RegTech Intelligence 
The outline of Europe’s new payments landscape is in sight. New reforms to enhance competition, innovation, and security in the financial services sector are underway. The Payment Services Directive, financial data access, the digital euro, and protection of cash are among the key proposals released for discussion last month.
Industry experts suggest that further regulatory alignment, data standardisation, commercial clarity, and market-led measures are necessary for successful implementation. In the coming years, policymakers will need to balance collaboration, innovation and introduce new payment solutions while maintaining traditional systems. Open, standardised and secure access to data will be key to the success of these policies.
June 2023 proposals
Aiming to enhance financial services competition, innovation, and security new proposals were released last month.
A short recap of the proposals which are open for comments until the 8th of September 2023 follows.
A revised Payment Services Directive and new Payment Services Regulation:
Following the review of the Payment Services Directive (PSD2) the proposal for a revised Payment Services Directive (PSD3) and Payment Services Regulation has been made with the view that newer frauds, newer players/payment service providers, and innovations such as contactless payments, QR codes and open banking needed to be covered by an updated directive. The sequel aims to improve upon PSD2’s Strong Customer Authentication (SCA) and cover new types of fraud, enhancing payment transparency and granting consumers refund rights. It will also demand increased interaction with banks, improved cash availability in shops and ATMS and innovation in payment services. Regulators seek improved competition between traditional financial institutions, simplifying administrative procedures for e-money and payment institutions and better harmonisation, implementation and enforcement of the rules.
The Financial Data Access (FIDA) Framework:
The Financial Data Access (FIDA) framework proposal looks to create a standardised and secure access to financial data, granting consumers control over their personal financial information while allowing third-party providers to offer innovative services. The objective is to create a European financial data space that fosters competition and innovation, empowering consumers with a wider range of options. By enabling data sharing among financial institutions, payment service providers, and other relevant actors, the EU seeks to promote a dynamic and competitive marketplace that benefits both businesses and consumers.
The Digital Euro:
The digital euro aims to provide a secure, efficient, and accessible means of payment within the EU. It has the potential to simplify cross-border transactions, reduce costs, and enhance financial inclusion. The introduction of the digital euro would offer an additional payment option alongside cash and traditional electronic payment methods. It would be backed by the European Central Bank (ECB), who would be able to choose if and when to implement it. The digital euro could facilitate faster, more secure transactions, while ensuring the continued availability and acceptance of cash for those who prefer it should it be approved.
While it is actively exploring digital payment solutions, the EU recognises that cash plays a vital role in society and remains committed to preserving the accessibility and acceptance of cash. The proposals aim to safeguard the continued and widespread acceptance of cash throughout the EU and will also ensure that people have sufficient access to cash.
Industry Commentary
These proposals have received comments from AFME, the EBF, the EBC, and Insurance Europe which call for further regulatory alignment, data standardisation, commercial clarity, and market-led measures.
AFME look at the Financial Data Access and Payment Services proposals, stressing the importance of ensuring a level playing field for data sharing. They believe consistent and appropriate regulatory oversight, including alignment with forthcoming frameworks like the Digital Markets Act and Data Act, is crucial for the success of a Financial Data Access framework. AFME calls on market-led schemes for the implementation of data sharing obligations, they believe this approach would bring about higher levels of standardisation compared to the implementation of PSD and PSR, facilitating greater use of data by third parties. They support an appropriate framework for compensation in both proposals, saying that it is important to ensure fair allocation of costs across the data value chain and to safeguard fair competition. They conclude bywelcoming the further progression of clear liability provisions with respect to the access, processing, sharing, and storage of data.
The EBF support a well-designed retail digital euro to enhance Europe’s strategic autonomy and support innovation through collaboration between the public and private sectors. The EBF see the importance of a sustainable business model and harmonised financial incentives to facilitate infrastructure development and distribution. They express concerns about mandatory data access rights for the Financial Data Access framework without a comprehensive cost-benefit analysis, urging caution to prevent further fragmentation in the financial sector. They advocate for cross-sectoral data sharing with customer permission and should have realistic timelines for developments.
The EBF suggests that the payment service changes are insufficient to create an effective, open banking framework and combat scams and fraud. They call for fair distribution of value and risk in the open banking framework, addressing imbalances from the previous regulatory approach. They assert that placing legal obligations on all relevant actors will help locate scams and fraud as they can happen outside the payment transaction itself.
The ECB believes that the Digital Euro will allow increased measures for privacy, data protection, and will help with measures to counter money laundering and terrorist financing. They also fully support the proposal to maintain the legal tender status and accessibility of cash in physical transactions.
Insurance Europe welcomes the FIDA proposal and note the need to establish sufficient economic incentives for data holders to provide high quality interfaces to and APIs. They are encouraged by the importance the proposals place on developing data standards but are disappointed in the failure to enable cross-sectoral data sharing for financial institutions. They feel that more clarity is needed for the protection of proprietary data and enriched or inferred data that goes beyond mere raw data.
Conclusion
By focusing on the payment service update, financial data access, the digital euro, and the protection of cash, the EU aims to create a competitive and secure digital financial ecosystem.
As the Lamfalussy process grinds forward politicians will need to strike the appropriate balance to harness the power of collaboration, encourage safe innovation and introduce new digital payment solutions alongside traditional systems.
The proposals are open for comments until the 8th of September 2023 after which it is up to the Commission to submit revised proposals to the European Parliament and European Council. We are looking at several years until the new regulatory technical standards are in place, but the outline of the new payments landscape is in sight.
Data, standards and collaboration are at the heart of RegTech. Join us as we prepare for JWG’s 8th annual RegTech conference on 7 February to be held physically in London. Contact Corrina.Stokes@jwg-it.eu to get involved.
