Payment service providers face further regulation from new Cross Border Payments Regulation

The EU Council has adopted the Cross Border Payments Regulation (CBPR), which comes into force on 15 December 2019, with certain provisions taking effect 12 and 24 months after this date

This has implications for firms carrying out cross border payments and could mean you need to review the charges on your cross border transactions

The Regulation aims to address the deemed discrepancy in high charges Payment Service Providers (PSPs) apply to cross border transactions in euro and the Swedish Krona (on account that Sweden has opted into the Regulation) from non-euro area member states, in contrast to the charges applied by PSPs to transaction between two euro area member states.

Existing regime

The Payment Services Regulations 2017 (PSR), which implemented the EU's second Payment Services Directive (PSD2) sets out the obligations on UK PSPs to provide information to consumers in their framework contracts (Regulations 48 and Schedule 4) and currency conversions (Regulation 57).

It’s the view of the European Parliament and Council that PSD2 has not achieved the required transparency and ability for consumers to compare alternative currency conversion charges.

The European Parliament and Council have noted since the adoption of the Regulation on Cross-Border Payments in Euro (2560/2001) the fees applied by PSPs between euro to euro member states have reduced significantly.

The Regulation seeks to offer the same consumer protection for non-euro member consumers and businesses from the increased risks of overpaying for cross border euro transactions.

The regulation

The Regulation requires that PSPs align their charges for cross-border payment transactions paid in euro and the Swedish Krona with similar ‘corresponding’ domestic payment transactions in a payer’s own currency (principle of equivalency) and that currency conversion charges are set out prior to the initiation of a transaction.

For card based transactions PSPs are required to display its currency conversion charges as a percentage mark-up against the latest euro foreign exchange reference rates issued by the European Central Bank (ECB).

In addition to providing a payer with details of currency conversions in their framework contract as set out in PSR, PSPs will be required to make this information available on its customers website, home banking websites and where applicable mobile applications.

PSPs will also need to set out the amount to be paid to the payee in the currency used by the payee and the total amount to be paid by the payer (including the currency conversion charge) in the currency of the payers account.

The payer should also be given the option where a currency conversion is offered at an ATM or point of sale to refuse the service and pay the in payees currency instead.

Where a transaction is made in another country the PSP will also be required to send electronic notifications to the customer (SMS, emails, push notifications through app) to advise of the applicable currency conversion charges.

Whilst the Regulation qualifies the measures to be implemented by PSPs to achieve the requirements above as being appropriate, adequate and cost effective; it’s the view of the European Parliament and Council that PSPs already have in place the necessary infrastructure to process cross border transactions at a low costs and so the current discrepancy in charges is an unnecessary barrier to competitiveness and full access to the internal market for business and consumers.

Brexit

Ordinarily the Regulation would have direct effect in the UK when it comes into force on 15 December 2019, however the UK government has set out that it does not intend for the Regulation to form part of UK law when the UK leaves the European Union.

The European Payments Council Board (ECPB) has now approved the UK’s continued participation in the Single Euro Payment Area (SEPA) to ensure UK PSPs can continue to make and receive payments within the euro area, even in a no deal Brexit scenario; and as SEPA members the UK will not be required to have equivalent legislation to the Regulation.

In light of the uncertainty surrounding the UK’s departure date from the European Union, with the current date of 12 April 2019 appearing unlikely, the Regulation may still come into effect if the UK has not left the European Union by 15 December 2019.

Practical considerations for your business

Whilst it appears unlikely the Regulation will come into force in the UK, the Financial Conduct Authority (FCA) have confirmed they will be releasing guidance on what constitutes a ‘corresponding national payment’ and could yet still review the charges UK PSPs apply to cross border transactions.

With this in mind you should review your current charges for cross border transactions in euro and Swedish Krona and ascertain whether or not they are the same and proportionate?  If Brexit is delayed beyond 15 December 2019 PSPs will be required to publish their conversion charges and you will likely face commercial pressure to reduce charges linked directly or indirectly to cross border transactions.

You should also consider your existing technology and information provided to consumers in your framework contracts and at the point of transaction.

Should you wish to discuss any aspect of this article, please contact, Tim Waller

Contributor: Christian Burt

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at April 2019. Specific advice should be sought for specific cases. For more information see our terms & conditions.