(Note: the below is a high level review of certain potential issues and is not to be relied upon in any definitive manner nor as legal and/or regulatory advice).
Emoney and Payment Services Directives’ – Digital Device | Mobile & Telco exclusion
I have previously commented on the lack of certainty provided by certain exclusions under the revised E-Money Directive (EMD) and Payment Services Directive (PSD) as they relate to general use prepaid card schemes. Specifically, highlighting the lack of clarity on the meaning of the exclusions themselves, together with the inconsistent approach taken by supervisory authorities in their interpretation. Unfortunately, these challenges are not limited to that business model.
Innovative businesses offering services over digital devices (mobile phones, internet TVs etc) are also looking to issue and execute payments, and quite rightly, they are not looking to also set themselves up as regulated financial institutions.
The Telco Exclusion
The revised EMD and PSD does provide a useful exclusion to assist such businesses to sidestep such regulation, in what is known as the ‘Digital Device’ or “Mobile” ‘Telco’ exclusion. The Directives exclude from regulation:
“payment transactions executed by means of any telecommunication, digital or IT device, where the goods or services purchased are delivered to and are to be used through a telecommunication, digital or IT device, provided that the telecommunication, digital or IT operator does not act only as an intermediary between the payment service user and the supplier of the goods and services” (Art. 3(l) PSD / also see Art. 1(5) EMD)
For those who have been following the history of this issue, possibly as far back as the inception of the first E-Money Directive, you will recognise this exclusion as providing mobile network operators with clearer guidance on the regulated nature of premium rate services. However, in the spirit of being technology neutral the EC legislative community looked to expand the exclusion to include other digital devices, not just mobile phones.
How useful is it really?
To some degree, yes. It is clear that in certain jurisdictions, the Digital Device exclusion is meant to apply to a wide variety of digital devices. For example, the UK FCA provides guidance on this exclusion that is relevant to desktop and laptop computers, personal digital assistants and interactive television sets. The FCA’s perimeter guidance goes as far as saying that its guidance for mobile phone operators in relation to these provisions applies, by analogy, to other types of telecommunication providers.
However, it is not the case in all jurisdictions. Notably, France has transposed the exclusion in somewhat narrower terms by further defining who an ‘operator’ is for the purpose of relying this exclusion. More specifically, it appears that an operator under the French interpretation would need to be someone who acquires such a status from the French Authority for the Regulation of Electronic Communications and the Post. So what does this mean? Well, for some businesses, it means that for them to take advantage of the Digital Device exclusion, they first need to be authorised under a different set of communication regulations. This may be fine for mobile network operators, but commercially unworkable for other innovative firms who don’t fall within a traditional and conservative view of the scope of a network operator. This example yet again highlights how inconsistently the PSD has been interpreted across the EU and provides further hurdles to businesses wishing to expand across the internal market.