PSD2/RTS on strong customer authentication and secure communication, IFR/RTS on separation of payment card schemes and processing entities

23 November 2017

This briefing supports ECON’s work on scrutiny of delegated acts, in particular the discussion on the RTS on Strong Customer Authentication and Secure Communication to be adopted by the EC under Article 98 of the revised Payment Services Directive (PSD2).

PSD2 aims at, inter alia, harmonisation, innovation and security with regard to payment services. Concerning security, Article 98 of PSD2 requires Regulatory Technical Standards on strong customer authentication and secure communication (RTS SCA) to be drafted by the EBA in cooperation with the ECB and to be adopted by the Commission.

On the basis of a Discussion Paper published in 2015, the EBA issued in mid-2016 a Consultation Paper; the final draft RTS text was then submitted to the Commission in February 2017. The Commission sent a letter to the EBA on 24 May 2017 (Ares(2017)2639906) accompanied by drafting suggestions (RTS on SCA redrafted) The Commission pointed out that the main changes concern the fall back option in the communication interface part of the RTS and an exemption for corporate payments.

The EBA has commented - partly critically - on these changes on 29 June 2017 (EBA/OP/2017-09). The Commission has not yet adopted the RTS, but according to information available at this stage, in particular the fall back option will be maintained but accompanied by an waiver possibility for national competent authorities (NCAs) provided that certain requirements are met and maintained.

RTS on separation of payment card schemes and processing entities, article 7(6) IFR

The EBA published its draft RTS (EBA/RTS/2016/05) on 27 July 20162. Content: requirements for payment card schemes and processing entities to ensure the application of independence requirements in terms of accounting, organisation and decision-making processes.

The Commission proposed six amendments to the text with a view to strengthening separation; see letter of 5 January 2017 (COMP/D1/DF/lb D(2017)000832) to the EBA, supplemented with new draft RTS.

Content:

• restricting entities’ ability to establish joint employee share plans and benefits arrangements;
• preventing card schemes and processing entities from sharing staff for the purposes of innovation;
• preventing the practice of ‘revolving doors’; and
• reviewing the rules governing the holding of directorships in both entities by the same person at the same time.

On 16 February 2017, the EBA issued an opinion (EBA/Op/2017/01), including a revised draft RTS. Content: The EBA agrees with three of the Commission’s proposals (in modified form), but does not agree with the remaining three on the grounds that the rejected proposals appear to assume that card schemes and processing entities are, or should be, treated as if they were legally and structurally separate, which is not required under the IFR. The EBA therefore perceives the proposals as disproportionate and ambiguous or difficult to apply when it comes to payment card schemes and processing entities that are not legally separated, or are separate undertakings within the same group.

On 4 October 2017, the Commission adopted the RTS (C(2017) 6652)and submitted it to the Parliament and the Council for three months scrutiny period (until 4 January 2018 - may be extended for 3 months).

The three discussed points – Commission kept its approach:

• derogation from the independence requirement for staff related to the department of innovation, Art. 10(3); COM kept the deletion of the exemption;
• permission of general employees’ share plans and benefits arrangements, which may be applied to all employees of a functionally separated entity, Art. 11(3), 1 RTS; COM kept the deletion of the exemption, and
• conditions applied to multiple directorships held by the same person in a management body, Art. 16 RTS; COM kept deletion of the reference to a limited number of directorships, the introduction of publication of criteria for multiple directorships, and its further changes to the text.

Full briefing

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