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The Regulatory Context
The Regulatory Context
The Regulations were enacted in 2017 to implement the EU’s Second Payment Services Directive 2015/2366 EU (“the Directive”). It is common ground that the Regulations are to be interpreted to give effect to the Directive.
Both parties have also drawn attention to and relied on published guidance of the FCA in relation to certain aspects of the Regulations in the form of the “Perimeter Guidance Manual” (“PERG”). There is also non-legislative guidance from EU institutions (in particular, the European Banking Authority).
Counsel for IVL drew attention to the following aspects of the regulatory framework and put its case in the following way:
Under reg.138 of the Regulations, it is a criminal offence to provide a payment service in the UK unless authorised to do so or falling within certain exempt classifications.
By reg.144 when an offence is committed by a body corporate, its officers can also be liable if the offence was committed with their consent or connivance or if it can be attributed to their neglect.
It is common ground that, if it was carrying on a regulated payment service, EDD was not authorised under the Regulations and did not fall within an exempt category.
The Claimants’ case is that EDD did not need to be authorised because it was not providing payment services. A central issue is therefore whether EDD was carrying on one or more “payment services” within the meaning and scope of the Regulations.
“Payment service” in the Regulation means “any of the activities specified in Part 1 of Schedule 1…when carried out as a regular occupation or business activity…”.
Although it is also IVL’s case that EDD was conducting ‘payment initiation services’ under paragraph 1(g) of Part 1 of Schedule 1 of the Regulations, it has chosen to focus its application only on the activity of ‘acquiring payment transactions’ under paragraph 1(e) of Part 1 of Schedule 1 of the Regulations.
IVL contends that there is no real prospect of the Court concluding at trial that EDD was not carrying out this activity.
The focus in submissions was therefore upon what “acquiring of payment transactions” involves. As to this paragraph 2 of the Regulations provides that:
““acquiring of payment transactions” means a payment service provided by a payment service provider contracting with a payee to accept and process payment transactions which result in a transfer of funds to the payee”; and
‘“payment transaction” means an act initiated by the payer or payee, or on behalf of the payer, of placing, transferring or withdrawing funds, irrespective of any underlying obligations between the payer and payee”.
The combined effect of the above provisions is therefore that the “acquiring of payment transactions” covers the “business activity” of “contracting with a payee to accept and process payment transactions [i.e. acts initiated by the payer or payee … of placing, transferring or withdrawing funds] which result in a transfer of funds to the payee”.
This payment service is to be contrasted with “execution of payment transactions” which is covered separately in Schedule 1, paragraph 1(c) of the Regulations and which includes “execution of direct debits”.
In the tenth recital to the Directive the following description is provided:
“This Directive introduces a neutral definition of acquiring of payment transactions in
order to capture not only the traditional acquiring models structured around the use
of payment cards, but also different business models, including those where more than one acquirer is involved. This should ensure that merchants receive the same protection, regardless of the payment instrument used, where the activity is the same as the acquiring of card transactions. … Moreover, some acquiring models do not provide for an actual transfer of funds by the acquirer to the payee because the parties may agree upon other forms of settlement.”
In terms of FCA guidance PERG 15.3, Q21, states the following in answer to the question “When might we be acquiring payment transactions…?”:
“Acquiring of payment transactions… includes traditional ‘merchant acquiring’
services enabling suppliers of goods, services, accommodation or facilities to be paid
for purchases arising from card scheme transactions. However, as set out in Recital
10 of [the Directive] it is designed to be technology neutral and capture different business
models, in particular:
-those where more than one acquirer is involved (and so you may be acquiring payment
transactions even if you are not the ‘acquirer of record’ from the point of view of the card scheme);
-regardless of the payment instrument used to initiate the transaction (for example where the instrument is a mobile telephone application); and
-those where there is no actual transfer of funds from acquirer to payee, because another form of settlement is agreed.
In our view, this definition is likely to capture ‘master merchants’ or ‘payment facilitators’ that contract with payees for the provision of acquiring services and activities carried out by businesses that aggregate carrier billing transactions. However, provision of merely technical services to merchants such as processing or storage of data and provision of terminals or online gateways, will not itself constitute acquiring”.
The final comments in this section of PERG appear to be based on the exclusion of the activities of technical service providers from the ambit of the Regulation: “services provided by technical service providers, which support the provision of payment services, without the provider entering at any time into possession of the funds to be transferred” do not constitute payment services according to Schedule 2, paragraph 2(j). Illustrations of this type of activity include “processing and storage of data”, “information technology” and “provision and maintenance of terminals and devices used for payment services”.
PERG 15.3 provides further commentary on this exclusion as follows:
“[Q25A]:…A business that obtains and processes payment account information in support
of an authorised or registered account information service provider, but does not
itself provide the information to the user, is a technical service provider. It does
not require authorisation or registration as an account information service
provider. The authorised or registered account information service provider is
responsible for compliance with the PSRs 2017 where account access is outsourced
to a technical service provider.”
“Q39. We are a firm simply providing IT support in connection with
payment system infrastructures- are these services subject to the
regulations?
No. There is an exclusion for technical service providers which simply provide IT
support for the provision of payment services (see PERG15Annex3, paragraph
(j)). Other support services that may be provided by technical service providers include data processing, storage and authentication. This does not mean that where
these services form part of a payment service they are not regulated, but in that
case it is the payment service provider that is responsible under the PSRs 2017 for
the provision of these services, not the person they have outsourced these technical
services to. Providers of payment initiation services or account information
services are not technical service providers.”