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13 April 20229 minute read

EBA publishes Final Guidelines on the limited network exclusion

On 24 February 2022, the European Banking Authority (EBA) has published its Final Guidelines on the limited network exclusion under the Payment Service Directive (PSD2). These Guidelines clarify how national regulators should assess whether a network of service providers or a range of goods and services qualify as limited and are, therefore, not subject to the Directive and how the notifications in relation to the limited network exclusion should be made.

The Guidelines aim at addressing significant inconsistencies on how this exclusion has in the past been applied across the EU, contributing to the Single Market for payment services in the EU and ensuring transparency for supervisors and customers.

These Guidelines will apply as of 1 June 2022 with an additional 3-month transitional period for issuers that already benefit from the exclusion to submit a new notification to their national competent authority.

The below summarizes these Guidelines in further detail. DLA Piper would be happy to assist you in case of any PSD2 related questions.

Recently published EBA Guidelines on the limited network exclusion under PSD2

Further to Article 3(k) of the PSD2 the “Directive does not apply to services based on specific payment instruments that can be used only in a limited way, that meet specified conditions”. This exclusion is also known as the so-called limited network exclusion (LNE). Payment instruments that might benefit from this exclusion include store cards, fuel cards, public transport cards, and meal vouchers. can be cards that can only be used in a particular chain of stores or a particular shopping center, fuel cards, membership cards, public transport cards, parking ticketing, meal vouchers and others (as follows from Recital 14 of the PSD2).

Article 37(2) of PSD2 prescribes that “Member States shall require that service providers carrying out either of the activities referred to in points (i) and (ii) of point (k) of Article 3 or carrying out both activities, for which the total value of payment transactions executed over the preceding 12 months exceeds the amount of EUR1 million, send a notification to competent authorities containing a description of the services offered, specifying under which exclusion referred to in point (k)(i) and (ii) of Article 3 the activity is considered to be carried out."

Since the publication of the PSD2, the EBA and European Commission as well as national regulators received a number of questions on the application of the LNE, the related notification requirements articulated in Article 37 of PSD2 and the meaning of Recitals 13 and 14 in PSD2.

EBA’s Final Guidelines are providing clarity on these points. The Final Guidelines exists out of 7 separate Guidelines, touching upon the:

  • specific payment instruments under Article 3(k) PSD2
  • limited network of service providers under Article 3(k)(i) PSD2
  • instruments used within the premises of the issuer under Article 3(k)(ii) PSD2
  • limited range of goods and services under Article 3(k)(ii) PSD2
  • provision of services under Article 3(k) PSD2 by regulated entities
  • notifications under Article 37(2) PSD2
  • limited network under Article 3(k)(iii) PSD

Below, we discuss a number of conclusions to be made from these Guidelines that that seems to be of most relevance to issuers relying on the LNE.

Digital and physical goods and services, online and physical stores

Guidelines 1 to 3 provide guidance to determine whether certain payment instruments or networks would fall within the scope of the LNE. Interesting to note is the slight difference in applicability of the different type of exclusions under Article 3(k)(i) PSD2 (limited network vs premises) where it concerns online purchases.

It follows from Guideline 2 that for the applicability of the LNE under Article 3(k)(i) PSD2, “a limited network of service providers” can consist of physical stores only, online stores only or a combination of physical and online stores. It is considered that the competent authorities should not make a distinction between the type of stores and should not require the type of goods and services offered in online stores to be dependent on the type of goods and services offered in physical stores or vice versa. However, it is noted in Guideline 3, that payment instruments allowing the holder to acquire goods or “services only in the premises of the issuer” (as set out in Article 3(k)(i) PSD2 can only be used in physical premises and cannot be used in online stores.

The functional connection between goods and services

In order for a specific payment instrument to be considered as limited for acquiring a very limited range of goods or services under Article 3(k)(ii) of PSD2, a functional connection between the goods and/or the services that can be acquired with the payment instrument should exist (as mentioned in recital 13 PSD2).

Guideline 4 clarifies Article 3(k)(ii) PSD2 and the functional connection between (physical and digital) goods and/or services, in particular what constitutes ‘functionally connected’ goods and services.

