slide 1 present and future payment regulation in the eu sebastiano tiné dg internal market european...

Present and future Payment Regulation in the EU

Sebastiano TinéDG Internal Market

European Commission

“Development of EU payment systems - Challenges for the Accession Countries”

(Budapest, 28 November 2002)

Overview of present and future regulatory framework

• Cross-border Credit Transfers Directive (97/5/EC)

• Settlement Finality Directive (98/26/EC)• Recommendation on electronic payment

instruments (97/489/EC)• Regulation no. 2560/2001 on cross-border

payments in euro• A possible new legal framework for

payment systems in the Internal Market

Cross-border Credit Transfers Directive: objective

• Objective: Ensure that funds can be transferred rapidly, reliably, inexpensively

• minimum information & performance requirements for cross-border credit transfers within the EEA up to 50.000€

Cross-Border Credit Transfers Directive: Content

• Provisions on customer information– before and after a transaction

• Provisions on performance– execution time – distribution of charges– money back guarantee

• Provisions on complaint and redress schemes

Redress Procedures

• Member States must ensure that adequate and effective procedures exist to settle disputes between bank and customer

• Establishment of out-of-court redress schemes in the EU Member States and in the Accession Countries

Cross-Border Credit TransfersDirective: implementation

• Deadline for transposition 14.8.1999• all Member States have transposed • status of practical implementation in the

Member States not satisfactory• after three years of entry into force,

transfers still too slow, expensive and unreliable (Commission studies, complaints from EU citizens)

Cross-Border Credit TransfersDirective: practical application

• Study on Bank Charges within the €-Zone (1999 and 2001)– credit transfers: 352 operations of 100€

average 17,1€ in 1999 and 17,3 in 2001 – no charges for Euro conversion – transfers still function unsatisfactorily

(card payments much more efficient)– enormous price differences within one

country (and between same banks)

The Settlement Finality Directive (98/26/EC): objectives

• reduce systemic risk

• enhance cost efficiency of systems

• indicate the law applicable to cross-border collateral security

The Settlement Finality Directive: scope

• Payment and Securities Settlement Systems and their participants

• Collateral security– a) provided in connection with

participation in a system– b) provided in connection with

operations of the central banks of the Member States

Main provisions

• Provisions on netting• Prohibition to revoke transfer orders• non-retroactivity• definition of moment of opening of

insolvency proceedings• applicable law in case of insolvency

Collateral Security

• insulation from insolvency proceedings• law applicable to cross-border provision of

collateral security• Implementation:

– in force since 11.12.1999– transposed by all Member States – study on implementation under way– Commission to submit report to EU

Parliament and Council

Recommendation 97/489/EC on electronic payment instruments

• Objectives:– Ensure a high level of consumer

protection concerning the use of electronic payment instruments

– boost consumers’ confidence in electronic payment instruments

Recommendation 97/489/EC on electronic payment instruments

• Scope– Transactions covered: transfers of funds,

cash withdrawals, loading/unloading of electronic money (no cheques and guarantee function of cards)

– Instruments covered: Credit and debit cards, deferred debit cards, charge cards, single purpose cards, home banking and phone banking applications

Minimum transparency requirements

• Before (general terms and conditions)– description of instrument, financial limits, obligations

and liabilities;– period when account is debited/credited – charges payable; – period to contest transactions (with indication of means

of redress);– law applicable to the contract

• After the transaction (statements)– reference – amount of the transaction debited – fees and charges applied

Obligations of the holder

• use in accordance to general terms and conditions

• notification to issuer without delay:– of loss or theft – of recording of unauthorised transactions– other errors or irregularities – respect of security measures (ex. no PIN code

written on card or kept together with it)• no revocation of orders given

Liability of holder

• for loss or theft of a payment instrument– Before notification: liability up to 150 ECU

(except extreme negligence or fraud)– after notification: no liability (except fraud)

• for remote payments by card (CNP): – Holder not liable if instrument used without

electronic identification– use of a confidential code is not sufficient, by

itself, to entail holder’ liability

Obligations of issuer

• sufficient notice to holder in case of modification of the terms and conditions

• no disclosure of holder’s PIN (or code)• no dispatch of unsolicited instrument• keep records for sufficient time for

verifications• make available appropriate means to

allow notifications of loss or theft

Liability of issuer

• non-execution or defective execution of transactions (unless equipment or device unauthorised for use by issuer)

