The purpose of this chapter is to help businesses in the UK consider whether they fall within the scope of the Payment Services Directive (2007/64/EC) (PSD), as given effect to in the Payment Services Regulations 2009 (the "PSD regulations"). The PSD regulations create a separate authorisation and registration regime which differs from the authorisation requirements under the Financial Services and Markets Act. In particular, it is aimed at helping these businesses consider whether they need to be separately authorised or registered for the purposes of providing payment services in the UK. References to individual regulations are to the PSD regulations, unless otherwise stated.
PSD provides the legal framework for the operation of a single market in payment services. This includes the creation of a harmonised authorisation regime, designed to establish a single licence for payment service providers which are neither deposit-takers nor e-money issuers. Authorised payment institutions can provide services on a cross-border or branch basis, using passport rights acquired under the PSD.
The relevant payment services, as transposed in the PSD regulations, are set out fully in Annex 2 to this chapter and include, amongst other things, services relating to the operation of payment accounts (for example, cash deposits and withdrawals from current accounts and flexible savings accounts), execution of payment transactions, card issuing, merchant acquiring, money remittance and certain mobile phone-based payment services. The directive focuses on electronic means of payment including direct debit, debit card, credit card, standing order, mobile or fixed phone payments and payments from other digital devices as well as money remittance services; it does not apply to cash-only transactions or paper cheque-based transfers.
In terms of scope, the PSD regulations are likely to be of relevance to a range of firms including credit institutions, e-money issuers, the Post Office Limited, money remitters, certain bill payment service providers, card issuers, merchant acquirers and certain telecommunications network operators. It is also likely to be relevant to those agents of the above businesses which provide payment services.
Generally speaking, depending on the nature and size of its activities, a business to which the PSD regulations apply (other than a credit institution, e-money issuer or an EEA authorised payment institution) will need to be:
- authorised by the FCA as an authorised payment institution; or
- registered as a "small payment institution"; or
- registered as an agent of an authorised payment institution, EEA authorised payment institution or a small payment institution.
The conditions for authorisation as a payment institution are set out in regulation 6. In addition to the authorisation regime for payment institutions, there is an alternative regime for those which fall within the category of small payment institutions (that is businesses which meet the conditions in regulation 13). Broadly, the category of small payment institutions will only be relevant to firms executing payment transactions with a monthly average of 3 million euros (or an equivalent amount) or less, over a 12 month period. Broadly, small payment institutions are not subject to the requirements in Part 3 of the PSD regulations (including capital requirements), but they are subject to a registration regime and the conduct of business provisions in Parts 5 and 6.
The PSD regulations also provide for the appointment of agents by authorised payment institutions and small payment institutions. These agents are exempt from the authorisation requirements in regulation 6 but they are required to be registered on the Financial Services Register by their principal. When the agent's principal is an EEA authorised payment institution, it needs to be registered on the Home State register of that payment institution. A business can also provide payment services as an agent of a credit institution or e-money issuer, in which case there are no registration requirements under the PSD regulations.
Exemptions and exclusions
As well as small payment institutions and agents, the PSD regulations make provision for a limited number of exempt bodies, notably credit unions and municipal banks. The regulations do not apply to these bodies although municipal banks are required to notify the FCA if they propose to provide payment services.
More generally, there is a broad range of activities which do not constitute payment services under Schedule 1 Part 2 to the PSD regulations. Amongst these excluded activities, set out more fully in Annex 3, are:
- payment transactions through commercial agents;
- money exchange business (for example, bureaux de change);
- payment transactions linked to securities asset servicing (for example, dividend payments, share sales or unit redemptions);
- services provided by technical service providers;
- payment services based on instruments used within a limited network of service providers or for a limited range of goods or services; and
- payment services provided by telecommunications operators other than as an intermediary between payer and payee.
These and other activities are the subject of Q&A in PERG 15.5. A firm will be exempt from authorisation and registration requirements under the regulations to the extent that its activities fall within one or more of the exclusions in Schedule 1 Part 2 to the regulations. In each case, it will be for businesses to consider their own circumstances and whether they fall within the relevant exclusions.
Other scope issues
As explained in PERG 15.2, Q13, the regulations also apply in limited circumstances to non-payment service providers, if they provide a currency conversion service. Likewise, a non-payment services provider which imposes charges or offers reductions for the use of a given payment instrument is required to provide information on any such charges or reductions (see regulations 50 and 113).
Subject to the exclusions and exemptions outlined above, a payment institution with an establishment in the UK (other than an EEA payment services provider and its agents) is caught by the authorisation and registration requirements of the PSD regulations when it provides payment services, by way of business, in or from the UK. That said, there are important transitional provisions which delay the need for businesses to apply for authorisation or registration, before and during an initial period after the commencement of regulation on 1 November 2009.
How does this chapter work?
The chapter is made up of Q&As divided into the following sections:
- General (PERG 15.2)
- Payment services (PERG 15.3)
- Small payment institutions, agents and exempt bodies (PERG 15.4)
- Negative scope/exclusions (PERG 15.5)
- Territorial scope (PERG 15.6)
- Transitional arrangements (PERG 15.7)
- Flowcharts and tables (PERG 15 Annex 1 , PERG 15 Annex 2and PERG 15 Annex 3)
The PSD regulations contain their own definitions which you can find in regulation 2. We refer to some of these in the Q&A including "payment transaction", "payment account", "payment instrument" and "money remittance".11