1. Slide 1 Present and future Payment Regulation in the EU Sebastiano Tiné DG Internal Market European Commission “Development of EU payment systems - Challenges for the Accession Countries” (Budapest, 28 November 2002)

2. Slide 2 Overview of present and future regulatory framework Cross-border Credit Transfers Directive (97/5/EC) Settlement Finality Directive (98/26/EC) Recommendation on electronic payment instruments (97/489/EC) Regulation no. 2560/2001 on cross-border payments in euro A possible new legal framework for payment systems in the Internal Market

3. Slide 3 Cross-border Credit Transfers Directive: objective Objective: Ensure that funds can be transferred rapidly, reliably, inexpensively minimum information & performance requirements for cross-border credit transfers within the EEA up to 50.000€

4. Slide 4 Cross-Border Credit Transfers Directive: Content Provisions on customer information – before and after a transaction Provisions on performance – execution time – distribution of charges – money back guarantee Provisions on complaint and redress schemes

5. Slide 5 Redress Procedures Member States must ensure that adequate and effective procedures exist to settle disputes between bank and customer Establishment of out-of-court redress schemes in the EU Member States and in the Accession Countries

6. Slide 6 Cross-Border Credit Transfers Directive: implementation Deadline for transposition 14.8.1999 all Member States have transposed status of practical implementation in the Member States not satisfactory after three years of entry into force, transfers still too slow, expensive and unreliable (Commission studies, complaints from EU citizens)

7. Slide 7 Cross-Border Credit Transfers Directive: practical application Study on Bank Charges within the €-Zone (1999 and 2001) – credit transfers: 352 operations of 100€ average 17,1€ in 1999 and 17,3 in 2001 – no charges for Euro conversion – transfers still function unsatisfactorily (card payments much more efficient) – enormous price differences within one country (and between same banks)

8. Slide 8 The Settlement Finality Directive (98/26/EC): objectives reduce systemic risk enhance cost efficiency of systems indicate the law applicable to cross- border collateral security

9. Slide 9 The Settlement Finality Directive: scope Payment and Securities Settlement Systems and their participants Collateral security – a) provided in connection with participation in a system – b) provided in connection with operations of the central banks of the Member States

10. Slide 10 Main provisions Provisions on netting Prohibition to revoke transfer orders non-retroactivity definition of moment of opening of insolvency proceedings applicable law in case of insolvency

11. Slide 11 Collateral Security insulation from insolvency proceedings law applicable to cross-border provision of collateral security Implementation: – in force since 11.12.1999 – transposed by all Member States – study on implementation under way – Commission to submit report to EU Parliament and Council

12. Slide 12 Recommendation 97/489/EC on electronic payment instruments Objectives: – Ensure a high level of consumer protection concerning the use of electronic payment instruments – boost consumers’ confidence in electronic payment instruments

13. Slide 13 Recommendation 97/489/EC on electronic payment instruments Scope – Transactions covered: transfers of funds, cash withdrawals, loading/unloading of electronic money (no cheques and guarantee function of cards) – Instruments covered: Credit and debit cards, deferred debit cards, charge cards, single purpose cards, home banking and phone banking applications

14. Slide 14 Minimum transparency requirements Before (general terms and conditions) – description of instrument, financial limits, obligations and liabilities; – period when account is debited/credited – charges payable; – period to contest transactions (with indication of means of redress); – law applicable to the contract After the transaction (statements) – reference – amount of the transaction debited – fees and charges applied

15. Slide 15 Obligations of the holder use in accordance to general terms and conditions notification to issuer without delay: – of loss or theft – of recording of unauthorised transactions – other errors or irregularities – respect of security measures (ex. no PIN code written on card or kept together with it) no revocation of orders given

16. Slide 16 Liability of holder for loss or theft of a payment instrument – Before notification: liability up to 150 ECU (except extreme negligence or fraud) – after notification: no liability (except fraud) for remote payments by card (CNP): – Holder not liable if instrument used without electronic identification – use of a confidential code is not sufficient, by itself, to entail holder’ liability

17. Slide 17 Obligations of issuer sufficient notice to holder in case of modification of the terms and conditions no disclosure of holder’s PIN (or code) no dispatch of unsolicited instrument keep records for sufficient time for verifications make available appropriate means to allow notifications of loss or theft

18. Slide 18 Liability of issuer non-execution or defective execution of transactions (unless equipment or device unauthorised for use by issuer) transactions not authorised by holder errors in maintaining the account Burden of proof: issuer to prove that transactions accurately recorded/not defective; holder may prove the contrary

19. Slide 19 Notification and redress procedures issuer provides means (day and night) for notification of loss or theft upon notification issuer to take all reasonable actions to stop further use of instrument (even if fraud or negligence) Member States to ensure that adequate and effective procedures exist to settle disputes between issuer and holder

20. Slide 20 Implementation Recommendation addressed to Member States Failing appropriate implementation, Commission to replace it by a Directive Study (2001) showed implementation not satisfactory Commission considering new legal framework for electronic payments

