After trilogue negotiations with the European Parliament and the European Commission, the European Council has now approved the amendments made to the Regulation (EC) No 924/2009 on Cross-Border Payments (the “CBP Regulation”). The amendments are in the form of a new EU regulation (the “Amending Regulation”) the final text of which is dated 20 February 2019 and is expected to be published on the Official Journal of the European Union soon. The European Commission first proposed the amendments in March 2018 (the “Commission Proposal”).
The Amending Regulation provides several application dates: the rule on equal charges for national and cross-border payments will apply from 15 December 2019 but the substantive disclosure requirements on currency conversion charges will apply much later than that. This is apparently so that the industry can have time to make necessary changes to the technical infrastructure to implement such disclosures.
In summary, the final rules in the Amending Regulation are much more nuanced than those initially set out in the Commission Proposal which was generally considered by the payments industry to be oversimplified and technically challenging. For example, the draft rules in the Commission Proposal made no references to the overlapping requirements under the Payment Services Directive (EU) 2015/2366 (“PSD2”). The Amending Regulation makes the new rules closely linked to the corresponding requirements under the PSD2.
The new rules on disclosing charges for currency conversion services apply to both national and cross-border payments in the EU that involve a currency conversion, regardless whether or not the payment is denominated in euro or in a national currency of a member state that is not euro. By contrast, under the initial Commission Proposal, these disclosure requirements were proposed to apply only to cross-border payments in euro or in a local currency that is not euro. Therefore, the scope of the disclosure requirements is broader than what was initially proposed.
The principle of equality
The CBP Regulation currently provides that charges for cross-border payments in euro must be the same as those for corresponding national payments “of the same value and in the same currency” (i.e. euro) (Article 3(1) and Article 1(2) read together). This means that payment service providers in member states outside of the euro zone are generally not subject to this equality rule. The CBP Regulation gives member states outside of the euro zone the discretion to apply the CBP Regulation to transactions in its national currency that is not euro but so far only Romania and Sweden have done so. This limitation on the equality rule has been criticised by consumer groups.
The Amending Regulation has removed this limitation. The equality rule will apply (from 15 December 2019) such that charges for cross-border payments in euro must be the same as those for corresponding national payments of the same value “in the national currency” of the member state in which the payment service provider is located (i.e. either euro or a member state currency that is not euro).
The new rule also corrects an anomaly in the initial Commission Proposal which provided that the corresponding national payments were in the local currency of the “payment service user’s member state”. If unchanged, that would create a situation where e.g. a UK payment service user requests a French bank to make a cross border transfer from his French bank account to a payee in Germany, it would be difficult for the French bank to identify what was supposed to be the corresponding national payment.
Note that the equality rules do not apply to charges for currency conversion services.
Pre-transaction disclosure of charges
Under the Amending Regulation, payment service providers (“PSPs”) and firms providing currency conversion services at an ATM or at the point of sale (commonly known as dynamic currency conversion or “DCC”) must express their total conversion charges as a percentage mark-up over the latest euro foreign exchange reference rates issued by the European Central Bank (“ECB”) and must disclose that mark-up to the payer prior to the initiation of the payment. This rule also makes express reference to the disclosure obligations under the PSD2 relating to foreign exchange rates and conversion charges. So this disclosure requirement effectively functions as a clarification of the relevant PSD2 requirements.
With respect to the manner in which the disclosure of the mark-up should be made, PSPs must include the mark-up as part of the pre-contractual information provided to customers under the PSD2 and, in addition, PSPs must “also” publish the mark-up on a easily accessible electronic platform (such as their customer-facing website, mobile banking app etc). Whereas DCC providers must clearly display the mark-up at the ATM or at the point of sale. This can be displayed at the counter, on the point of sale terminal or on-screen (for online purchases).
DCC providers (not PSPs) must also disclose, prior to the initiation of the payment, to the payer the amount to be received by the payee in the payee’s currency and the amount to be paid by the payer in the currency of the payer’s account. The Amending Regulation does not, however, specify how these amounts should be disclosed to the payer. Presumably, this means that the DCC provider can decided on a form of disclosure most appropriate to itself as long as these are disclosed prior to the initiation of the transaction.
