(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).

PSD2 | continued lack of clarification on the limited network / limited ‘goods and services’ exclusion

What is the proposal?

The Commission has proposed that organisations relying on the limited network / limited goods and services exclusion are to seek regulator approval if the related payment volumes of those business activities reach a certain prescribed threshold limit.

Why is it being introduced?

It has been noted by the Commission that feedback from the market shows that the payment activities covered by the limited network exception often comprise massive payment volumes and values and offer to consumers hundreds or thousands of different products and services, which does not fit the purpose of the limited network exemption as provided for in the current PSD. That implies greater risks and no legal protection for payment service users, in particular for consumers and clear disadvantages for regulated market actors.

Why is this important?

Businesses wishing to rely on this exclusion (or continue to rely upon it) shall be prepared to seek regulator approval once their payment volumes reach the requisite thresholds.

Comments

The main criticism of the existing limited network / limited good and services exclusion is that there were no clear guidelines on what is meant by ‘limited’ other than some ad hoc regulator guidance applicable to certain specific business models (eg transport cards). PSD2 does nothing to substantially clarify the parameters of this exclusion.

As exclusions are not ‘passportable’, businesses will need to seek regulator approval in all applicable EEA jurisdictions which appears to be overkill if it has been approved by a regulator – to be business friendly, this approval should be ‘passportable’.

The publicising of the decision could persuade how certain regulators may approach its review.

Given the uncertainty of the scope of this exclusion, operators would be prudent to seek regulator approval regardless of the payment transactions volumes carried out.

Key draft provisions

Commission Proposal (24 July 2013)	EU Parliament (3 April 2014)	Council composite text (1 December 2014)	‘Final Compromise Text’ 2 June 2015
Article 3 – Negative Scope.This Directive shall not apply to any of the following:…(k) services based on specific instruments that are designed to address precise needs that can be used only in a limited way, because they allow the specific instrument holder to acquire goods or services only in in the premises of the issuer or within a limited network of service providers under direct commercial agreement with a professional issuer or because they can be used only to acquire a limited range of goods or services;	This Directive shall not apply to any of the following:…(k) services based on specific instruments that are designed to address precise needs that can be used only in a limited way, because they allow the specific instrument holder to acquire goods or services of only *one* issuer or within a limited network of service providers under direct commercial agreement with an issuer or because they can be used only to acquire a *narrow* range of goods or services;	This Directive shall not apply to any of the following:…(k) services based on specific payment instruments that can be used only in a limited way, that meet one of the following conditions:(i) instruments allowing the holder to acquire goods or services only in the premises of the issuer or within a limited network of service providers under direct commercial agreement with a professional issuer;(ii) instruments which can be used only to acquire a limited range of goods or services; (iii) instruments valid only in a single Member State and regulated by a national or regional public authority for specific social or tax purposes to acquire specific goods or services from suppliers having a commercial agreement with the issuer. The same instrument cannot be used to make payment transactions to acquire goods and services within more than one limited network or to acquire an unlimited range of goods and services;	Article 3 Negative scope This Directive shall not apply to any of the following:… (k) services based on specific payment instruments that can be used only in a limited way, that meet one of the following conditions: (i) instruments allowing the holder to acquire goods or services only in the premises of the issuer or within a limited network of service providers under direct commercial agreement with a professional issuer; (ii) instruments which can be used only to acquire a very limited range of goods or services; (iii) instruments valid only in a single Member State provided at the request of an undertaking or a public sector entity and regulated by a national or regional public authority for specific social or tax purposes to acquire specific goods or services from suppliers having a commercial agreement with the issuer;
Article 30(2) – seeking regulator approval Member States shall require that, before taking up an activity referred to in Article 3(k) for which the volume of payment transactions calculated in accordance with Article 27(1)(a) exceeds the threshold referred to therein, service providers notify their intention to the competent authorities and submit a request for recognition as a limited network.Within one month from the date of receipt of the request for recognition, the competent authority shall take a motivated decision on the basis of the criteria referred to in Article 3(k) to recognise or not the activity as a limited network and inform the service provider accordingly. A summary of the decision shall be made publicly available in the public register provided for in Article 13.The competent authorities shall inform the Commission of any decision taken in accordance with the second subparagraph.	No change from Commission text.	Member States shall require that service providers carrying out an activity referred to in Article 3(k) i) and ii) for which the average of the preceding 12 months’ total value of payment transactions executed exceeds the amount of EUR 1 million, send a notification to competent authorities containing a description of the services offered, specifying under which exemption referred to in Article 3 (k) i) and ii) the activity is considered to be carried out.	Article 30 Prohibition for persons other than payment service providers to provide payment services and duty of notification 2. Member States shall require that service providers carrying out an activity referred to in Article 3(k) i) or ii) or both for which the average of the preceding 12 months’ total value of payment transactions executed exceeds the amount of EUR 1 million, send a notification to competent authorities containing a description of the services offered, specifying under which exemption referred to in Article 3 (k) i) and ii) the activity is considered to be carried out. On the basis of this notification, the competent authority shall take a motivated decision on the basis of criteria referred to in Article 3(k) in case the activity does not qualify as a limited network and inform the service provider accordingly. 3a. Notwithstanding paragraph 1, competent authorities shall inform EBA of the services notified pursuant to paragraphs 2 and 3, stating under which exemption the services are being carried out. 4. The description of the services notified under paragraphs 2 and 3 shall be made publicly available in the register provided for in Article 13 and on EBA’s website, in accordance with Article 14.
Article 27(1)(a) – threshold amount … the average of the preceding 12 months’ total amount of payment transactions executed by the person concerned, including any agent for which it assumes full responsibility, does not exceed EUR 1 million per month. That requirement shall be assessed on the projected total amount of payment transactions in its business plan, unless an adjustment to that plan is required by the competent authorities;	… the average of the preceding 12 months’ total amount of payment transactions executed *or initiated* by the person concerned, including any agent for which it assumes full responsibility, does not exceed EUR 1 million per month. That requirement shall be assessed on the projected total amount of payment transactions in its business plan, unless an adjustment to that plan is required by the competent authorities;	N/A.	N/A

PSD2 limited network / ‘goods & services’ exclusion