• transactions not authorised by holder• errors in maintaining the account• Burden of proof: issuer to prove that

transactions accurately recorded/not defective; holder may prove the contrary

Notification and redress procedures

• issuer provides means (day and night) for notification of loss or theft

• upon notification issuer to take all reasonable actions to stop further use of instrument (even if fraud or negligence)

• Member States to ensure that adequate and effective procedures exist to settle disputes between issuer and holder

Implementation

• Recommendation addressed to Member States

• Failing appropriate implementation, Commission to replace it by a Directive

• Study (2001) showed implementation not satisfactory

• Commission considering new legal framework for electronic payments

• Regulation no 2560/2001 (OJ L 344 of 28/12/2001)

• Directly applicable in Accession Countries from the accession date

• Why?– Euro– High costs– Single payment area– No improvement since 1990s

Regulation on cross-border payments in euro

Background

• 1.1.2002: official birth of the euro• 304 millions EU citizens will use the euro

as their national currency• need to maintain confidence in the euro• confidence undermined by high costs for

cross-border payments in euro, especially if compared to domestic payments

Costs for cross-border payments

• For a 100 € transfer in the EU:– average of 23,93 € in 1993– average of 25,41 € in 1994– average of 24,09 € in 2001

• For a 100 € electronic payment operation in the EU:– average of 4 € for cash withdrawals– average of 0,5 € for card payments

Genova

Palermo

Nizza

Domestic ? Cross-border ?

border

Subject matter and scope (Art. 1)

• Regulation applies to cross-border payments in euro in the EU up to 50 000 euros

• Objective: ensure that charges for cross-border payments are the same as those for domestic payments in euro.

• Direct debits and cheques not included• Not applicable to transfers between

institutions for their own account

Charges for cross-border payments (Art. 3)

• Same charges as domestic payments for payments up to 12 500 euros:– for electronic payment transactions

(cards, ATM) from 1.7.2002– for cross-border credit transfers from

1.7.2003• Threshold raised to 50 000 euros from

1.1.2006

Transparency of charges (Art. 4)

• Prior information on charges

• prior and specific ex post information on charges for exchanging currencies into and from euro

• Prior information on any modification of the charges.

Facilitating cross-border transfers (Art. 5)

• Banks to communicate to each customer (upon request) his International Bank Account Number (IBAN) and that institution's Bank Identifier Code (BIC).

• Customer to communicate (upon request) to the institution carrying out the transfer the IBAN of the beneficiary and the BIC of the beneficiary's institution.

• If not, additional charges may be levied

Facilitating cross-border transfers (Art. 5)

• From 1 July 2003, institutions to indicate on statements of account the customer’s IBAN and the institution's BIC.

• For cross‑border invoicing, suppliers accepting payment by transfer to communicate their IBAN and the BIC of their institution to customers.

Removing barriers to automation (Art. 6)

• Member States to remove by 1.7.2002:– reporting obligations for cross-border

payments up to 12 500 euros for balance of payment statistics

– obligations on minimum information on the beneficiary which may prevent automation

Penalties and disputes (Art. 7)

• Compliance to be guaranteed by effective, proportionate and deterrent sanctions.

• Disputes: adequate and effective redress procedures (Recital 13)

Review clause (Art. 8)

• By 1 July 2004, Commission to submit to the European Parliament and Council a report on the application of this Regulation, in particular on:– changes in cross-border payment

infrastructures– competition– charges for payments within a Member

State– reporting statistics

Opt-in clause (Art. 9)

• Regulation applies to cross-border payments in the currency of another Member State if such State notifies the Commission of its decision to extend the Regulation ’s application to its currency.

• Commission received notification that the Swedish authorities decided to extend the Regulation’s application to the Swedish krona (OJ C 165/36 of 11.07.2002)

LEGAL FRAMEWORK FOR THE SINGLE PAYMENT AREA IN THE INTERNAL MARKET

• Objectives of the legal framework (part of the revised Financial Services Action Plan)

• Internal Market for payments = domestic market • Promote efficient and secure payment means

and systems• Enhance customer protection and consumer

confidence in all means of payments• Ensure fair competition and level-playing field

Sources of legal provisions

• National level: Legal and administrative provisions of the Member States …

• EU/EEA level: Treaty, Regulations, Directives, Recommendations of the EP and Council, the Commission, the European Central Bank …

• International level: UNCITRAL, Bank for International Settlements ...

