Jurisdiction of the European Union

Before proceeding to review matters related to the arrangement of payment business in certain countries of the European Union, it is necessary to describe at least in general terms the legislative process in the EU.

The EU legislation is based on the founding treaties (primary law acts), regulations and directives (non-legislative acts), adopted on the basis of the Treaties and affecting, directly or indirectly, the laws of the Member States of the European Union.

The EU legislative power is exercised by the Council of the European Union and the European Parliament.

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The European Commission has the right of initiative to propose laws for adoption by the EU co-legislators, i.e. the European Parliament and the Council of the EU representing EU Member States' governments. (The Council of the EU is the EU institution where the Member States’ government representatives sit, i.e. the ministers of each EU Member State with responsibility for a given policy area.) The vast majority of European laws are adopted jointly by the European Parliament and the Council of the EU under the so-called ordinary legislative procedure. This legislative procedure gives the same weight to the European Parliament and the Council of the EU in a wide range of areas.

EU Directives lay down certain end results that must be achieved in every EU Member State. National authorities have to adapt their laws to meet these goals; i.e. have to implement an EU Directive, but are free to decide how to do so. National implementation measures are texts officially adopted by the authorities in an EU Member State to incorporate the provisions of an EU Directive into national law.

EU Regulations are the most direct form of EU law. As soon as they are passed, they have binding legal force throughout every EU Member State, on a par with national laws. National governments do not have to take action themselves to implement EU Regulations.

In Section 5.1, the key interest in view of the purpose of this document (arrangement of activities of payment institutions and e-money issuers) is focused on the following supranational regulations, embedded in the domestic legal systems of the EU Member States:

  • Directive 2007/64/EC on Payment Services in the Internal Market (Payment Services Directive)
  • Directive 2009/110/EC on the Taking up, Pursuit and Prudential Supervision of the Business of Electronic Money Institutions
  • Directive 2005/60/EC on the Prevention of the Use of the Financial System for the Purpose of Money Laundering and Terrorist Financing
  • Regulation (EU) No 260/2012 Establishing Technical and Business Requirements for Credit Transfers and Direct Debits in Euro (the SEPA Regulation)
  • Regulation (EC) No 924/2009 on Cross-border Payments in the Community
  • Regulation (EC) No 2560/2001 on Cross-border Payments in Euro
  • Regulation (EU) 2015/751 on Interchange Fees for Card-based Payment Transactions
  • Before proceeding to the matters of establishment of the payment business in particular jurisdictions of the European Union, it is necessary to say a few words about the two basic directives: 2007/64/EC concerning payment services, and 2009/110/EC concerning electronic money issuers and supervision over their compliance with mandatory standards.

    It should immediately be noted that both directives are currently being revised.

    Payment Services Directive 2007/64/EC

    The aim of the Payment Services Directive (PSD) is to enhance efficiency, competition and innovation in the European payments market by integrating national payment markets. It is part of the EU's drive to create a single internal market in retail payment services. It was passed in 2007 and has to be implemented in each Member State by 1st November 2009.

    The PSD has three principal components:

  • a prudential authorisation regime for payment service providers that are not banks or e-money issuers;
  • harmonised conduct of business rules which apply to all providers of payment services; and
  • provisions aimed at opening up access to payment systems throughout the EU.
  • The main scope of the Payment Services Directive is payment service providers (PSP). When a particular service provider aims to offer what constitutes a payment service under the scope of the directive—and its applicable national implementations by the EU Member States—this service provider will as a PSP therefore become subjected to specific regulation.

    The PSD impacts on banks, e-money issuers, money transfer operators, payment collection networks, non-bank credit card issuers, certain bill payment service providers, mobile operators, merchant acquirers and their agents.

    More in particular, PSPs need to be granted authorization in order to perform their tasks and duties. Being granted such authorization is subject to a number of requirements. For instance, PSPs need to prove that they hold sufficient capital, which can go up to EUR 120.000 for some of the payment services defined in the directive’s annex. Additionally, there are requirements regarding the own funds of the PSP, calculated according to one of the methods proposed by the directive, as well as specific safeguard requirements holding that funds of different users must be kept separate and protected from other creditors or insured against their value. The directive also regulates the provision of ancillary services, agency, liability and recordkeeping duties of payment institutions, the supervisions by competent authorities and the exercise of the right to establishment and freedom to provide services. The directive also imposes transparency and information duties on the PSP, yet also requires certain behaviour of the user.

    The Payment Services Directive also contains provisions to limit or waive the authorization procedure for small market players as well as derogations for low-value payments.

    E-Money Directive 2009/110/EC

    The E-money Directive is aimed at the issuers of e-money. For the bulk of its provisions, the E-money Directive follows the same path as the Payment Services Directive and even directly references this instrument, to the extent that it has already been proposed that both frameworks be merged. As such, the E-money Directive contains provisions regarding mergers and takeovers, initial capital and own funds, safeguards, complaint and redress procedures, etc. More specific for e-money is the provision holding that e-money must be issued and redeemed at par value with received funds.

    On the basis of these two key instruments, activities of payment institutions and e-money issuers are regulated in some countries of the European Union.