Signed Off By October? EU’s Instant Payments Legislation Hopes

May 25, 2023
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Brussels hopes for a swift legislative process, questions remain over whether the European Council and Parliament will play ball and non-bank access to payments still on the agenda as VIXIO looks at the current state of play for EU instant payments regulations.

Brussels hopes for a swift legislative process, questions remain over whether the European Council and Parliament will play ball and non-bank access to payments still on the agenda as VIXIO looks at the current state of play for EU instant payments regulations.

On Monday (May 22), the European Council set its position on the proposal for instant payments regulation in the EU. It announced it is ready to start negotiations with the European Parliament to agree on a final version of the text.

Rumour has it in Brussels that legislators want to have the regulation signed off by October 26, within a year of the European Commission first making a proposal.

However, anybody familiar with the EU’s legislative process will tell you not to be too hopeful.

The Parliament is currently waiting on the Economic and Monetary Affairs (ECON) Committee to sign off its amendments and these are likely to be voted on by lawmakers on June 28.

It is thought members of the European Parliament (MEPs) are largely in favour of getting the legislation signed off sooner rather than later due to the consumer benefits.

Michiel Hoogeveen, the regulation’s rapporteur, is also thought to want to stay close to the European Commission’s original proposal, as opposed to making significant changes, so that negotiations will not take longer.

One area where the Parliament has diverged from the original proposal is the prospect of opening up direct access to payments infrastructure for payments and electronic money institutions.

According to one source in the Parliament, support for this is “almost unanimous”.

In documents seen by VIXIO, parliamentarians including Ondřej Kovařík, one of crypto and fintech’s biggest allies in the legislative body, as well as Billy Kelleher, the former Digital Operational Resilience Act (DORA) rapporteur, have laid down an amendment creating "Article 2A" of the regulation.

This aims to amend the Settlement Finality Directive (SFD) to include granting payment and e-money firms direct access.

Currently, the European Council’s position does not explicitly allow for access, although it appears to suggest that this could be a possibility in the future.

Member states have concluded that “it would not be proportionate to impose on payment institutions and electronic money institutions an obligation to offer the service of sending and receiving instant credit transfers in euro, because those institutions cannot be admitted as participants in a payment system designated in accordance” with the SFD.

“Those institutions may therefore experience difficulties in accessing the infrastructure necessary to execute instant credit transfers,” says the Council’s position.

“Under the current circumstances, it is appropriate to exclude payment institutions and electronic money institutions from the obligation to offer the service of sending and receiving instant credit transfers in euro.”

However, the Council states that “if payment institutions and electronic money institutions provide instant credit transfers on a voluntary basis, they should comply with the requirements established by this Regulation”.

The Council also notes that “in case payment institutions and electronic money institutions would be admitted as participants in a payment system designated in accordance with Directive 98/26/EC, inclusion of those institutions under this regulation should also be considered through appropriate action by the Union legislator based on a legislative proposal by the Commission”.

Despite parliamentary enthusiasm, some lobbyists in Brussels have told VIXIO that SFD amendments are unlikely to come about in the instant payments regulation.

They believe that it is difficult to use the instant payments regulation to account for the SFD on a legal basis.

Another source said that the EU’s legislative process is simply a “slow machine”.

“It will happen, but we aren’t talking about an innovative regulator like Singapore.”

While trade associations such as European Digital Payments Industry Alliance (EDPIA) and the European Fintech Association (EFA) have been pushing for the SFD to be amended via the instant payments regulation, there has been some suggestion that it could be included as part of other regulatory initiatives.

At a conference this week organised by the Berlin Group, a presentation by the European Commission’s Eric Ducolombier appeared to suggest that revisions to the Payment Services Directive, or PSD3, will include access to payment systems for non-banks.

For now, it is uncertain when the Parliament’s position will be made final.

According to one source, some factions within Parliament have said that they are not happy with amendments to the text that have been added.

“We may still have a bit of a road to travel ahead,” said the source.

The Council’s position

The instant payments proposal aims to improve the availability of instant payment options in euro to everyone who owns a bank account in the EU and in European Economic Area (EEA) countries.

The regulation, much like the EU’s Digital Markets Act and its digital euro plans, envisions a future where the EU is less reliant on the infrastructure of third parties.

“I don’t know why no one says outright that they don’t want as much reliance on Visa and Mastercard,” said one Brussels-based source when discussing the proposal.

In its position, the Council has specified that the implementation of the new rules will happen faster in member states that are within the euro area. Here, there will be a deadline of 12 months after the regulation has been formally signed into law.

For payment services providers (PSPs) located in member states outside the euro area, there will be a phased implementation time, with a 36-month timeline.

In the first phase, they will be obliged to carry out instant payments only during business hours, and in a second step the same rules as for euro area payment service providers will apply.

The Council has come to this conclusion to address concerns that PSPs outside the euro area could face challenges accessing euro liquidity during non-business hours.

The sending of instant payments in euro from non-euro accounts will be only mandatory during business hours for those PSPs who also provide standard transfers in euro.

Member states have also said that they want to keep an eye on the evolution of charges for national and cross-border credit transfers and instant credit transfers in national currencies of member states and in euro.

Therefore, the Council includes a review clause with a requirement for the European Commission to present a report that shall contain an evaluation of the development of these charges over time.

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