PSD3 brew? The European Commission launches consultations on the revision of the second Payment Services Directive – Financial services

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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 aimed primarily at gathering market feedback on open finance rules and any potential changes to the EU Payment Services Directive 2015/2366. (“DSP 2”) – which directive establishes the legal basis for the development of an integrated internal market for payment services within the EU and among others sets out the rules relating to payment institution licensing regimes, open banking, and the rights and obligations of users and payment service providers.

PSD 2 was adopted in 2015, but most of the rules were transposed to Malta and implemented in 2018. Over the years since the adoption of PSD 2, the payments market has generally seen an influx of new players from the market, such as FinTech and BigTech companies employing a wide range of new payment technologies, including digital or pass-through wallets, mobile payment apps, and electronic payment systems such as buy-now-pay-later ( BNPL) and venturing into the world of crypto assets – all market developments that are potentially rendering PSD 2 somewhat obsolete.

The increase in new technologies and globalization have also led to an increase in international payments which may require additional regulation, particularly due to the amplification of cyber risks and payment fraud. While strict customer authentication rules remain relevant, it is becoming clear that in order to combat new forms of payment fraud and further secure payment data (particularly in the context of open banking), regulations must be updated and kept abreast of new market trends and technologies.

Therefore, the European Commission has launched the consultation papers to obtain feedback from stakeholders in the financial services industry to determine whether PSD 2 requires changes to address the above considerations and, if so, how these changes should be made. . The consultation is mainly divided into three segments:

  1. 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”);

  2. a targeted consultation on the revision of the revised DSP 2 (the ”Targeted consultation on PSD2”); and

  3. a targeted consultation on the open financial framework and data sharing in the financial sector (the ”Targeted consultation on open finance and data sharing”),

collectively the ”Consulting”).

The public consultation on PSD2 and open finance is aimed at the general market and does not contain technical questions on relevant payment services legislation. However, the Targeted Consultation on PSD2 and the Targeted Consultation on Open Finance and Data Sharing are aimed at professional players in the payment services industry.

The targeted consultation on PSD2 aims to obtain information on the practical application and impact of PSD 2, including its effectiveness, efficiency and consistency, as well as to determine whether PSD 2 responds to emerging payment technologies that are evolving rapidly. The results of this targeted consultation should provide a strong indication of the practicality and relevance of PSD2 and whether or not it needs to be updated in light of the aforementioned changes and challenges, including the rise of FinTechs and of BigTech, new payment services and the risk of payment fraud.

On the other hand, the targeted consultation on open finance and data sharing is focused on open finance. This targeted consultation aims to identify how open finance can impact client protection, including data protection, as well as views on data sharing between financial firms.

The deadline to respond to both the targeted consultation on PSD2 and the targeted consultation on open finance and data sharing is 5e July 2022 while the deadline to respond to the public consultation on PSD2 and open finance is 2n/a August 2022.

In addition to the launch of consultations, the European Commission launched in October 2021 a call for the EBA’s opinion on PSD2, including its scope and definitions, the authorization of payment institutions and their supervision, transparency of terms and information requirements, strict customer authentication requirements, and access to payment accounts in relation to payment initiation services and account information services as well as accounts with credit institutions. The EBA has until 30e June 2022 to respond to this call for advice.

It is expected that the consultations and the EBA’s response to the call for advice will lead to legislative proposals, potentially including PSD3 and an open funding framework.

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

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