ABC Projektai (C-661/22): Court of Justice EU interprets notion of “payment services” under PSD2
Key takeaways
- On 22 February 2024, the Court of Justice of the European Union (CJEU) issued its preliminary ruling in ABC Projektai (C-661/22), at the request of the Supreme Administrative Court of Lithuania.
- In the ruling, the CJEU assesses whether if a payment institution receives funds from a user, where such funds are not immediately accompanied by a payment order and therefore remain available on a payment account of the institution, constitute a payment service under PSD2, or must be reclassified as issuance of electronic money under EMD2.
- The CJEU concludes that for such reclassification, a conversion of funds into a monetary asset is required, which was not the case. Furthermore, failing to comply with certain regulatory or contractual requirements does not in itself remove a transaction from the scope of PSD2.
Facts of the case
On 13 October 2016, ABC Projektai (ABC) obtained a license from the Bank of Lithuania, authorising it to provide payment services under Lithuanian law transposing the Payment Services Directive (Directive (EU) 2015/2366, PSD2). On 16 April 2020, the national supervisory authority (Bank of Lithuania) revoked that license for several reasons, including that ABC had issued electronic money despite not having the status of an electronic money issuer, which is a violation of the Lithuania law transposing the E-Money Directive (Directive 2009/110/EC, EMD2).
In fact, ABC had retained customer funds for longer than the time required for the execution of payment transactions. The supervisor considered that crediting funds received from customers to accounts for payments received without a specific payment purpose and retaining them without transferring the funds to the accounts of the recipients of those payments, de facto constitutes issuance of electronic money under the Lithuanian law transposing EMD2.
Request for preliminary ruling
ABC challenged that interpretation and appealed the decision. The referring court, the Supreme Administrative Court of Lithuania, asked whether in these circumstances, more specifically:
“where a payment institution accepts funds without a specific payment order to transfer them on the same or following business day and the funds remain in the payment institution’s account intended for carrying out payment transactions for longer than the time limits for the execution of the payment service laid down by legislation”
the actions of the payment institution must be regarded as (a) a part of a payment service or payment transaction as defined in Articles 4(3) and 4(5) PSD2, or (b) the issuance of electronic money as defined in Article 2(2) EMD2.
Judgment
According to the CJEU, those transactions remain payment transactions and thus part of a payment service under the PSD2 per those articles, and they do not cease to be classified as such if the funds are not accompanied by payment order on the same or next business day.
The Court based its interpretation by considering other provisions of PSD2, coming to two conclusions. First, no provision of the PSD2 “precludes funds from being credited in advance to a payment account for the purpose of executing future payment orders, including payment orders not yet specified, or lays down any time limit within which, after such an account has been credited with a certain amount, that amount must be used for the purposes of a payment transaction”. Second, the PSD2 refers to instances of payment services the proper execution of which requires funds to be credited in advance to a payment account without being accompanied by a payment order, in some cases even expressly. However, the Court underlines that the funds must be used exclusively for the execution of payment transactions to avoid reclassification.
The Court then turns to the reclassification under Article 2(2) EMD2. Based on the definition, it concludes that “the issuance of electronic money is distinct from the mere entry in a payment account”, as it must be electronically stored, which implies that it has been issued (or converted) beforehand. Only if a conversion has taken place, a reclassification could occur. In addition, there should be at least a contractual agreement between the user and the electronic money issuer and the user’s consent cannot be inferred from transferring and holding funds on a payment account. Finally, the CJEU remarks that failing to comply with certain regulatory or contractual requirements could render a payment services provider liable, but does not remove the transaction from the scope of PSD2.
Based on these consideration, the CJEU concluded that Articles 4(3) PSD2 and 2(2) EMD2, must be interpreted as meaning that the activity of a payment institution which consists in receiving funds from a user of a payment service, where such funds are not immediately accompanied by a payment order and therefore remain available on a payment account (as defined in Article 4(12) PSD2) operated by that institution, constitutes a payment service as set out in Article 4(3) PSD2, and not a transaction consisting in the issuance of electronic money as set out in Article 2(2) EMD2.
Implications
The CJEU’s considerations clarify two important points.
- First, the transfer and maintenance of funds on a payment account of the payment institution should not be reclassified as the issuance of electronic money, even if these funds are not immediately accompanied by a payment order and therefore remain available on the payment account. For such reclassification to take place, a conversion of funds into electronic money by means of issuance (with contractual consent of the user) and subsequent storage must take place. The purpose for which funds are received and remain on a payment account is important: they can only be used for the execution of payment transactions.
- Second, executing a transaction which does not comply with regulatory or contractual requirements of PSD2, does not in itself have the consequence of removing the transaction in question from the scope of PSD2.
The Italian regulatory framework on payments and e-money remain largely aligned with PSD2 and EMD2 currently. Given the international nature of payments business, and these common underpinnings, this decision is of interest to Italian firms, although it is not binding. Local discussions on the matter mainly focused, over time, on the particularly broad definition of “payment account” which sometimes made it difficult to frame the different products offered by operators. Such wide definition currently also includes – and subject to PSD2 rules – also products such as local current accounts, which may also (but not only) be used for the execution and settlement of payment transactions, without this determining a requalification of the relevant stored funds as e-money.
Based on BaFin's administrative practice, with the requirement of the formal step of “issuing” the e-money, there should already be an explicit requirement in Germany for the act of conversion now also deemed necessary by the CJEU to qualify as e-money and, therefore, also a clear distinction between e-money and payment services in this regard. Nevertheless, we experience currently a lot of questions and to some extent legal uncertainty for payment services providers regarding the treatment of funds. Therefore, we consider further harmonisation of the EU-wide understanding of the actual and technical requirements for payment service providers, particularly with regard to the management of funds and the respective safeguarding requirements, is important and desirable.
The decision of the CJEU is aligned with the existing position of the National Bank of Belgium, which was also of the view that funds cannot be transformed “magically” into e-money when put on a payment account. This decision will nevertheless bring further clarification at EU level and will therefore be welcomed by Belgian payment institutions providing their services across the European Economic Area.
For more information or assistance with payment services and electronic money services, please contact our European Financial Services Regulatory Team.
