Brussels, 1 December 2016 PSMEG/002/2016. Minutes Meeting of the Payment Systems Market Expert Group 19 October 2016, Brussels

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1 EUROPEAN COMMISSION Directorate General Financial Stability, Financial Services and Capital Markets Union Regulation and prudential Supervision of Financial institutions Retail financial services and payments 1. Approval of the agenda Minutes Meeting of the Payment Systems Market Expert Group 19 October 2016, Brussels Brussels, 1 December 2016 PSMEG/002/2016 Olivier Salles, (DG FISMA, Head of Unit Retail Financial Services & Payments) welcomed the members of the group and opened the meeting with the adoption of the agenda. An additional item consisting in a presentation by DG HOME of a potential EU Terrorism Financing Tracking System (TFTS) was added to the agenda. The agenda was adopted without further comments from members. This meeting is the 1 st meeting of the PSMEG in its new set-up. The Chair reminded the members that the intended new functioning of the PSMEG is to have a deeper participation of members. Until recently, the PSMEG functioned mainly as a one-way expert group with the Commission presenting issues to the members and receiving feedback. The new objective is to have members presenting at each meeting solutions or trends successful in their country or their industry sector and that can be of interest for all, including the Commission to have better insights and info on how the market is evolving. Before each meeting, 2 months in advance, the Commission services will ask for members for suggestions for presentations (e.g. for the next meeting, two members already agreed to present the UK open API project). 2. Nature of the meeting Meeting restricted to members and observers of the PSMEG 3. List of points discussed 3.1. Recent developments The Chair introduced the point and mentioned two actions. He first gave a review of the main actions envisaged in the field of payments under the draft Action Plan following the Retail Financial Services Green Paper: these cover Dynamic Currency Conversion (DCC), a potential extension of Regulation 924/2009 to all legally established currencies of EU countries, and SEPA for cards. The Chair insisted that these ideas were still under discussion at services level, not validated yet by the hierarchy but tested here. PSMEG members then provided feedback. Support was expressed by several members, particularly regarding Regulation 924 and SEPA for cards that would bring more choice to consumers on the market with members requesting more information about the potential costs of an extension of Regulation 924 (there would be an impact assessment) and next steps. A 1

2 consumer representative insisted that DCC had been tested by some organisations and considered a "trap" for consumers. The Chair then briefly presented the FinTech Task Force of DG FISMA that will be formally announced mid-november: a 6 workstream, cross-dg task force that will interact with industry PSD2 EBA mandates The Commission (Krzystof Zurek and Silvia Kersemakers, DG FISMA) gave a presentation of the current state of play of EBA's work on PSD2 mandates, particularly on strong customer authentication (SCA) and secure communication (SC) where RTS have to be developed and for which consultations have just been closed with a record number of responses. The Chair concluded stating that the Commission is aware that this subject is of very high importance for the market, that the timing is critical and hence, the Commission and EBA will do their utmost to ensure that the timing is kept. The process is as follows: EBA will send the final RTS to the Commission for adoption that can accept, modify or reject it. The last two options would increase the delay before adoption. It is therefore in all our interests that the draft RTS to be adopted achieves the balance sought for under PSD2. This presentation was followed by extensive exchanges with members: Strong customer authentication considered complicated subject for consumers that are not really able to take part in it. However any solution should respect the objective of both convenience & security for consumers that should not become the weak point in terms of security (and a target for fraudsters); On the industry side, there was a broad consensus that Article 74 on liability shift between PSPs and PSUs was misunderstood by either the industry or EBA: o Surprise that the impacts are only analysed now when PSD2 has been long adopted, considering that SCA and SC will impact the industry o Concerned by the outcome of current debate on RTS (also shared by retailers). Industry anticipated that the solution should be risk-based. EBA's potential approach to security with SCA lacks this flexibility. o Timing is an issue. Delays are not welcome BUT the outcome solution cannot miss the target. What will happen during the gap period between the date of application of PSD2 and RTS implementation? Commission concluded by stating that it would follow developments very closely. It is in close contact with the EBA on the finalisation of the RTS in the next months. It also mentioned that the current absence of flexibility of the RTS is partially due to the fact that industry and retailers did not share comprehensive fraud statistics during the crafting of PSD2 to underpin their claim that a risk-based approach would help to bring down the levels of fraud one of the main aims of the higher levels of payment security under PSD2 - and thus would be a viable alternative in certain cases to SCA Fifth AML Directive The Commission (Philippe Pellé and Pierre-Yves Esclapez, DG FISMA) presented the main points of the amendments to the Fourth Anti-Money Laundering Directive (5AMLD) that are 2

