28 April 2006

ECB criticizes proposed directive on payment services

The ECB issued their comments on the proposed directive on payment services in the internal market. The ECB has a number of concerns regarding the scope of the activities of ‘payment institutions’. The ECB sees “scope for improvement” as the unclear distinction between payment institutions and other payment service providers makes it extremely difficult to assess risks and the related safeguards. Also, the proposal does not address the different categories of risks associated with payment services. Finally, the authorisation procedure leaves too much room for different interpretations at national level. Member States may also waive some of the authorisation requirements under certain circumstances.

The ECB argues that there seems to be a mismatch under the proposed directive between the scope of activities of payment institutions and the prudential framework within which such activities are to be carried out. The absence of capital requirements for payment institutions could potentially provide scope for supervisory arbitrage. Moreover, the proposed directive is generally unclear with regard to the respective responsibilities of the home and host Member States’ competent authorities.

The ECB urges that the proposed directive should be amended to make it explicitly clear that payment institutions may not use customers’ funds during the limited time period that the funds are being transferred from the payer to the payee. This could be achieved by restricting the activities allowed for payment institutions and by introducing adequate safeguards.

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