Further, DCC providers must also give the payer a choice of making the payment in the currency used by the payee (i.e. the local currency) and must inform the payer of that choice prior to the payer making the payment.
These can be contrasted with the initial draft rule under the Commission Proposal which specified line items that must be disclosed (as opposed to a mark-up under the final rules). However, the line items essentially overlapped with what is already required under the PSD2 to which the Commission Proposal made no reference. The Commission Proposal also did not make any distinction between PSPs and DCC providers.
Further, the Commission Proposal left it to the European Banking Authority (“EBA”) to develop the relevant technical standards for making the disclosure and required the EBA to set a cap on all charges allowed for currency conversion during the transition period before such standards were implemented. The Amending Regulation has removed all such provisions as one of the aims is to ensure that the industry would not have to invest in complex technologies to make the required disclosures.
The Amending Regulation, however, leaves the door open in that it requires the European Commission to review the new rules within three years and produce a report to, among others, “further improve” the transparency requirements.
These new disclosure requirements will apply one year from the 20th day following the publication of the Amending Regulation in the Official Journal.
Where the payer uses a payment card to withdraw cash at an ATM or make a payment at the point of sale, in a currency different from that of the relevant account(s), the payer’s PSP must disclose to the payer the relevant mark-up (as discussed above) through an electronic message without undue delay after the PSP receives the relevant withdrawal/payment order. The electronic message can be in the form of e.g. an SMS message, an email or a push notification via the mobile banking app. The payer’s PSP must also send such message once every month in which it receives a withdrawl/payment order denominated in the same currency as that for the first withdrawal/payment. This is effectively an on-going reminder to the payer as that payer would have already been informed of the mark-up when they made the first transaction.
Payment service users must be allowed to opt out of receiving such electronic notifications. Payment service providers can also disapply this rule when dealing with payment service users that are not consumers (subject to both parties’ agreement).
These rules were not included in the initial Commission Proposal.
These rules will apply two years from the 20th day following the publication of the Amending Regulation in the Official Journal.
Conversion charges for credit transfers
Where the PSP provides currency conversion services for credit transfers, the PSP must include in the pre-contractual information provided to the payer under the PSD2 the estimated charges for such services. For each particular credit transfer, the PSP must also inform the payer of the estimated total amount in the currency of the payer’s account (including transaction fees and conversion charges) and the estimated amount to be transferred to the payee in the currency used by the payee.
This rule applies only to credit transfers initiated online directly by the payer through the PSP’s website or mobile app.
This rule will apply one year from the 20th day following the publication of the Amending Regulation in the Official Journal.
On 5 September 2018, the HM Treasury published two draft statutory instruments to onshore the EU payment regulations: the Payment and Electronic Money (Amendment) (EU Exit) Regulations 2018 and the Credit Transfers and Direct Debits in Euro (Amendment) (EU Exit) Regulations 2018. Along with these two draft legislation, the HM Treasury also published an explanatory memorandum.
The explanatory memorandum stated that it would be inoperable to onshore the CBP Regulation as it involves cross-border cooperation which could not be achieved in the event of a no-deal Brexit. Therefore, the UK government was proposing not to retain the CBP Regulation.
However, the statement acknowledged that the amendments to the CBP Regulation were (at the time of these draft legislation and the explanatory memorandum was published) being negotiated at the EU level. It went on to say that “the UK will examine the final version [of the Amending Regulation] to ascertain whether the above position continues to be the best approach”.
Given that the reason for not onshoring the CBP Regulation still remains (particularly with respect to the rule on equality of charges), it may be that the UK government would maintain the above approach and decide not to onshore the CBP Regulation (as amended by the new Amending Regulation). At least, not on a wholesale basis. However, given the consumer protection aspect, it is possible that the UK may decide to retain some elements in the CBP Regulation e.g. in relation to the disclosure requirements on currency conversion charges.