The group privilege in payment services regulation

The group privilege in payment services regulation

In a nutshell, the Payment Services Supervision Act (ZAG) stipulates that payment transactions and associated services within a group are not considered payment services.

According to the German Federal Financial Supervisory Authority (BaFin), this includes constellations in which a group company provides a service to another group company to effect a payment to another group company which – without the exemption – would qualify as a payment service. This could be the case, for example, with cash pools and payment factories. The background to the privilege is the lower need for protection of users resulting from the uniform group affiliation.

The advantages of the privileged status are obvious: there is no need for a regulatory licence, the service provider is not subject to the Money Laundering Act (GwG) – unless otherwise qualified – and the requirements for customer money protection do not apply, to name but a few.

PSR draft brings movement into play

With its proposal for a regulation on payment services in the internal market (Payment Services Regulation – PSR) presented in August last year, the Commission is now getting things moving. It remains doubtful whether its proposal would lead to an extension of the exemption for group companies in practice. However, the draft recently submitted by the European Parliament’s Committee on Economic and Monetary Affairs (ECON) leaves no doubt about this.

Restriction to superordinate and subordinate groups

Neither the Commission nor ECON are shaking up the existing restriction of group privilege to superordinate and subordinate groups. Members of a group of equal size in which no company exercises a controlling influence as the parent company should continue to be excluded from the privilege.

The position of the companies involved within a superordinate and subordinate group also remains irrelevant. Payment transactions involving only dependent companies are also covered by the privileged treatment. It is not necessary for the parent company to be involved, whether as payer, payee or service provider.

Crucial point: payments from and to “outside”

According to current BaFin administrative practice, the group privilege is to be interpreted narrowly and only covers payments within the group. The payer, payee and the service provider processing the payment must all belong to the same group.

The Commission approached the issue rather cautiously.
Its draft PSR does provide that the “collection of payment orders” (whatever this may mean) also falls under the group privilege. However, this only applies if the collection is made “for forwarding to a payment service provider”.

However, as this wording can already be found verbatim in the recitals of the current Second Payment Services Directive (PSD2), it is doubtful whether this would actually result in an extension of the group privilege in administrative practice.

ECON sets out to make a big splash

ECON appears to go considerably further. According to its proposal for the PSR, the group privilege should cover both the collection of sums of money and the execution of payments, i.e. also payments from and to “outside”.

The parliamentary committee cancelled the reservation of forwarding accepted payments to a payment service provider without replacement.

Technical shortcomings in the legislation

In the recitals, however, the ECON retained this wording unchanged. This contradiction is part of a whole series of inconsistencies and ambiguities in the regulation of group privilege. Clean legislation looks different!

New perspective for payment factories

If the ECON draft were to be implemented as it is understood here, this would significantly strengthen the importance of payment factories, i.e. group companies that operate centralised and uniform cash management within a group and make payments and collect receivables as a service for the operating group companies. They would then be able to offer a comprehensive service package in the area of group-wide payment transactions even without authorisation and would not just be limited to intra-group cash flows.

However, the legislator must first establish a clear and legally secure legal framework that, in particular, leaves no room for different interpretations by the national supervisory authorities.

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