Q1. Why does it matter whether or not we fall within the scope of the PSD regulations?
Broadly, when you provide payment services, by way of business, in the UK and these services do not fall within an exclusion or exemption, you must be:
- an authorised payment institution; or
- an EEA authorised payment institution; or
- a small payment institution; or
- a credit institution (either one with a Part 4A permission to accept deposits or an EEA credit institution where it is exercising passport rights under paragraph 4 of Annex 1 to the 2CRD2; or
- an1electronic money issuer1 or
- the Post Office Limited, Bank of England, a central bank or government departments and local authorities; or
- an exempt person (that is a credit union, municipal bank and the National Savings Bank); or
- an agent of a person listed in (a) to (g) above.
Unless you are one of the above, subject to transitional provisions you risk committing a criminal offence under regulation 110.
Q2. Is there anything else we should be reading?
The Q&As complement, and should be read in conjunction with, the Payment Services Regulations 2009.
Q3. How much can we rely on these Q&As?
The answers given in these Q&As represent the FCA's views but the interpretation of financial services legislation is ultimately a matter for the courts. How the scope of the PSD regulations affects the regulatory position of any particular person will depend on his individual circumstances. If you have doubts about your position after reading these Q&As, you may wish to seek legal advice. The Q&As do not purport to be exhaustive and are not a substitute for reading the relevant legislation. In addition to FCA guidance, some PSD provisions may be the subject of guidance or communications by the European Commission.
Q4. We are a UK firm not authorised under FSMA providing payment services to our clients, as a regular business activity. Are we required to be authorised or registered under the regulations?
Yes, unless the exclusions or exemptions in the regulations apply to you or you are an e-money issuer, the Post Office Limited or an agent of a credit institution or e-money issuer. If this is not the case, you 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.
You might find helpful the overview, in the form of flowcharts, of the authorisation and registration requirements in the PSD regulations as they apply to payment institutions (that is payment service providers other than credit institutions, e-money issuers and their agents), set out in PERG 15 Annex 1.
Q5. As a payment institution rather than a credit institution, are we right in thinking that our maintenance of payment accounts does not amount to accepting deposits?
Yes, articles 9AB and 9L of the Regulated Activities Order provide that funds received by payment institutions from payment services users with a view to the provision of payment services shall constitute neither deposits nor electronic money.1
As an authorised payment institution, any funds you hold must only be used in relation to payment transactions (see regulation 28 of the PSD regulations). A "payment transaction" for these purposes is defined in regulation 2 of the PSD regulations as meaning "an act, initiated by the payer or payee, of placing, transferring or withdrawing funds, irrespective of any underlying obligations between the payer and payee". The fact that a payment account operated by a payment institution can only be used for payment transactions distinguishes it from a deposit. A deposit can nevertheless be a form of payment account and for guidance on what constitutes a deposit for the purposes of the regulated activity of "accepting deposits" and guidance on the regulated activity itself, see PERG 2.6.2 G to 2.6.4 G and PERG 2.7.2 G.
A payment institution is not prohibited from paying interest on a payment account but such interest cannot be paid from funds received from customers. More generally, if a payment institution were to offer savings facilities to its customers in the accounts it provides, in our view it would be holding funds not simply in relation to payment transactions and so would be in breach of regulation 28.
Q6. We are a credit card company and a payment institution. We are not a bank. Sometimes our customers will have a positive balance on their account because they have accidentally overpaid or because of refunds. Would this put us in breach of the requirement in regulation 28 to use a payment account only in relation to payment transactions?
No. In our view, this does not amount to a breach of regulation 28 and nor does the handling of credit balances in the circumstances constitute the activity of accepting deposits.
Q7. We are a credit institution. Do the PSD regulations apply to us?
Yes. If you are a credit institution, you will be subject to the conduct of business requirements in the PSD regulations to the extent that you provide payment services. In our view, the authorisation process applying to UK and non-EEA credit institutions remains that imposed by Part 4A of the Act. Authorised credit institutions will not though need to apply for a separate Part 4A permission, in order to provide payment services. In other words, if a UK credit institution has a Part IV permission to carry on the regulated activity of accepting deposits, it will not need to be separately authorised to provide payment services in the UK. We are aware that the Commission has indicated that branches of non-EEA credit institutions are unable to provide payment services in the EEA, in this legal form. Whilst it is for firms to consider their own position, in our view the UK branch of a non-EEA credit institution with a Part 4A permission to accept deposits is also authorised to provide payment services in the UK.
