Second Day of PEX 2025: Event's Literary Proceedings Continue
In the ever-evolving world of payment and e-money institutions in Europe, recent regulations are aimed at enhancing customer funds protection while simultaneously posing challenges in terms of costs and compliance.
Customer Funds Protection and Regulatory Landscape
Recent changes, such as the FCA’s PS25/12 in the UK, are introducing enhanced safeguarding regimes that build on the existing Electronic Money Regulations (EMRs) and Payment Services Regulations (PSRs). These changes include moving towards a client assets (CASS)-style regime that provides stronger protections for customer funds by keeping them separately and securely from the institution’s own finances[1]. Similarly, upcoming European regulations like the Payment Services Directive 3 (PSD3) aim to improve security, fraud prevention, and consumer protection in payment services, including strengthened authentication measures (e.g., Strong Customer Authentication) and fraud safeguards[2][4].
These enhanced protections, however, typically raise operational costs for payment service providers (PSPs) and e-money institutions. For example, merchants and PSPs see increased costs related to implementing new security and authentication requirements under PSD3. These include investments in technology and compliance infrastructure to meet regulatory standards, which can be burdensome especially for smaller firms[4].
The Impact on Costs and Innovation
The EU is aiming for uniform enforcement and more integrated regulatory frameworks. This includes directives like PSD3 being enforced more uniformly across member states, stricter third-party risk guidelines related to outsourcing critical functions, and updated rules around crypto payments and transfers to enhance AML compliance[3][5]. Such harmonization supports stronger consumer protections but also requires ongoing investment by firms to maintain compliance.
Everyone agrees that some regulation is necessary, but a regulatory break would be welcome to continue working together. The evolving regulatory landscape generally increases costs for payment and e-money institutions due to the need to upgrade systems, comply with multiple new requirements, and maintain higher security standards.
The Digital Euro and Banking Innovation
The digital euro project is being considered necessary by the ECB because banks have not been able to create a European payment system for decades. Banks, however, are not universally supportive of the digital euro. Economist Peter Bofinger is skeptical about the digital euro, suggesting it could create a parallel universe of Euro accounts that are likely to be unused. On the other hand, Andrea Meier believes that a lot of innovation in the payment sector is happening in the banking world, although established institutions are quieter than fintechs and neobanks.
In the retail sector, Thomas Ficht, representing Douglas, confirms that retailers are not particularly interested in the digital euro. Meanwhile, Kati Meister from Unzer feels that PSD2 created a level playing field, but finds current regulations overwhelming.
Conclusion
The European regulatory landscape for payment and e-money institutions is undergoing significant changes, with a focus on enhancing customer funds protection and promoting innovation. These changes, however, come with increased costs and compliance burdens, particularly for smaller firms. The digital euro project is being considered necessary by the ECB, but its adoption remains uncertain, with mixed opinions among industry stakeholders.
References: [1] FCA (2020). PS25/12: Client Assets Sourcebook (CASS) - Policy Statement. [2] FCA (2021). Policy Statement 21/18: Payment Services Regulations 2017 (PSRs) - Implementation of Strong Customer Authentication and Common and Secure Communication (SCA/CSC) requirements. [3] European Commission (2020). Proposal for a Regulation of the European Parliament and of the Council on a framework for the issuance, distribution, trading and settlement of central bank digital currencies (CBDCs). [4] European Parliament (2018). Payment Services Directive (PSD2). [5] European Commission (2021). Proposal for a Regulation of the European Parliament and of the Council amending Regulation (EU) 2018/843 on information accompanying transfers of funds and repealing Directive 2007/64/EC.
- The banking industry is facing challenges in cost and compliance due to recent regulations designed to increase customer funds protection, such as the FCA’s PS25/12 in the UK.
- These changes, like themove towards a client assets (CASS)-style regime, provide stronger protections for customer funds but also raise operational costs for payment service providers (PSPs) and e-money institutions.
- The European Payment Services Directive 3 (PSD3) is aimed at improving security, fraud prevention, and consumer protection in payment services, which may involve increased investments in technology and compliance infrastructure for merchants and PSPs.
- The EU's goal of uniform enforcement and integrated regulatory frameworks requires ongoing investment by firms to maintain compliance, particularly smaller ones.
- The digital euro project, being considered necessary by the ECB, aims to overcome the banks' inability to create a European payment system for decades.
- While the digital euro is seen as necessary by some economists, such as Peter Bofinger, others, like Andrea Meier, believe that a lot of innovation in the payment sector is happening in the banking world.
- In the retail sector, retailers are not particularly interested in the digital euro, and current regulations related to payment services, like PSD2, are often found overwhelming.
- Education and self-development in finance and technology are crucial for understanding and navigating the complex regulatory landscape facing the banking and payment industry.
- The trend of online shopping, social media, and entertainment, paired with the political landscape, contributes to the general news, making it essential for individuals, businesses, and financial institutions to stay informed for personal-finance management and career-development purposes.