3 currently under discussion in Council and Parliament mainly insisting on two points that are relevant for the group: virtual currency's (VC) inclusion in the scope of the Directive (exchange providers and custodian wallet providers as obliged entities) and the modification of thresholds for CDD for prepaid cards (PP), from 250 to where alternative means of payment include cash - and 0 for online use where alternative means of payments are already "CDDed". The Commission reminded the group that the proposed amendments followed tragic events and were the Commission's response to a strong political request from EU Ministers of Finance as well as from EU Ministries of Justice and Home Affairs to further limit the possible use of anonymised means of payments, which makes it more difficult to track down possible sources of terrorist financing. The PSMEG Members raised the followings points: For VCs: a member mentioned that VCs were not anonymous but rather pseudonymous. Commission agreed stating that in the end, the result is the same, financial intelligence units do not know the name of the user. Another member mentioned that the proposal was well balanced targeting the right players and hoping discussions would not change the intention. For PPCs: some members indicated that the amendments went too far, especially the 0 threshold for online use with the risk to destroy part of the e-money business. A member indicated that this would create issues, in particular with migrants in some countries for which the ID card issued by host MS are not recognised by financial services providers other than banks. One member indicated that the exemption of "closed loop" cards might create loopholes. As a general point, some members indicated that the current implementation date is unrealistic. The Commission explained that this point was still under discussion in the Council Terrorism Financing Tracking System DG HOME (Javier Castillejos and Torben Fell) presented the ongoing work regarding a possible European system complementing the existing EU-US TFTP agreement. They recalled that the European Agenda on Security of April 2015 highlighted the importance of tracking financial operations to help identify terrorists and their supporting networks. In this respect, they underlined the value of the EU-US Terrorist Financing Tracking Programme (TFTP), which allows Member States to request a search of financial data when there is a suspicion of a nexus to terrorism or its financing. In the Action Plan against terrorism financing of 2 February 2016, the Commission announced its intention to analyse the possible need for complementary mechanisms to the TFTP to fill possible gaps, i.e. transactions which are excluded from the EU- US TFTP agreement notably intra-eu payments in euro and may not be possible to track otherwise. In November 2013, the Commission concluded, in a Communication on an EU Terrorist Finance Tracking System that the need for setting up such a system was not demonstrated at that time. The current initiative will help assessing whether this conclusion needs to be reconsidered in light of the evolving terrorist threat taking into account that the TFTP Agreement excludes from its scope payments related to the Single Euro Payments Area (SEPA), the current terrorist 3

