Find out about the changes introduced by PSD2 to the passporting process and the important deadlines you need to know about.
PSD2 and the Payment Services Regulations 2017 (PSRs 2017), the UK implementing legislation, introduce two new activities that may be passported:
- payment initiation services (PIS)
- account information services (AIS)
If your firm is planning on providing one or both of these activities in another EEA country on or after 13 January 2018, you will need to make a passport application through Connect.
For all other firms, PSD and e-money applications have to be submitted under PSD2 through Connect from 2 January 2018. It is no longer possible to submit PSD1 applications through Connect. However, for e-money firms Start of Activity notification form must be sent to the [email protected].
Existing PSD passports
It is expected that existing PSD passports will remain valid under the new regime. However, considering the changes in scope of activities introduced by PSD2, firms will have to consider whether they need to make amendments to their passports.
In particular, PSD2 removes what was known as ‘Activity 7’, i.e. 'execution of payment transactions where the consent of the payer to execute a payment transaction is given by means of any telecommunication, digital or IT device and the payment is made to the telecommunication, IT system or network operator, acting only as intermediary…' (Paragraph (7) of the Annex to PSD1).
As a result, it will no longer be possible for firms to apply to passport Activity 7 once PSD2 comes into force. However, there are transitional provisions for firms which passport Activity 7 as well as Activity 3 ('Execution of payment transactions...' (Paragraph (3) of the Annex to PSD1). These firms can continue to passport the parts of Activity 7 that fall under Activity 3, provided they submit evidence to us by January 2020 that they hold the required level of own funds.
Firms which currently passport Activity 7 should consider whether their services fall within any of the other listed payment services at Annex I of PSD2, and whether additional permissions or changes to their passports are required in order to continue passporting after 13 January 2018.
Since firms may need to amend their authorisation before they can change their passport, we would recommend firms submit the relevant applications as soon as possible.
Changes to application process
PSD2 also introduces some significant changes to the passporting process. Under PSD, firms are normally able to start passporting their activities one month after submitting a complete establishment or services passport application. Similarly, if they wish to appoint a PSD agent attached to a PSD passport, the agent can usually start its activities on behalf of the Payment Institution one month after the notification is made to the FCA.
Under PSD2, financial regulators in host member states will have increased powers to scrutinise and monitor the passporting process. Under Article 28 of PSD2:
- The home state regulator (e.g. the FCA) will have up to one month to review the passport or ‘add agent’ application received from the Payment Institution and to issue the relevant notification to the host state regulator concerned.
- The host state regulator will then have a month from receipt of the notification to review it and communicate any concerns they may have to the home state regulator.
- The home state regulator will then review those comments and make a final decision
This decision must be communicated to both the firm and the host state regulator within three months of receipt of the completed application. Only then will the agent or passport appear on the register and be able to commence their activities. The process will be the same for e-money firms and their agents and distributors.
As a result, it may take up to three months from submitting an application before a Payment or Electronic Money Institution can start passporting its activities (or before its agents can start their activities). Please note that under the PSRs 2017, the time taken to process an application for standalone UK agents (i.e. not attached to a passport) may be up to two months.
Following this, firms that intend to appoint an agent or a distributor or to open a branch in another EEA state under an establishment passport must submit a 'start of activities' notification to confirm to their home state regulator the date on which the agent, distributor or branch becomes active in the host member state. For agents and branches, the date specified shall not precede the date of their entry in the Financial Services Register. Once received, the FCA will notify the host member state accordingly. All UK firms will be required to submit this notification through Connect.
Finally please note that RAISPs (registered account information service providers) are required to register all their agents with the FCA, i.e. both agents attached to a passport and standalone UK agents.
On 2 January 2018 the FCA opened its PSD2 passporting gateway; the PSD2 authorisation gateway opened on 13 October 2017. Since firms can only apply to passport once they have been fully authorised to carry on the relevant activity, new AIS and PIS firms can only apply to passport once their new authorisation applications have been processed. Existing firms which need to vary their permission to carry out AIS and PIS also need to apply to passport once their re-authorisation and VoP applications have been processed. Applications for re-authorisation and VoP can be made simultaneously.
Please note also that existing authorised Payment and authorised Electronic Money Institutions are required to apply for re-authorisation under PSD2 before 13 April 2018. If existing authorised Payment and authorised Electronic Money Institutions do not apply for re-authorisation for 13 April 2018, their authorisation, passports and agents will be removed after 13 July 2018.
We would therefore strongly encourage firms to make the relevant applications as early as possible, and to ensure applications are complete.