New Basis/Rules For UK Participation In SEPA From 1 January 2021

The European Payments Council has issued a press release on the impact of Brexit on Single Euro Payments Area (SEPA), regardless of whether the UK leaves with or without a deal. I have summarised some key data changes below. Firms with queries should email their local national SEPA adherence body. The EPC has previously outlined the implications of a no-deal Brexit on SEPA transactions.

The UK will remain a participant in SEPA but the rules that apply to  transactions to and from the UK and countries in the European Economic Area (EEA) from 1 January 2021 will be the rules that apply to transactions between EEA countries and non-EEA countries. 

So the required content of SEPA instructions to be executed or settled on or after 1 January 2021 involving a UK-based firm that participates in the SEPA scheme will be:

• for SEPA Credit Transfers (SCT) and SEPA Instance Credit Transfer (SCT Inst): instructions from the originator should include the full address details of the originator and the Bank Identifier Code (BIC) of the beneficiary bank, when the originator bank explicitly requests this data element from the originator; and

• for SEPA Direct Debit (SDD) Core and SDD Business to Business (B2B): collection files from the creditor should include the full address details of the debtor and the BIC of the debtor bank, when the creditor bank explicitly requests this data element from the creditor. 

Failure to include these additional transaction details may lead to rejected transactions or other issues from the scheme participant receiving the payment message (beneficiary/debtor bank or their respective interbank clearing and settlement partners). 

UK-based SEPA members should therefore identify their customers that have cross-border SEPA transactions involving both a UK and an EEA payment account, and inform them of the need to provide the extra transaction data from 1 January 2021 (as either execution or settlement date). 

FCA E-money and Payments Safeguarding Update - Clarity On Financial Services Compensation Scheme

The Financial Conduct Authority recently issued temporary updated guidance on the safeguarding obligations of e-money and payments institutions. There were several points that I raised during the consultation on the temporary guidance, but I acknowledge there might not have been adequate time or resources to address them. Indeed, they might be dealt with in the wider consultation due in 2020/21 on changes to the FCA's general guidance on e-money and payments regulation in the Approach Document. In the meantime, I have long been particularly interested in whether e-money and payments firms should be expected to explain the extent to which the Financial Services Compensation Scheme (FSCS) might protect deposits held by those firms with any bank that became insolvent. This is not a fanciful issue, as the insolvency of Wirecard AG has demonstrated. Wirecard's bank subsidiary is under 'emergency management' of the German financial regulator, while the FCA has allowed the e-money subsidiary to reopen after an unfortunate snap-freeze. I should point out that this post is for information purposes only, does not constitute legal advice and should not be relied upon to make any decision. Please contact me if you need assistance on any of the issues covered.

The FSCS covers eligible deposits held at banks, and not the services offered by or the electronic payment accounts of e-money or payment institutions. So the FCA is right to say that e-money and payments firms should not suggest to their customers that the FSCS applies to their activities or the accounts in their systems.  

However, there needs to be clarity on the extent to which there could be pass-through FSCS cover for the end-customers of e-money or payment institutions where money is held in an institution's ‘safeguarding' bank account at a bank which itself becomes insolvent (as opposed to the e-money or payment institution becoming insolvent), under the provisions of the Depositor Protection rules in the Prudential Regulation Authority Rulebook.

For convenience the relevant provisions are:

• Paragraph 1.26 of the updated FCA guidance states (as does the Approach Document): 

Payment and e-money firms should also avoid suggesting to customers that the relevant funds they hold for them are protected by the Financial Services Compensation Scheme. 

"relevant funds" are either funds that have been received in exchange for issued e-money or sums received from, or for the benefit of, a payment service user for the execution of a payment transaction or sums received from a payment service provider for the execution of a payment transaction on behalf of a payment service user; and they must be held in a certain type of bank account ('safeguarding account') or be appropriately insured.

• DP 6.2(5) contains the obligation on the FSCS to pay compensation where the bank account holder is not absolutely entitled to the eligible deposit, and another person (A) is absolutely entitled (see DP 6.10 below);

• DP 6.3 mentions trustee (other than bare trustees) and entitlements of beneficiaries, without being specific as to whether these might be statutory or non-statutory trust arrangements; and

• DP 6.10 provides: 

“For the purposes of this Part, the cases in which A is absolutely entitled to the eligible deposit include where:

(a) A is a beneficiary under a bare trust;

(b) the account holder is a nominee company which is holding money in the account for A;

(c) A is a client in respect of money which the account holder is treating as client money of A in accordance with FCA rules, the SRA Accounts Rules 2011 or an equivalent regime; or

(d) the FSCS is otherwise satisfied that A is absolutely entitled to the eligible deposit taking into account any information that the FSCS considers relevant.”

