Ecipe: Shared Liability: The European Parliament’s Misstep in Fighting Financial Fraud Published November 2024

04 December 2024

By: Bauer, Dyuti, Pandya: While the intent to address fraud is commendable, this model misallocates responsibilities by requiring non-financial entities to oversee fraudulent activities, despite their lack of visibility and technical control over financial transactions.

The rise in financial fraud has prompted
regulatory proposals under the Payment
Services Regulation in the form of a shared
liability model provisioned under Article
59. The potential proposal by the European
Parliament could now extend liability beyond
Payment Service Providers to Electronic
Communications Service Providers and
online platforms. While the intent to
address fraud is commendable, this model
misallocates responsibilities by requiring
non-financial entities to oversee fraudulent
activities, despite their lack of visibility and
technical control over financial transactions.
Extending liability to non-financial entities
risks undermining consumer vigilance and
diluting payment services providers’ efforts
to maintain fraud awareness. A shared liability
regime covering non-financial entities would
also disproportionately burden smaller
“digital” firms, leading to legal uncertainties,
costly legal disputes, and market exits. This
would not only drive market concentration
and reduce competition in digital services
but also undermine EU and Member State
efforts to support Europe’s lagging digital
start-ups and scale-ups. The resulting harm
to innovation and entrepreneurship would
be a significant setb

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