PSD3: Completing the payments regulation trilogy

After the mixed success of PSD2, the European Commission hopes that the third instalment in the payments legislation series will be a hit.

The current godfather of payments regulation in the EU is the revised Payment Services Directive, known as PSD2. The Commission plans to update PSD2 with a sequel and a new spin-off:

• PSD3 contains the authorisation requirements for payment institutions, including safeguarding rules.
• PSR1 will not be alien to the payments industry because it is largely a remake of the conduct business requirements in PSD2. A matrix shows which rules are moving where.

The latest release tries to shake up the franchise by including a crossover. The plans involve repealing the E-Money Directive, rebranding e-money issuers as payment institutions and bringing them within the PSD3/PSR1 regime.

As for the changes to PSD2, the good, the bad and the ugly are all present. The proposals include some helpful and long-overdue clarifications. (Why was acquiring payment transactions lumped with issuing payment instruments anyway?) But they also include new requirements which will require payments firms to uplift their IT systems and rethink some of their compliance processes. For example, firms will need to avoid concentration risk in safeguarded funds and pull together a winding-up plan.

Many payments firms have been scream-ing for direct access to payment systems for some time. PSD3 provides for this for via changes to the Settlement Finality Directive.

The proposals stem from a review of PSD2 which the Commission ran last year. Back to the future, a couple of reviews of the regime are scheduled for three and five years after the new legislation enters into force. No doubt these will eventually lead to more instalments in the series.

Read our briefing note for more detail (and fewer forced references to trilogies).