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Mensuel : Edition de juin 2010
Rubrique : Informatique Bancaire/IT
Titre : Payment Services Act introduces new regime for payment services providers
Article : In order to facilitate electronic payments, such as credit card, debit, bank transfer or direct debit payments, within the eurozone, the European banking industry decided to create the Single Euro Payment Area (SEPA) - the area in which individuals and companies can make and receive euro payments. SEPA is intended to make transfers between bank accounts faster and more secure.

In order to establish a coherent framework for a single market for payment services, the EU Payment Services Directive (2007/64/EC) was adopted. Its objectives are to:
- simplify cross-border payments;
- ensure transparency of conditions and information requirements for payment services;
- guarantee fair and open access to payments markets;
- increase consumer protection; and
- improve competition.

The directive applies to electronic payments, but not to payment transactions using cash or cheques. Although SEPA's framework relates only to euro payments in the eurozone, the directive applies throughout the European Economic Area. The directive was implemented in Luxembourg by the Payment Services Act, which entered into force on November 1 2009. On November 12 2009 the Supervisory Authority of the Financial Sector issued Circular 9/420 on the act.

Scope

Material scope

Title I of the act states that the act applies to payment services provided by payment services providers in relation to all payment methods (including electronic payments, but excluding cash).

'Payment services' are defined in the annex to the act as:
- services enabling cash to be placed on a payment account;
- cash withdrawals from a payment account;
- transfers of funds into a payment account;
- the issuance or acquisition of payment instruments;
- money remittance; and
- the execution of payment transactions.

Type of service provider

Payment services providers include:
- credit institutions;
- e-money institutions;
- post office giro institutions;
- central banks;
- member states of the European Union (or their regional and local authorities, where they are not acting as public authorities); and
- payment institutions.

Territorial scope

Titles I to IV of the act apply to payment services from providers located in Luxembourg. Titles III and IV, which relate to the rights and obligations of payment services providers, apply when both the payee's provider and the payer's provider are located the EEA and when the transaction is made in euros or in another currency of an EEA member state.

Regime for payment services providers

Payment institutions are a new category of payment services provider, introduced into Luxembourg law by the act. The classification covers a heterogeneous group of providers, including money remitters, mobile operators, supermarkets, retailers and public transport companies. It includes companies that provide payment services only incidentally. Before the act, only parties that primarily or exclusively carried out a financial activity could be authorized as participants in the financial sector. Title II of the act sets out (i) the conditions on which payment institution authorization may be granted, and (ii) the requirements in respect of the protection of funds, capital and the supervision of payment. The licensing regime for payment institutions is similar to that for credit institutions.

Rights and obligations of payment services providers

Consumer protection measures

In the interests of transparency, Title III of the act defines the information that payment services providers must communicate to users before and after the relevant payment transaction. This provision covers:
- terms and conditions;
- contractual agreements;
- statements of account;
- procedures;
- all fees and costs payable by the user to the payment services provider; and
- the effective exchange rate or benchmark applicable to the payment transaction.

Use of payment services

Title IV of the act sets out rules regarding other rights and obligations in relation to the provision and use of payment services. The aspects covered include:
- the authorization of payment transactions (ie, the form of consent and right of withdrawal);
- the execution of payment transactions (ie, the maximum period within which the payment service is to be provided and rules on irrevocability);
- the liability of payment services providers;
- complaint procedures; and
- data protection rules.

The parties' freedom of contract is greater when the user is not a consumer, in which case the parties may agree not to apply the requirements of Titles III and IV. Among other things, the act imposes a faster turnaround time for transactions. The payer's payment service provider must ensure that the amount of the payment transaction is credited to the account of the payee's service provider no later than the end of the next business day. However, until January 1 2012 a payer and its service provider may agree on a longer period of three business days. When a consumer deposits cash in a payment account with a payment services provider in the currency of that payment account, the amount must be made available and value-dated immediately upon receipt of the funds. However, if the user is not a consumer, the amount must be made available and value-dated by the next business day. In accordance with the Data Protection Act payment systems and payment services providers are allowed to process personal data where this is necessary to prevent, investigate or detect payment fraud. In accordance with EU Regulation 2006/2004 the Supervisory Authority of the Financial Sector and the Insurance Commission have respective competence to ensure consumer protection within their fields.

Supervisory authorities

Supervisory Authority of the Financial Sector

The Minister of Finance has competence to authorize payment institutions. Payment institutions are subject to prudential supervision by the authority. The authority cooperates with the supervisory authorities of other member states and, where appropriate, with the European Central Bank, the Bank of Luxembourg and central banks of other member states in their capacity as monetary authorities with oversight of payment or securities settlement systems. When a payment institution whose member state is Luxembourg (for the purposes of the act) fails to comply with the laws, regulations or statutes governing the activities of payment services referred to in Title II, Article 10 of the act, or when its management or financial position does not sufficiently guarantee the successful fulfilment of its commitments, the authority may require it to cease its activity within a specified time. If the situation is not remedied within this time, the authority may suspend the institution's payment services operations. The minister responsible for the authority is no longer empowered to grant authorization for operators of payment or securities settlement systems, which are now no longer subject to ministerial approval or the authority's prudential supervision. The oversight of these system operators has been transferred to the Bank of Luxembourg.

Bank of Luxembourg

The Bank of Luxembourg must monitor and ensure the effectiveness and security of payment systems, securities settlement systems and payment instruments. This duty complements the authority's role and the two entities must coordinate their efforts.

The Bank of Luxembourg may:
- investigate operators of payment or securities settlement systems;
- ask issuers of payment instruments for information on such instruments; and
- make spot-checks on institutions to collect information.

The Bank of Luxembourg must immediately inform the Competition Inspectorate of any possible breaches of competition rules. It is authorized to provide the inspectorate with any information, including confidential information, that the latter may need to exercise its functions.

Competition Council

The Competition Council has competence for ensuring compliance with competition rules. The provisions governing access for (licensed or registered) payment services providers to payment systems must be objective, non-discriminatory and proportionate. Any impediment to access may not exceed what is necessary to prevent a specific risk (eg, settlement risk, operational risk or business risk) and to protect the financial and operational stability of payment systems.


Josée Weydert, Managing Partner
NautaDutilh Avocats Luxembourg

For further information on this topic please contact Josée Weydert at NautaDutilh by telephone (+352 26 12 29 1), fax (+352 26 68 43 31) or email (josee.weydert@nautadutilh.com).

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