The EBA's latest PSD2 guidance and its impact for payments firms

The European Banking Authority has released a new batch of Q&A responses covering a range of PSD2 topics. In this post we cover the guidance released on two hot topics for the payments industry: safeguarding and foreign exchange charges.

Safeguarding with a credit institution in a third country

The EBA was asked whether a payments institution authorised and operating in an EU Member State could use a credit institution based in a third country (e.g. the UK) for the purpose of safeguarding funds. In short, the response to this question was “no”.

It is worth contrasting this position with that of the UK. The UK's Payment Services Regulations 2017 allow for safeguarding with an “approved foreign credit institution”. Approved foreign credit institutions include those that are supervised by the central bank or other banking regulator of an OECD state.

This flexibility in the institutions that payments firms can safeguard with is valuable. It can assist firms where local currency restrictions in practice require them to safeguard funds locally. It also stimulates competition between providers of safeguarding accounts, which can lead to reduced costs for payments firms and assist firms in diversifying where customer funds are held. 

The link to the Q&A response can be found here.

Exchange rate mark-ups

The EBA was also asked if an exchange rate mark-up - that is, the difference between the interbank rate and the exchange rate offered by a payments firm to its customers - is viewed as as part of “all charges payable” and so be disclosable under PSD2.

The guidance published by the EBA explains that, while total currency conversion charges related to card-based transactions in the EU need to be disclosed as per the Cross-Border Payments Regulation, this mark-up requirement does not apply to credit transfers. Additionally, the mark-up requirement is not covered by the information disclosure requirements in PSD2.

There is a concern that not requiring disclosure of exchange rate mark-ups across payment methods and payments firms results in a lack of comparability for consumers and businesses and mark-ups effectively being “hidden” in the overall exchange rate that is provided. This guidance does not alleviate that concern.

The link to the Q&A response can be found here.