EU-LEGISLATION ON PAYMENTS AND OTHER RELEVANT LEGAL ACTS

C o u n cil R e gu la tiono n th e In tro du c tio n o f E u ro

(9 7 4 /98 /E C )

A rt. 56 (2 )E C T re a ty

A rt. 14 (2 )E C T re a ty

F ra u d F ra m e w o rkD e c isio n on

n o n -C a sh

E - M o n e y D ire c tives(2 0 00 /4 6 /E C )(2 0 00 /2 8 /E C )

S e tt le m e n t F in a lityD ire c tive

(9 8 /26 /E C )

D ire c tive o n C ro ss -B o rd erC re d it Tra n s fe r

(9 7 /5 /E C )

R e g u la tio n o n C ro ss-B o rd er P aym en ts in E u ro

(2 5 60 /20 0 1 /E C )

F ra ud P re ven tionA c tio n P lan

o n no n -C a sh

R e com m e n da tiono n E le c tro n ic P a ym e nt

In s tru m e n ts(9 7 /4 89 /E C )

R e com m e n da tion"P a ym e n t S ys te m s"

(8 8 /59 0 /E E C )

R e com m e n da tiono n a E u rop e an C o de o f C o n du ctre la tin g to e lec tron ic pa ym e n ts

(8 7 /59 8 /E E C )

T A R G E T -G u id e lin esE C B /2 00 1 /3

A rt. 3E C B S ta tu te

A R T 1 0 5 (3 )E C T re a ty

P A Y M E N T LE G IS L A T IO N

EU-LEGISLATION ON PAYMENTS AND OTHER RELEVANT LEGAL ACTS

P ro p ose d Te le co m m .P a ckag e D ire c tives

(F ra m e w o rk , A cce ss,A u th orisa tion , U n iv . S erv ices

D ire c tive s onD ig ita l S ig na tu res

D a ta -P ro te c tionD ire c tive s

M o ne y L a un d eringD ire c tive s

C o d if ied B a nk in g D ire c tive(2 0 01 /1 2 /E C )

P ro po se d D ista n ceM a rke tin g D ire c tive

fo r F in an c ia l S e rv ices

D is ta n ce S e llingD ire c tive (A rt. 8 )

E -C o m m e rceD ire c tive

D e c is io n s onS ta tis tica l R ep o rt ing

V A TD ire c tive s

D ire c tiveo n la te P a ym e n ts

C o m pe tit io n R u lesA rt. 81 (3 ) T re a ty

M IF -C o m m un ica tio n 1 19

O T H E R L E G IS L A T IO N R E L E V A N T T O P A Y M E N TS

General principles

• All means of payment• Technical neutrality• Retail payments: 50 000 euros• Subsidiarity• Full/minimum harmonisation

Matters identified for discussion

• General issues– Scope and definitions– Access, licensing and oversight– Standardisation– Taxation

• Problems related to bank accounts– “Non-Resident” accounts – Value dates– Portability of accounts and customer mobility


• Security of payments– Security evaluation– Security of payment infrastructure– Legal responsibility for breakdowns– FATF Recommendations VII– Digital certification services and payments


• Miscellaneous– ADR and payment services– Revocability/cancellation of a payment order– Sanctions/penalties– Refund issue– Burden of proof– Consequential damage


• Credit Transfers– “OUR”-, “SHARE”-, “BEN”-concept– Execution time– “Money-back-guarantee”

• Electronic payments instruments

– General rules, obligations and liabilities for contractual parties

– Notification procedure• Direct debiting• Cheques

Progress

• Consultation document (DG Internal Market) issued May 2002 (available on Internet)

• Discussions within Commission Working Groups (government experts and market participants)

• Comments received by many stakeholders• Formal Commission consultative document

(Communication) to be issued early 2003• Legislative proposal end 2003 ?

