In a previous e-zine, we discussed a Commission proposal (the Proposal) to accelerate the rollout of instant payments. Yesterday 19 March 2024, the adopted instant payments Regulation (the Regulation) was published in the Official Journal. In this e-zine we discuss the main elements of the Regulation and compare it to the initial proposal.
The Proposal
The main elements of the Proposal were to require payment service providers (PSPs), by amending the SEPA Regulation, to provide instant credit transfers in euro to all their customers, at the same cost, if they already provide credit transfers in euro. Instant credit transfers were defined (in a rather convoluted manner) as a credit transfer where one of the conditions is that the payee’s payment account is credited within 10 seconds.
Not unimportant was the fact that the scope was limited to credit institutions because payment institutions and electronic money institutions currently do not have direct access to payment systems.
In order to enhance the security of and trust in instant payments, the Proposal imposes a matching verification obligation on PSPs offering instant euro payments under which they need to verify whether the payee’s name and IBAN match and, in case of discrepancies, to warn the payer.
Given the nature of instant payments, transaction-by-transaction sanction screening is replaced by a daily screening obligation, it being understood that screening is in any case mandatory after the entry into force of new or amended sanctions.
The Regulation
Like the Proposal, the Regulation will amend the SEPA Regulation. The requirement to offer instant credit transfers in euro when already offering credit transfers in euro is maintained, and PSPs cannot impose charges that are higher than charges imposed for non-instant credit transfers (in practice, this means that instant payments will usually be free of charge).
According to the European legislator, the potential contribution of payment institutions and electronic money institutions to facilitating the uptake of instant credit transfers in euro is important, and it is equally important to restore the level playing field between banks and non-bank PSPs as soon as possible. A notable change compared to the Proposal is therefore the inclusion of payment institutions and electronic money institutions. This is done by amending the Settlement Finality Directive (SFD) and allowing payment institutions and electronic money institutions to participate in designated payment systems.
The safeguarding of funds provision under PSD2 is also amended in order to allow funds that are still held by the payment institution or electronic money institution at the end of the business day following the day when the funds have been received, to be deposited in a separate commercial bank account or central bank account at the discretion of that central bank (whereas until now they could only be deposited in a commercial bank account). A new provision in PSD2 is further inserted requiring payment institutions and electronic money institutions that request participation and participate in designated payment systems to have in place a description of the measures taken for safeguarding payment service users’ funds, a description of the governance and internal control mechanisms for the payment services or electronic money services they intend to provide and a winding-up plan in case of failure. Note should however be taken that PSD2 is currently under review, including the safeguarding requirements.
The matching verification obligation, now called service ensuring verification, is maintained but detailed more extensively in the Regulation. The Regulation clarifies that the service ensuring verification applies regardless of the payment initiation channel (for which a new definition is inserted in the SEPA Regulation). While under the Proposal all payment service users had a right to opt out of this service, this opt-out right is now limited to payment service users that are not consumers and that submit multiple orders as a package.
The amended rules on sanctions screening in case of instant payments as proposed by the Commission are also provided for in the Regulation.
These new requirements will apply in a staggered and rather complicated way. PSPs located in the eurozone must comply with the requirement to offer instant payments when they already offer credit transfers by 9 January 2025 when receiving instant credit transfers and by 9 October 2025 when sending instant credit transfers. PSPs located in the EU but outside the eurozone must comply by 9 January 2027 and by 9 July 2027 respectively; under certain conditions such PSPs may, however, request their competent authority for an exemption to offer this service. In any case, the requirement to not impose charges for instant payments that are higher than charges for ordinary credit transfer becomes applicable on 9 January 2025 for eurozone PSPs and 9 January 2027 for non-eurozone PSPs.
The service ensuring verification applies as of 9 October 2025 for eurozone PSPs and 9 July 2027 for non-eurozone PSPs. PSPs must comply with the new sanctions screening rules by 9 January 2025. The amendments to the SFD and PSD2 will need to be transposed in national law by 9 April 2025.
In case of questions, please do not hesitate to contact any member of our Banking & Finance practice.
Tom Geudens
Matthias De Cock
Clément Defechereux