An EEA credit institution wishing to provide payment services through a UK branch must exercise its passport rights under paragraph 4 of the Annex to the CRD2. Similarly, a UK credit institution which wishes to provide payment services in other Member States may exercise its CRD2passport rights to do so.
Q8. We are an electronic money issuer. Do the PSD regulations apply to us? 1
Yes. If you are an electronic money issuer, you will be subject to the conduct of business requirements in the PSD regulations. The authorisation and registration regime applying to UK electronic money issuers is split between that imposed by the Act (see PERG 2.6.4A) and that imposed by the Electronic Money Regulations (see PERG 3A for guidance on the scope of the Electronic Money Regulations).1
Q9. If we provide payment services to our clients, will we always require authorisation or registration under the regulations?
Not necessarily; you will only be providing payment services, for the purpose of the regulations, when you carry on one or more of the activities in PERG 15 Annex 2:
- as a regular occupation or business activity; and
- these are not excluded or exempt activities.
Simply because you provide payment services as part of your business does not mean that you require authorisation or registration. You have to be providing payment services, themselves, as a regular occupation or business to fall within the scope of the regulations (see definition of "payment services" in regulation 2(1)). Accordingly, we would not generally expect solicitors or broker dealers, for example, to be providing payment services for the purpose of the regulations merely through operating their client accounts in connection with their main professional activities.
Q10. We are a "financial institution" under the CRD 2 . How does PSD apply to us?
Financial institutions are only subject to the authorisation and conduct of business requirements of the regulations where they provide payment services by way of business and are unable to rely on any of the statutory exclusions. For those financial institutions which are subject to the regulations, they may be able to benefit from transitional relief from the requirement to be authorised or registered as a payment institution if their parent undertaking is subject to consolidated supervision.
A "financial institution" for the purposes of the PSD regulations, as for the CRD2, is an undertaking other than a credit institution, the principal activity of which is to acquire holdings or to carry on one or more of the activities listed in points 2 to 12 of Annex 1 to the CRD2(see SUP App 3.9.4 G). It may include, for example, an authorised person under the Act which is neither a credit institution nor an e-money issuer.
Q11. Is it possible to be both an authorised person under FSMA and the agent of an authorised payment institution or a small payment institution?
Yes. There is nothing in the PSD regulations or the Act (for example section 39) which prevents a person from being both an authorised person and the agent of an authorised payment institution or a small payment institution.
Q.12 We provide electronic foreign exchange services to our customers/clients. Will this be subject to the PSD regulations?
Not necessarily, as providing foreign exchange services is not itself a payment service. Foreign exchange transactions may exist as part of, or independent from, payment services. You will fall within the scope of the PSD regulations if you are providing payment services, by way of business, in the UK. For example, where a customer instructs his bank to make payment in euros from his sterling bank account to a payee's bank account, we expect conduct of business requirements in the regulations to apply to the transfer of funds including information requirements relating to the relevant exchange rate.
By contrast, we would not expect the conduct of business provisions (including the right of cancellation) in the Payment Services regulations to apply to a spot or forward fx transaction itself. That said, the electronic transmission, for example, by a bank on behalf of a customer to an fx services provider is likely to be subject to the PSD, because this is a transfer of funds executed by the bank. Similarly, the onward payment by a bank or fx services provider, on behalf of a client, to a third party of currency purchased in an fx transaction may amount to a payment service.
Q.13 We are a business that does not provide payment services. We usually accept payment in sterling for our goods and services but also offer a facility to our customers who prefer to pay us in euros, to do so on the basis of a sterling/euro conversion when making electronic payments via their payment service provider. Do the regulations apply to us?
Generally no. You are not required to be authorised or registered under the regulations. You will though be required to disclose information relating to your currency conversion service, including charges and the exchange rate to be used (for further information including details of criminal sanctions, see regulations 49 and 113).1 2 2 1 1 2 2 2