21. Slide 21 Regulation no 2560/2001 (OJ L 344 of 28/12/2001) Directly applicable in Accession Countries from the accession date Why? – Euro – High costs – Single payment area – No improvement since 1990s Regulation on cross-border payments in euro

22. Slide 22 Background 1.1.2002: official birth of the euro 304 millions EU citizens will use the euro as their national currency need to maintain confidence in the euro confidence undermined by high costs for cross-border payments in euro, especially if compared to domestic payments

23. Slide 23 Costs for cross-border payments For a 100 € transfer in the EU: – average of 23,93 € in 1993 – average of 25,41 € in 1994 – average of 24,09 € in 2001 For a 100 € electronic payment operation in the EU: – average of 4 € for cash withdrawals – average of 0,5 € for card payments

24. Slide 24 Genova Palermo Nizza Domestic ? Cross-border ?

25. Slide 25 border

26. Slide 26 Subject matter and scope (Art. 1) Regulation applies to cross-border payments in euro in the EU up to 50 000 euros Objective: ensure that charges for cross- border payments are the same as those for domestic payments in euro. Direct debits and cheques not included Not applicable to transfers between institutions for their own account

27. Slide 27 Charges for cross-border payments (Art. 3) Same charges as domestic payments for payments up to 12 500 euros: – for electronic payment transactions (cards, ATM) from 1.7.2002 – for cross-border credit transfers from 1.7.2003 Threshold raised to 50 000 euros from 1.1.2006

28. Slide 28 Transparency of charges (Art. 4) Prior information on charges prior and specific ex post information on charges for exchanging currencies into and from euro Prior information on any modification of the charges.

29. Slide 29 Facilitating cross-border transfers (Art. 5) Banks to communicate to each customer (upon request) his International Bank Account Number (IBAN) and that institution's Bank Identifier Code (BIC). Customer to communicate (upon request) to the institution carrying out the transfer the IBAN of the beneficiary and the BIC of the beneficiary's institution. If not, additional charges may be levied

30. Slide 30 Facilitating cross-border transfers (Art. 5) From 1 July 2003, institutions to indicate on statements of account the customer’s IBAN and the institution's BIC. For cross ‑ border invoicing, suppliers accepting payment by transfer to communicate their IBAN and the BIC of their institution to customers.

31. Slide 31 Removing barriers to automation (Art. 6) Member States to remove by 1.7.2002: – reporting obligations for cross-border payments up to 12 500 euros for balance of payment statistics – obligations on minimum information on the beneficiary which may prevent automation

32. Slide 32 Penalties and disputes (Art. 7) Compliance to be guaranteed by effective, proportionate and deterrent sanctions. Disputes: adequate and effective redress procedures (Recital 13)

33. Slide 33 Review clause (Art. 8) By 1 July 2004, Commission to submit to the European Parliament and Council a report on the application of this Regulation, in particular on: – changes in cross-border payment infrastructures – competition – charges for payments within a Member State – reporting statistics

34. Slide 34 Opt-in clause (Art. 9) Regulation applies to cross-border payments in the currency of another Member State if such State notifies the Commission of its decision to extend the Regulation ’s application to its currency. Commission received notification that the Swedish authorities decided to extend the Regulation’s application to the Swedish krona (OJ C 165/36 of 11.07.2002)

35. Slide 35 LEGAL FRAMEWORK FOR THE SINGLE PAYMENT AREA IN THE INTERNAL MARKET Objectives of the legal framework (part of the revised Financial Services Action Plan) Internal Market for payments = domestic market Promote efficient and secure payment means and systems Enhance customer protection and consumer confidence in all means of payments Ensure fair competition and level-playing field

36. Slide 36 Sources of legal provisions National level: Legal and administrative provisions of the Member States … EU/EEA level: Treaty, Regulations, Directives, Recommendations of the EP and Council, the Commission, the European Central Bank … International level: UNCITRAL, Bank for International Settlements...

37. Slide 37 EU-LEGISLATION ON PAYMENTS AND OTHER RELEVANT LEGAL ACTS

38. Slide 38 EU-LEGISLATION ON PAYMENTS AND OTHER RELEVANT LEGAL ACTS

39. Slide 39 General principles All means of payment Technical neutrality Retail payments: 50 000 euros Subsidiarity Full/minimum harmonisation

40. Slide 40 Matters identified for discussion General issues – Scope and definitions – Access, licensing and oversight – Standardisation – Taxation Problems related to bank accounts – “Non-Resident” accounts – Value dates – Portability of accounts and customer mobility

41. Slide 41 Matters identified for discussion Security of payments – Security evaluation – Security of payment infrastructure – Legal responsibility for breakdowns – FATF Recommendations VII – Digital certification services and payments

42. Slide 42 Matters identified for discussion Miscellaneous – ADR and payment services – Revocability/cancellation of a payment order – Sanctions/penalties – Refund issue – Burden of proof – Consequential damage

43. Slide 43 Matters identified for discussion Credit Transfers – “OUR”-, “SHARE”-, “BEN”-concept – Execution time – “Money-back-guarantee” Electronic payments instruments – General rules, obligations and liabilities for contractual parties – Notification procedure Direct debiting Cheques

44. Slide 44 Progress Consultation document (DG Internal Market) issued May 2002 (available on Internet) Discussions within Commission Working Groups (government experts and market participants) Comments received by many stakeholders Formal Commission consultative document (Communication) to be issued early 2003 Legislative proposal end 2003 ?