According to the Guidelines, the issuer must first of all identify a common purpose ensuring the goods and/or services fall within a certain category. This can involve physical and digital goods and/or services. Also, the issuer has to take into account the following additional indicators, based on the size and specificity of the market of the issuer:

  • The volume and value of payment transactions to be carried out with the payment instruments on an annual basis, as envisaged by the issuer;
  • The maximum amount to be credited to the payment instruments, as envisaged by the issuer;
  • The maximum number of payment instruments to be issued, as envisaged by the issuer; and
  • The risks faced by the customer when using the specific payment instrument, as identified by the issuer.

In the assessment by the competent authority, these Guidelines will be applied in a restrictive way that does not allow for the possibility for a specific-purpose payment instrument to develop into a general-purpose payment instrument.

The provision of excluded services by regulated firms

EBA has issued Guideline 5 to in relation to the provision of excluded services by regulated firms. The EBA first of all considers that it is possible that regulated payment institutions may also provide services that can only be used in a limited way, provided that the requirements of the LNE and the Guidelines are met. If this is the case, the entities should distinguish the regulated payment services/electronic money from the services excluded under Article 3(k) PSD2 in a clear and easily recognisable way, including through the provision of a specific visual manifestation. The issuer should furthermore inform the user of the specific payment instrument in a simple and clear way that the provided services are not regulated and supervised, and that users do not benefit from the protection for payment service users under PSD2. 

The notifications under LNE

The EBA has issued Guideline 6 to provide clarity on the notifications to be made under the LNE framework that follow from Article 37 PSD2.

As also set out above, Article 37(2) of PSD2 prescribes that “Member States shall require that service providers carrying out either of the activities referred to in points (i) and (ii) of point (k) of Article 3 or carrying out both activities, for which the total value of payment transactions executed over the preceding 12 months exceeds the amount of EUR1 million, send a notification to competent authorities containing a description of the services offered, specifying under which exclusion referred to in point (k)(i) and (ii) of Article 3 the activity is considered to be carried out.”

Calculation

According to the Guidelines, for the calculation of the payment transaction value thresholds, the issuer should take into account that the calculation of the threshold must be carried out at the level of the issuer. Where a single issuer provides services based on more than one specific payment instrument, the calculation of the threshold should be carried out by combining all payment transactions executed in the respective Member State with all specific payment instruments offered by the same issuer.

When

The notification should be submitted once by the issuer for any given period shorter than 12 months when the total value of payment transactions executed exceeds the amount of EUR1 million for that period. An additional new notification should be submitted to the competent authority when any information related to the same specific payment instrument(s) as provided with the initial notification has changed substantially.

Which Member State

The notification should be submitted by the issuer to the competent authority in each Member State where the users of the payment instrument are located and where the threshold is exceeded in the particular Member State.

Further information

The notification should contain information about the type of exclusion under which the activity is carried out and the description of the activity, including information:

  • on whether the goods and/or services that can be acquired are physical and/or digital;
  • about other Member States where the service under Article 3(k) PSD2 covered by the notification to the competent authority is provided by the same issuer; and
  • any other information allowing competent authorities to assess the notification against these Guidelines.

The notification under Article 37(2) PSD2 is to be submitted by the issuer only once. An additional new notification should be submitted to the competent authority when any information related to the same specific payment instrument(s) as provided with the initial notification has changed substantially, such as termination, increasement of the number of provider or goods and/or services, change of the instruments used.

Enforcement

These Guidelines will apply as of 1 June 2022 with an additional 3-month transitional period for issuers that already benefit from the exclusion to submit a new notification to their national competent authority.

Impact on current LNE users

Issuers that currently rely on the LNE (or intend to do so) should (re)consider whether their services still fall under the LNE as interpreted in the Guidelines. Further, they should (re)evaluate the notification requirements, as these may be subject to change in the future as a result of guideline 6.

DLA Piper would be happy to assist you in case of any LNE or PSD2 wide related questions. We have ample experience advising clients on this in practice often relied on exemption.

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