Therefore, it seems to me that, in the event of the insolvency of the bank where an e-money or payment institution's safeguarding account is held:

• the end-customer of the e-money/payments institution should have recourse against the bank under Depositor Protection rules for money in the safeguarding account (to which he or she is beneficially entitled via a claim on the relevant funds under the E-money/Payments Regulations) up to the £85,000 limit (extended in some cases for temporary high balances). This would be consistent with the position in relation to funds held in bank accounts covered by the FCA's client money rules (CASS), as well as other arrangements under the Solicitors Regulatory Authority rules relating to solicitors client accounts, for example. The PRA made clear this applied to peer-to-peer lending platforms, before those platforms became regulated by the FCA and were generally operating as bare trustees.

• In addition, while they could not be entitled to be compensated twice, under trust principles, end-customers should also be entitled to receive a proportion of any FSCS pay-out that the e-money or payment institution might receive as a customer of the bank in its own right in relation to the safeguarding account, according to the proportion that those end-customers’ funds bear to the total amount held in the safeguarding account. 

I would be interested to know the views of any other practitioners in this area.

Again, this post is for general information purposes only and does not constitute legal or professional advice. It should not be used as a substitute for legal advice relating to your particular circumstances. Please note that the law may have changed since the date of this article. Please contact me if you need assistance on any of the issues covered.

EU Platform to Business Regulation

The European Union regulations for the supply of online platform services to businesses took effect on 12 July 2020 and are known as the "Platfrom to Business" or "P2B" Regulation. The intention is to provide rules creating a fair, transparent and predictable business environment for smaller traders on online intermediation (sales) platforms and search engines that enable those business users to reach consumers. The European Commission has published a Q&A on how the P2B Regulation applies, and these are definitely worth reading. Most of the obligations for platforms who are caught relate to what must be in their terms and conditions, which will be void if they do not comply. The only truly awkward or unusual provision, however, is the obligation to name two or more mediators to whom they are willing to refer disputes that can't be resolved by means of the internal complaint-handling system. Please contact me if you have any queries about the P2B Regulation.

The P2B Regulation applies if you are an online intermediation service or search engine and within the geographic scope, i.e. the target business users or corporate website users:

• have their place of establishment or residence in the EEA; AND 
• offer goods or services through the online intermediation service or search engine to consumers located in the EEA.

This will cover UK (and other non-EEA) intermediation/search platforms even after Brexit if they satisfy these two criteria.

Your services qualify as “online intermediation services” if they meet all of the following requirements:

• they constitute information society services (provided for remuneration, at a distance, by electronic means and at the individual request of a recipient of services);
• they allow ‘business users’ to offer goods or services to 'consumers’;
• with a view to facilitating the initiating of 'direct transactions' between the business users and the consumers, regardless of where the direct transactions are ultimately concluded; 
• they are provided to ‘business users’ on the basis of contractual relationships between the provider of the services and the business users.

The most common examples are e-commerce marketplaces, where businesses are active, such as short-term accommodation rental websites where hosts include professionals (e.g. hotels), app stores and social media for business. Small platform operators (fewer than 50 staff and ≤ €10 million turnover) are covered, but are exempt from requirements an internal complaint handling mechanism or specify mediators in their terms and conditions.

Examples of intermediation platforms not covered would include:

• peer-to-peer online intermediation services without the presence of business users, 
• pure business-to-business online intermediation services which are not offered to consumers, 
• online advertising tools and online advertising exchanges which are not provided with the aim of facilitating the initiation of direct transactions and which do not involve a contractual relationship with consumers. 
• search engine optimisation software services
• services which revolve around advertising-blocking software;
• online payment services, since they do not themselves meet the applicable requirements but are rather inherently auxiliary to the transaction for the supply of goods and services to the consumers concerned. 

While this post does not constitute legal advice to be relied on in any way and the position may vary on the specific facts, my initial view would be that a peer-to-peer lending platform would not be included, because businesses are not offering goods or services to consumers, but lending money. In addition, on many platforms the lenders/investors are not acting in a business capacity, some platforms may only be consumer-to-consumer, while on others the borrowers are typically corporations.

Search engine providers are also caught if all the elements of the definition of that term are present:

• a digital service, 
• that allows users to input queries, 
• to perform searches of, in principle, all websites, or all websites in a particular language, 
• on the basis of a query on any subject, 
• in the form of a keyword, voice request, phrase or other input, and 
• returns results in any format in which information to the requested content can be found. 

Search engines do not necessarily have a contractual relationship with their corporate website users.

Please contact me if you have any queries about the P2B Regulation.