The regulatory framework for payments in Europe

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The regulatory framework for The regulatory framework for payments in Europepayments in Europe

Céu Pereira, Céu Pereira, Permanent representation of Permanent representation of Portugal to the EUPortugal to the EU

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Financial ServicesAction Plan

Lisbon agendaSEPA

Single Currency

Financial Integration

Permanent Representation of Portugal to the EUPermanent Representation of Portugal to the EU

The EU: still a fragmented market!!!!The EU: still a fragmented market!!!!

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“The legend of Sir Leon Brittan’s book”

The story is that Sir Leon Brittan as an EU trade Commissioner in the early 90’s, ordered a book costing around £10 but the charges came to £20

Alternative theory: bureaucrats fed-up paying bank charges when moving money back and forth from Brussels

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……but the real catalyst for changebut the real catalyst for change: :

the Euro changeoverthe Euro changeover

Regulation 2560/2001 brings obligation to Regulation 2560/2001 brings obligation to apply same price for cross-border and national apply same price for cross-border and national transfers in the EU since 2002transfers in the EU since 2002


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……....a single currency but still a fragmented marketa single currency but still a fragmented market

Regulation 2560/2001 had kick-starting effectRegulation 2560/2001 had kick-starting effectBut it left banks to bear the extra costsBut it left banks to bear the extra costs

Some national payments are quite efficientSome national payments are quite efficientBut huge differences between countries of a factor 1 to 8But huge differences between countries of a factor 1 to 8

Efficiency of cross-border payments is substantially lowerEfficiency of cross-border payments is substantially lowerBut should be at par with the best performing national marketsBut should be at par with the best performing national markets

Well-functioning national markets existWell-functioning national markets existBut remain fragmentedBut remain fragmented


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SEPA= Single Euro Payments Area=SEPA= Single Euro Payments Area=

An area where it is as easy, convenient, safe and An area where it is as easy, convenient, safe and efficient to make payments within or efficient to make payments within or between national borders in Europebetween national borders in Europe


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SEPA in facts and figures:SEPA in facts and figures:

A private initiative supported by EU institutions A private initiative supported by EU institutions and governmentsand governments

For Euro paymentsFor Euro payments In 27+4 countriesIn 27+4 countries Will be offering SEPA instruments from 2008Will be offering SEPA instruments from 2008 Expects to reach critical mass by 2010Expects to reach critical mass by 2010


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EPC’s SEPA TimelineEPC’s SEPA Timeline

Design & preparation

Implementation & deployment

Co-existence & gradual migration

Programme activities

2

1

DesignSpecification

Implementation

Pilots

National migration

Early adopters

Programme management, planning, communication, monitoring

Launch

Milestones

1. 2008 EPC instruments available to citizens

2. 2010 Critical mass migrated so SEPA is irreversible

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The Payment Services Directive: a legal framework for The Payment Services Directive: a legal framework for SEPASEPA

Creation of a new category of financial institutions: Creation of a new category of financial institutions: payment institutions, with specific regulatory payment institutions, with specific regulatory frameworkframework

Comprehensive transparency requirements in order Comprehensive transparency requirements in order to enhance consumer protectionto enhance consumer protection

Framework defining rights and obligations for the Framework defining rights and obligations for the different parties, underpinning the SEPA projectdifferent parties, underpinning the SEPA project


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The pre-legislative and the legislative process The pre-legislative and the legislative process of the Payment Services Directive:of the Payment Services Directive:

5 years to consult stakeholders and MS5 years to consult stakeholders and MS

A bit more of 1 year of negotiation between A bit more of 1 year of negotiation between Council and ParliamentCouncil and Parliament

2 years of transposition by MS2 years of transposition by MS


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Member States

Parliament

Commission

Stakeholders

Council

legislativePre-legislative

MS Council

Commission

European Parliament

Stakeholders

Several layers in the process……..

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A multiplicity of actors…

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The PSD: an interesting case-studyThe PSD: an interesting case-study

Unprecedented scope and scaleUnprecedented scope and scale

““Start from scratch”Start from scratch”

Momentum and support by the industryMomentum and support by the industry

Legislate for the future payment instrumentsLegislate for the future payment instruments


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Authorization regime

Supervisory regime

Safeguarding measures for users

Granting fair access of PI to payment

systems

pricing

Applicable conditions

Rules for unauthorized

payment transactions

Rules on irrevocability

Rules on refunds

Rules on execution time

Rules on defective execution

Pillar I

Authorization and supervision regime for

PI

Pillar II

Transparency requirements applicable to all PSPs

Pillar III

Rights and obligations of PSU and PSPs in a payment transaction

Protection of users

Competitive EU market


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Main drivers for PSD:Main drivers for PSD:

Increase competitionIncrease competition

Increase transparencyIncrease transparency

Reinforce consumer protectionReinforce consumer protection

Promote automation and STPPromote automation and STP

Promote innovative Promote innovative

and safe payment instrumentsand safe payment instruments


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Regulatory choices:Regulatory choices:


Pillar I

Authorization and supervision regime for

PI

Authorization regime

Supervisory regime

Safeguarding measures for users

Granting fair access of PI to payment

systems

Qualitative/quantitative

More/less burdensome

Higher/lower barriers to entry

Scope of authorized activities

Maximum/minimum harmonization

Degree of interference with some payment systems’ rules

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Pillar II

Transparency

Charges

Other contractual terms

Value dates

Derogations for new payment methods

More/less information

free of charge or not

Make available/provide

Support: paper or other?

No hidden tariffs

Maximum/minimum harmonization

Which derogations can be justified

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Pillar III

Rights and obligations of the parties

unauthorized payment transactions

irrevocability

refunds

execution time

defective or non execution

Derogations for new payment methods

Degree of sharing of cost between users/PSPs

Level of service

More / less users' protection

Which derogations can be justified

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At the end…At the end…

More competitionMore competition More efficiencyMore efficiency More transparencyMore transparency More consumer protectionMore consumer protection More automation, STP, innovative productsMore automation, STP, innovative products Level playing fieldLevel playing field EU integrated marketEU integrated market


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What’s next?...What’s next?...

Fully-functioning EU payments market will still require as next steps:Fully-functioning EU payments market will still require as next steps:

Transposition of legislationTransposition of legislationImplementation by the industryImplementation by the industryCritical mass…..Critical mass…..

The Portuguese Presidency of the EU in the second semester of 2007 will support SEPA becoming a The Portuguese Presidency of the EU in the second semester of 2007 will support SEPA becoming a realityreality


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Thank you for your Thank you for your

attentionattention……Questions welcome!Questions welcome!

[email protected]@reper-portugal.be


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Financial ServicesAction Plan

Lisbon agendaSEPA

Single Currency

Financial Integration


Documents

The regulatory framework for payments in Europe