EU's Final AML Text Could Be 'Life Or Death' For PISPs, Warn Fintech Groups

February 5, 2024
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Key EU trade associations are seeking clarification on an important recital in the Anti-Money Laundering Regulation that they warn could have negative consequences for payment initiation service providers (PISPs).

Key EU trade associations are seeking clarification on an important recital in the Anti-Money Laundering Regulation that they warn could have negative consequences for payment initiation service providers (PISPs).

The joint statement, signed by the European Third Party Providers Association (ETPPA), Electronic Money Association, European Payment Institutions Federation (EPIF), European FinTech Association (EFA) and Open Finance Association (OFA), is calling on the co-legislators and the European Commission to clarify the compromise text that has been agreed for the AMLR. 

In particular, the issue is with Recital 34, which the groups say must be amended during the technical trilogues that will agree the final text, to ensure that the legislation does not kill the EU’s payment initiation services. 

According to Ralf Ohlhausen, chair of the ETPPA, the addition of PISPs to the legislative file was a coincidence. "In the past, we have already seen some varying views and interpretations of AML rules for TPPs," he said.

For example, he explained that the obliged entities were originally those listed in the annex of the first Payment Services Directive (PSD1). 

"When TPPs were added there in PSD2, no one realised that this will bring them into the scope of AML," said Ohlhausen.

"Ultimately, we are just an overlay over banks, who already monitor transactions, and carry out customer due diligence. 

Ohlhausen explained that PISPs also being included "presents a double whammy, especially as we have no risk". 

"This is not required of other methods, such as card payments or iDEAL, so it is a pretty obvious discrimination against PISPs," he said. 

Ohlhausen cautioned that "this could be a matter of life and death for the industry".

“As an industry we see open banking payments as an important mitigant in the fight against fraud,” said Nilixa Devlukia, OFA chair. 

Devlukia explained that it is “vital” that the technical trilogues resolve the issues with the text.

“If it remains as drafted, this will result in inequitable outcomes for PISPs and open banking payments, leaving EU fintech firms with a competitive disadvantage that is enshrined in legislation,” she added. 

Clarification required

The joint statement highlights the importance of this issue to the entire fintech sector.

The trade associations, which boast members including Wise, Tink, TrueLayer and Worldpay, warn that the current draft compromise text for Recital 34 needs to be further clarified in two crucial respects. 

In the statement, the trade associations suggest that it has always been their understanding that the intention of Recital 34 has been to clarify that a PISP's customer due diligence (CDD) obligations are vis-a-vis the merchant only, not the payer, which allows the PISPs to compete on a level playing field. 

The statement says that the compromise wording, however, is not clear about this and leaves room for interpretation. 

This includes one where the payer could come into the scope of CDD rules should they use the services of a PISP multiple times. 

“We believe this can be clarified at the technical level, in particular, given that Article 15 has already been amended to clarify that PISPs’ CDD obligations in relation to occasional transactions are vis-a-vis the merchant, not the payer,” the statement says. 

Further, the trade associations say that the same clarification should be made concerning the establishment of a business relationship, to clarify that such relationships are only established vis-a-vis the merchant, and not the payer. 

“The political intent must be reflected as clearly as possible. After many years of differing opinions on this topic, all stakeholders deserve final clarity from the legislator,” the statement continued.

Discrimination against PISPs?

The fintech groups also suggest that the final sentence of Recital 34 appears to be discriminating payment initiation services against cards and all other payment types when combining it with collecting the payments on behalf of the payee, due to the enhanced due diligence that could be required. 

Recital 34 should clarify that a collecting PSP has to perform its relevant CDD obligations, independent of whether the PSP provides PIS per se or not, the statement says.

In the case that a PSP also provides PIS, the CDD obligation of the PSP is towards the merchant, it adds, both for the provision of PIS and the provision of payment collection, echoing what has already been suggested by the European Parliament. 

The trade associations have said that they are confident that this too will be addressed at the technical level. “The current wording of the Recital is not aligned with the rest of the AML framework, which has a payment collecting PSP performing CDD on the payee/merchant, and appears outright discriminatory,” they said.

Should these changes not be made, the groups warn that it will be impossible for European PISPs to compete with other payment solutions, such as card acquirers like Visa and Mastercard, and mobile payment methods like Apple Pay and iDEAL — all of whom have to perform due diligence only on the merchant to whom they provide services. 

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