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During the summer, the European Central Bank (ECB) has been readying itself for changes to settlement finality in the eurozone as the Instant Payments Regulation (IPR) begins to take effect.
In July, the central bank introduced a harmonised policy allowing non-bank payment service providers (PSPs) to access central bank-operated payment systems, including TARGET, as part of the IPR, which became effective from April 8, 2024.
Despite the preparations, it remains to be seen whether the uniform policy will help payment and e-money institutions that want to take advantage of the incoming change.
The policy aims to create a level playing field between bank and non-bank PSPs, enabling the latter to offer comprehensive payment services independently of banks, and includes amendments to the Settlement Finality Directive (SFD), broadening participation eligibility.
The policy will be incorporated into the TARGET Guideline by April 2025, ensuring uniformity across the EU and emphasising a non-discriminatory, risk-based approach.
Additionally, non-bank PSPs may safeguard user funds in central bank accounts, although this raises concerns about potential financial system disruptions.
The ECB will oversee the policy's implementation and make adjustments as needed.
Practical application
"The ECB is making it clear that they want to ensure access in a non-discriminatory way for non-banks,” said Pierluigi Cuccuru, senior associate at De Matteis Law.
“Technical guidelines to ensure this will follow, and national transposition is expected to be simple and straightforward,” he said.
Cuccuru’s colleague Andreas De Matteis added that an amendment has been made to the directive, so it is not immediately enforceable and will require updates at the national level.
This is where national components come into play, as all member states will need to ensure that non-bank PSPs have access to payment systems.
“The key question is whether the general principle will be transposed into law automatically; this is not guaranteed,” he said.
De Matteis added that eligibility criteria, particularly those involving technical and operational aspects, must be established, and this is where the ECB's policy comes in.
“The ECB aims to lead the agenda by establishing these criteria. The criteria should be effective by April 2025, although delays may occur if member states fail to implement the rules."
Smooth integration
Emőke Péter, global head of public and regulatory affairs at Worldline, who was one of the driving forces in getting the SFD amendment into play in Brussels, praised the harmonised approach as promoting consistency throughout the Eurosystem.
Speaking with Vixio, she said that this facilitates “a smooth transition and integration of T2 and TIPS with the updated regulatory framework”.
However, the policy expert continued that there are two critical forthcoming steps.
“Firstly, the actual amendment of the TARGET guidelines by the ECB, as the policy change hinges on modifications to these guidelines; secondly, the development of specific terms and conditions by national central banks,” she said.
She pointed out that euro area national central banks that operate payment systems are tasked with crafting terms and conditions to facilitate access for non-bank PSPs to their national payment infrastructures, adhering to the principles stipulated in the Eurosystem’s harmonised policy.
“The urgency of these developments cannot be overstated, as the transposition of these amendments into national law by member states is mandated within a 12-month window following the regulation's enforcement date of 8 April 2024 and companies need to know the terms and conditions to get fully prepared.”
Magali Van Bulck, EU policy chief at Wise, was also pleased with the ECB’s move. “The Eurosystem access policy is finally here and EMIs and PIs will be breathing a sigh of relief. Getting direct access to payment systems is another step closer to becoming a reality for non-banks.”
Van Bulck, like Péter, was key in pushing for the SFD change, and told Vixio that the ECB’s “commitment to proportionate, objective and non-discriminatory principles is encouraging.”
She added that the access criteria, beyond those specified in the law, are nearly identical to those banks need to have in place. “We're very excited to get started, open the dialogue and work with Eurosystem central banks, and we hope non-euro countries follow suit.”
However, Van Bulck also expressed concern about elements of the new policy, saying that the main point of concern is the Eurosystem's lenience "if one or more member states fails to transpose the SFD into national legislation adequately or in a timely manner".
“They argue that this could potentially warrant a delay of the date by which non-banks can obtain direct access,” she added. “We feel strongly that the EU shouldn't move at the pace of the slowest innovator, otherwise there is no incentive for member states to comply with the legally imposed deadline.”
“We're keen to bring the benefits of faster, lower cost payments to consumers and businesses all over the EU as soon as possible.”
How enthusiastic will the central banks be?
The SFD amendment making it to the final text of the IPR was unexpected.
It came via the European Parliament’s negotiating team and the general feeling in Brussels for some time prior was that amendments to the SFD would come via the Payment Services Regulation, with more time to be considered, rather than the IPR.
Yet the change made it in, in part due to the European Commission not standing in the way, although there has been a lack of enthusiasm from some central banks about this change.
Central bank representatives in countries including Belgium and Ireland have been less keen on the idea of granting e-money and payment institutions direct access.
This could be for a variety of reasons. For example, these institutions have different business models and risk profiles compared with traditional banks.
Central banks in the eurozone may be concerned about the operational complexities and risks involved in integrating these institutions into central bank-operated payment systems, which are critical for the stability of the financial system.
A failure could have more impact if direct access is granted, and risks hitting consumers, taxpayers and the central bank.
Another issue is market integrity: ensuring that non-bank entities adhere to the same operational and technical standards as banks could be challenging and, ultimately, central banks may be hesitant due to the potential difficulties in monitoring and managing what are diverse and rapidly evolving business models in the payments and e-money sector.
Despite the ECB’s implementation of a uniform policy, it is not hard to see access varying across the member states, and perhaps even regulatory shopping. Countries such as Lithuania and Latvia may be more enthusiastic than others, for example.
Either way, market integrity is key, and central banks are likely to focus on ensuring standards are set high and are stringent for payments and e-money firms keen to take advantage of this new opportunity.