45. Slide 45 More information and questions http://europa.eu.int/comm/int ernal_market/en/finances/pay ment/index.htm sebastiano.tine@cec.eu.int

46. Slide 46 Administrative capacity : out-of-court redress schemes Out-of-court dispute settlement totally new concept in consumer-to-business relationships in Accession Countries Mostly such schemes do not exist A new capacity needs to be built Principles governing the schemes (Recommendation 98/257/EC) often unusual for the Accession Countries

47. Slide 47 OUT-OF-COURT COMPLAINT SCHEMES AT NATIONAL LEVEL A good coverage of out-of-court complaints schemes for financial services exists in Europe at national level: Ombudsman schemes (BE, DE, FI, FR, EL, IRL, IT, UK, AT Consumer Complaint Boards (The Nordic Countries) Consumer Arbitration Boards (ES, NL, PO) Schemes within supervisory authorities (EL, ES, LUX)

48. Slide 48 TYPICAL FEATURES OF THE DIFFERENT MODELS Ombudsman schemes – private, voluntary schemes, funded by the professional associations – decisions binding on financial institutions (mostly self-regulation)

49. Slide 49 TYPICAL FEATURES OF THE DIFFERENT MODELS Consumer complaint boards – either general, or particularly for Financial Services – statutory, covers all businesses in their area – proposes a solution (not binding)

50. Slide 50 TYPICAL FEATURES OF THE DIFFERENT MODELS Consumer arbitration boards – statutory background – more institutionalised than B2B arbitration – decisions binding on both parties

51. Slide 51 TYPICAL FEATURES OF THE DIFFERENT MODELS Complaint schemes within supervisory authorities – a specific complaints department – covers all businesses in the area – gives recommendations (not binding)

52. Slide 52 FIN-NET – Overall objective: EU-Internal Market for financial services – Major obstacle: lack of consumer confidence – Out-of-court procedures are an alternative to normal judicial procedures – FIN-NET facilitates cross-border complaints: easy access, low cost, high quality

53. Slide 53 – The Commission’s approach builds on existing schemes – The idea was not to harmonise the schemes but to join them together into a co-operation network on the basis of a Memorandum of Understanding. – No EU-legislation to regulate the cooperation. – Flexibility of the co-operation in order to facilitate dispute resolution for consumers as much as possible THE APPROACH BEHIND FIN-NET

54. Slide 54 THE ESTABLISHMENT OF FIN-NET Formal launch took place in February 2001 37 schemes joined FIN-NET by adhering to the “Memorandum of Understanding on Cross-border Out-of- Court Complaints Network for Financial Services in the EEA”

55. Slide 55 ORGANISATIONAL ASPECTS – Participation in FIN-NET does not change the structure, organisation or funding of national schemes. – Schemes fund the co-operation themselves; European Commission assists in pilot phase with translation of cross- border complaints. – Information technology should reduce the resources needed.

56. Slide 56 OBJECTIVES OF FIN-NET: The Outline Easy, low-cost and informed access to cross-border out-of-court dispute settlement High quality of dispute settlement across the European Union Exchange of information and experience between the schemes

57. Slide 57 Objective 1: FACILITATED ACCESS TO CROSS-BORDER OUT-OF-COURT REDRESS Out-of-court complaint schemes normally cover service providers operating in and from the same country where the scheme exists. Thus, cross-border consumers need to complain to a foreign scheme. The FIN-NET framework gives consumers the possibility to contact the FIN-NET member scheme in their own home country (nearest scheme). This “nearest scheme” helps to identify the competent scheme and gives consumers necessary information and advice about the complaint procedure.

58. Slide 58 Objective 2: HIGH QUALITY OF DISPUTE SETTLEMENT ACROSS EUROPE Commission Recommendation No 98/257 on principles applicable to the bodies responsible for out-of-court settlement of consumer disputes Independence, Transparency, Effectiveness, Legality, Liberty, Representation, Adversarial Principle

59. Slide 59 Objective 3: BETTER HANDLING OF CROSS-BORDER CASES – Only little cooperation between the schemes in the past (ex. in the Nordic countries and UK & IR) – In FIN-NET the exchange of information covers both general information and specific information on a particular case – Framework for exchange of information is flexible and will develop further in time

60. Slide 60 HOW IS IT WORKING? – Pilot year of FIN-NET ended on 31/12/2001 – At present 40 participating schemes – Wide sectoral and geographical coverage – >400 complaints during pilot year – Commission will continue to monitor and further develop the FIN-NET framework together with the participating schemes further improvement of coverage intensification of co-operation between schemes promotion of FIN-NET

61. Slide 61 MORE INFORMATION Commission web-site: www.europa.int/comm/internal_market/ en/finance/consumer/adr.htm The site includes the multilingual FIN-NET database with detailed information on all participating schemes prototype of FIN-NET database: http://finnet.jrc.it Markt-C4@cec.eu.int