potentially including PSD3 and an open finance framework.