EU case could draw a line between payment services and e-money issuance

If a payment institution receives funds without a specific payment order and holds these funds for longer than the legal time limit, does this amount to issuing e-money?

According to a new opinion from the Advocate General, it does not. Even where funds are kept for longer than the statutory period for execution of payment orders, this is still a payment service.

The opinion is likely to be welcomed by the payments industry because it helps demarcate payment activities from e-money issuance. Firms should still take care to comply with their regulatory requirements, especially those relating to the receipt of payment orders and the safeguarding of funds.

Opinion of the Advocate General

The Lithuanian Supreme Court has requested a preliminary ruling from the European Court of Justice in relation to ABC Projektai UAB v Lietuvos bankas (Case C-661/22). This is only the second time that the ECJ has been asked to interpret the Electronic Money Directive 2009/110/EC.

On 5 October 2023, Advocate General Campos Sánchez-Bordona delivered his opinion on the case. The ECJ will hand down its judgment in the coming months. It often follows opinions of the Advocate General.

Background

The Bank of Lithuania revoked the licence of ABC Projektai, a payment institution, in part because, in the Bank’s view, it was issuing e-money without being authorised as an e-money institution. According to the Bank, ABC Projektai had retained customers’ funds for longer than the time required for the execution of payment transactions. Outgoing payments did not take place for several days or, in some cases, months. In the Bank’s view, this amounted to the issuance of e-money – something which ABC Projektai disputes.

Is the activity in the scope of PSD2 or EMD2?

The question referred to the ECJ asks whether a payment institution’s actions should be regarded as part of a payment service or as the issuance of e-money. The relevant actions are that the payment institution accepts funds without a specific order to transfer those funds on the same or next business day and holds those funds in its own account for longer than the legal time limit.

The Advocate General argues that when a payment institution holds customer funds it is, in principle, operating a payment account and that this characterisation is not lost where it keeps those funds for longer. He also finds that in this case that the criteria for the issuance of e-money were not met.

If the ECJ agrees with the Advocate General’s opinion, payment institutions can have more assurance that if they retain customer funds for longer than expected (e.g. for technical reasons) they will not be exceeding their licence by issuing e-money. However, firms should still take care to avoid breaching the obligations that apply to them under payment services legislation and contracts with their customers. The opinion also does not consider whether holding these funds without a payment order for onward transfer could amount to deposit-taking, something which was raised in connection with the Premier FX case in the UK.