More information and questions

• http://europa.eu.int/comm/internal_market/en/finances/payment/index.htm

• [email protected]

Administrative capacity :out-of-court redress schemes

• Out-of-court dispute settlement totally new concept in consumer-to-business relationships in Accession Countries

• Mostly such schemes do not exist • A new capacity needs to be built • Principles governing the schemes

(Recommendation 98/257/EC) often unusual for the Accession Countries

OUT-OF-COURT COMPLAINT SCHEMES AT NATIONAL LEVEL

• A good coverage of out-of-court complaints schemes for financial services exists in Europe at national level:

Ombudsman schemes (BE, DE, FI, FR, EL, IRL, IT, UK, AT

Consumer Complaint Boards (The Nordic Countries)

Consumer Arbitration Boards (ES, NL, PO)

Schemes within supervisory authorities (EL, ES, LUX)

TYPICAL FEATURES OF THE DIFFERENT MODELS

Ombudsman schemes– private, voluntary schemes, funded by the

professional associations– decisions binding on financial institutions

(mostly self-regulation)


Consumer complaint boards– either general, or particularly for Financial

Services– statutory, covers all businesses in their

area– proposes a solution (not binding)


Consumer arbitration boards– statutory background– more institutionalised than B2B arbitration– decisions binding on both parties


Complaint schemes within supervisory authorities – a specific complaints department– covers all businesses in the area– gives recommendations (not binding)

FIN-NET

– Overall objective: EU-Internal Market for financial services

– Major obstacle: lack of consumer confidence

– Out-of-court procedures are an alternative to normal judicial procedures

– FIN-NET facilitates cross-border complaints: easy access, low cost, high quality

The Commission’s approach builds on existing schemes

– The idea was not to harmonise the schemes but to join them together into a co-operation network on the basis of a Memorandum of Understanding.

– No EU-legislation to regulate the cooperation.– Flexibility of the co-operation in order to

facilitate dispute resolution for consumers as much as possible

THE APPROACH BEHIND FIN-NET

THE ESTABLISHMENT OF FIN-NET

• Formal launch took place in February 2001

• 37 schemes joined FIN-NET by adhering to the “Memorandum of Understanding on Cross-border Out-of-Court Complaints Network for Financial Services in the EEA”

ORGANISATIONAL ASPECTS

– Participation in FIN-NET does not change the structure, organisation or funding of national schemes.

– Schemes fund the co-operation themselves; European Commission assists in pilot phase with translation of cross-border complaints.

– Information technology should reduce the resources needed.

OBJECTIVES OF FIN-NET: The Outline

• Easy, low-cost and informed access to cross-border out-of-court dispute settlement

• High quality of dispute settlement across the European Union

• Exchange of information and experience between the schemes

Objective 1: FACILITATED ACCESS TO CROSS-BORDER OUT-OF-COURT REDRESS

• Out-of-court complaint schemes normally cover service providers operating in and from the same country where the scheme exists. Thus, cross-border consumers need to complain to a foreign scheme.

• The FIN-NET framework gives consumers the possibility to contact the FIN-NET member scheme in their own home country (nearest scheme).

• This “nearest scheme” helps to identify the competent scheme and gives consumers necessary information and advice about the complaint procedure.

Objective 2: HIGH QUALITY OF DISPUTE SETTLEMENT ACROSS EUROPE

• Commission Recommendation No 98/257 on principles applicable to the bodies responsible for out-of-court settlement of consumer disputes

Independence,Transparency, Effectiveness,

Legality, Liberty, Representation,Adversarial Principle

Objective 3: BETTER HANDLING OF CROSS-BORDER CASES

– Only little cooperation between the schemes in the past (ex. in the Nordic countries and UK & IR)

– In FIN-NET the exchange of information covers both general information and specific information on a particular case

– Framework for exchange of information is flexible and will develop further in time

HOW IS IT WORKING?

– Pilot year of FIN-NET ended on 31/12/2001– At present 40 participating schemes– Wide sectoral and geographical coverage– >400 complaints during pilot year – Commission will continue to monitor and further

develop the FIN-NET framework together with the participating schemes

• further improvement of coverage• intensification of co-operation between schemes • promotion of FIN-NET

MORE INFORMATION

• Commission web-site: www.europa.int/comm/internal_market/en/finance/consumer/adr.htm The site includes the multilingual FIN-NET database with detailed information on all participating schemes

• prototype of FIN-NET database: http://finnet.jrc.it

• [email protected]

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