On June 28, 2023, the EU Commission presented proposals for a Payment Services Directive 3 (“PSD3“) and a Payment Services Regulation (“PSR“). We have already provided a brief overview of the main contents of the PSD3 and the PSR as well as significant innovations compared to the Payment Services Directive 2 (“PSD2“) and the Electronic Money Directive (“EMD2“) in our article “The EU Commission’s proposals for PSD3 and the PSR – a first overview” dated July 5, 2023. In this post, we want to take a closer look at e-money under PSD3 and PSR.
Quick spoiler: It is still unclear, how e-money tokens, which may also fall under the catalogue of payment services, should be classified in the future in the context of the Markets in Crypto-Assets Regulation (“MiCAR“), PSD3 and PSR. PSD3 and PSR do not contain any specific regulations in this regard. A regulatory clarification by the legislator would still be appreciated.
- Overview of the new e-money legislation
PSD2 and EMD2 will be merged in the future. According to Art. 48 PSD3, Directive (EU) 2015/2366 (PSD2) and Directive 2009/110/EC (EMD2) will be replaced by PSD3, which together with the PSR will form the new European Payment Services Law.
According to Art. 2 para. 4 PSD3 (or Art. 3 para. 4 PSR), payment institutions will also include legal entities providing e-money services in the future.
Fun Fact: Germany was ahead of its time and already implemented the new European legal system (” separating” supervisory and civil law) when implementing PSD2 by locating the supervisory provisions in the Payment Services Supervisory Act (Zahlungsdiensteaufsichtsgesetz “ZAG”) and implementing the civil law provisions in the German Civil Code (Bürgerliches Gesetzbuch “BGB”). E-money and payment services are already regulated together in the ZAG. Now the European legislator is doing the same as the German legislator before.
- (New) Definition of E-Money?
E-money is defined in Art. 2 para. 34 PSD3 and Art. 3 para. 50 PSR. These e-money definitions differ from the former e-money definition according to Art. 2 para. 2 EMD2. The e-money definition under EMD2 still referred to (one) person with regard to third-party acceptance, whereas the e-money definitions under PSD3 and PSR now refer to (more than one) persons with regard to third-party acceptance. This change to a plurality of third-party acceptors could mean that the criterion of acceptance by third parties would only be met in the future if there were not just one, but at least two acceptors in addition to the issuer. This would mean that those cases would have been covered by the previous e-money definition under EMD2, would no longer be covered by the new e-money definition that. This could apply to cases where there are two legally independent companies (e.g., group companies), with one company only being responsible for issuing the e-money and the other one only for accepting it. It remains unclear whether the European legislator intended to create a new definition of e-money with the aforementioned scope by (un)deliberately expanding the number of third-party acceptors, especially since nothing can be found on this matter in the recitals.
- (New) E-Money Requirements
According to Art. 5 lit. d) PSD3, the initial capital of a payment institution which provides e-money shall at no time be less than EUR 400 000. Previously, the initial capital had to be at least EUR 350 000 (Art. 4 EMD2 or Sec. 12 para. 3 d) ZAG).
Art. 45 PSD3, which provides a transitional provision for already authorised e-money institutions, could in practice result in considerable costs. According to Art. 45 para. 1 PSD3, e-money institutions that have already started their activities as an e-money institution up to 18 months after the PSD3 enters into force may continue to provide e-money services without having to apply for authorization under Art. 3 PSD3 or comply with the requirements under Art. 13 PSD3. However, Art. 45 para. 2 PSD3 obliges these e-money institutions to provide the competent authorities with all necessary information within 24 months after the entry into force of PSD3 so that they can assess whether the (new) e-money requirements as defined in PSD3 are complied. If the requirements are complied, the e-money institution will receive authorization in accordance with Art. 13 PSD3 and will be entered in the register in accordance with Artt. 17, 18 PSD3; if the requirements are not complied, the (continued) providing of e-money may be prohibited by the national supervisory authorities.
For practitioners, this means an effort that may become costly in terms of time and money in order to be allowed to continue providing e-money services. However, Art. 45 para. 3 PSD3 gives Member states the option of allowing e-money institutions that have already been authorized to automatically obtain authorization as payment institutions within the meaning of PSD3 and to be entered in the register under Art. 17 PSD3 if the competent authorities have evidence that the e-money institutions meet the requirements arising from PSD3. The competent authorities shall inform the e-money institutions concerned thereof before such automatic authorization is granted. Member states should make use of this possibility. This is due to the fact that the competent authorities have already received and checked the necessary information from the authorized e-money institutions as part of the authorization procedure, so that a second quasi-authorization application can be avoided and the resources of the competent authorities and the companies concerned can be used more efficiently. Looking at the past, we are not highly optimistic that Germany will make use of this option.