4 threat in the EU has dramatically changed and the proliferation of new methods to transfer funds creates opportunities for terrorists to transfer money without being detected through the TFTP, such as the use of virtual currencies and electronic money (a member objected that e-money was only ONE among VARIOUS other possibilities, whilst the Commission agreed with not stigmatising any specific means of payment). DG HOME asked members of the PSMEG to express their potential interest in participating in the consultation process ERPB Working Groups SCT Instant & further developments on ECB side Francisco Tur Hartmann (European Central Bank) and Etienne Goosse (European Payments Council) presented the latest state of play on SCT instant. On the ECB side, the main points related to the ongoing work with ACHs on instant clearing (following the conditions set by the Eurosystem namely a single procedure for settlement of pan-european instant payments via TARGET2 and a single model for risk management, a way forward for a common access policy as well as the definition of essential requirements for a longer term solution for the processing of pan-european instant payments) as well as ECB work on enhancement of TARGET2 functionalities to support ACHs. The objective is to be ready to deliver when SCT instant is launched in November Besides, the ECB Governing Council decided to launch an investigation phase on a possible provision of settlement services up to 24/7/365 to allow for real-time settlement of individual instant payments in central bank money, providing PSPs an alternative to the clearing of instant payments via ACHs. On a scheme level, the EPC explained that the Draft Rulebook had been published for a 3-month public consultation in April 2016 and received 354 comments but succeeded in reaching consensus on major issues. The main next steps will consist in the approval of Rulebook and Implementation Guidelines (IGs) version 1.0 by the EPC Board on 24 November 2016, its publication on 30 November 2016 and the opening of adherence to the SCT Inst scheme as from December In the following exchange, a member asked whether the Commission would sponsor part of these huge investments. Another member answered that it would see a competition issue in any Commission sponsor. He also challenged ECB's involvement in instant payments following the same reasoning, a point which ECB considered irrelevant as current work aims at upgrading market structures to face new credit risks linked to instant payments. A member also asked the ECB if an analysis had been conducted on the impacts of instant payments on financial stability (in particular intra bank exchanges) even more relevant so, as mentioned by another member, corporates will also use it (higher values). ECB answered that this was part of the current investigation mandated by the GC. Mobile Proxy Forum Kasper Sylvest Olsen (vice-chair of the Mobile Proxy Forum) presented the ongoing work of the Mobile Proxy Forum (new name of the P2P mobile payment working group acknowledged by the ERPB). He reminded members that the objectives of the Forum were to setup an interoperability framework and Standardised Proxy Lookup (SPL) service which allows P2P payment data to be 4

5 securely exchanged on a pan-european level. The initial focus will be on using mobile telephone numbers as a proxy for IBAN, but the Steering Committee will have regard to future support for additional proxy types and account identifiers. The main goals are to have solutions that are interoperable and user friendly, as well as to foster choice and competition. At its last meeting, the Forum members agreed on a solution to define a polling hierarchy when multiple solutions have a claim on the same mobile telephone number which was a blocking point in discussions. The next steps will be to finalise the rules for operating, joining and participating in the SPL service and then set-up relevant subgroups to tackle specific issues, e.g. a Technical Working Group which will be responsible for developing inter alia the API standard. The objective is to be ready for exchanges towards November Payments Drift Forum As part of the will of the Commission to have a deeper participation from members of the PSMEG, 3 of our members presented the outcome and main conclusions of a recent Forum on payments they participated in and organised. Jakub Górka (organiser) together with Iñigo More and Jürgen Bott explained the objectives of the Forum which will become a platform of reflexion for academics, business professionals and policy makers on the future of payments in a changing environment. They made a call to PSMEG members to become part of this initiative and take part in next years' events that will take place in Spain & Germany. The main conclusions of the Forum, from presentation and exchanges driven by experts can be found in the joined documentation. In the context of the PSMEG and related to previous points, some are even more relevant such as: User experience is key clients at the centre, vs Strong Customer Authentication balancing high security measures with the risk-based approach for the sake of users' convenience (EBA RTS) Standardised interfaces (APIs) need for collaboration, think beyond the borders, great potential in open banking (PIS, AIS, Big data) Banks role could be limited to sub-contractors in the future payments business model (time to act for banks) IF Reg contributes to a less fragmented EU payment card market but for a true SEPA for Cards additional steps still seem to be needed 3.7. European Cards Stakeholders Group Cedric Sarrazin (Chair of the Volume SG of the European Cards Stakeholders Group) reported on the activities of the ECSG in the field of card standardisation. The ECSG is endorsed by the ERPB and in charge of maintaining and enhancing the SEPA Cards Standardisation Volume (the "Volume"). Volume v8.0 (expected to be published by March 2017) - Among others it will include the following: application selection implementation options, product identification, visual identification, and electronic identification. As part of the creation of the ECSG, the Intellectual Property rights of the Volume will be contractually transferred over by the EPC to the ECSG 5

6 4. Next meeting The next meeting is tentatively planned on 6 June members agreed to present the UK open API project (Kasper Sylvest Olsen & Nick Senechal). 5. List of participants See enclosed list 6