PSD2 Review

During May 2022 the European Commission launched three (3) consultation documents with the aim of gathering evidence on the application and impact of the revised Payment Services Directive (PSD2) and to inform the public about the Commission’s work on open finance. This was also communicated by the MFSA via a dedicated Circular issued on 23 May 2022.  Overall, such a process will assess the relevance of the Payments Services Directive following noticeable market developments in the digital payment sector with the advent of new market players, technologies and consumer expectations.

In response to the Call for Advice of the European Commission, the EBA issued an Opinion and Report in June 2022 which included more than 200 proposals covering different areas including:

• merging the PSD2 and the Electronic Money Directive;
• clarifying the application of strong customer authentication (SCA) and the transactions in scope;
• addressing new security risks for customers such as social engineering;
• addressing concerns about authentication approaches that have led to exclusion of certain groups of society from using payment services online;
• addressing underlying issues and obstacles to the provision of payment initiation services (PIS) and account information services (AIS);
• moving from 'Open banking’ to ‘Open finance’;
• addressing the enforcement shortcomings in relation to the implementation and application of SCA for e-commerce card-based transactions and the removal of obstacles to the provision of AIS and PIS;
• addressing unwarranted de-risking practices by banks affecting payment and e-money institutions; and
• adjusting specific prudential requirements.

As a national competent authority, MFSA also responded to the consultation, raising, amongst other things, the following points:

• the scope and exclusions listed under the PSD2 are overall adequate in the local context;
• suggestion to include the issuance of electronic money, payment transactions using crypto assets, and digital wallet services under the list of payments services in Annex I of PSD2;
• the need to further refine the safeguarding provisions, and to assess the adequacy of the current requirements in light of consumer protection;
• similar to the EBA’s advice, the merging of the PSD2 and Electronic Money Directive into one legislative instrument;

Authorised entities are encouraged to take a proactive approach in this regard, which includes investing in the appropriate monitoring of developments and a careful assessment of any obligations emanating from an eventual revision of the PSD2.

Sustainable Finance

The financing of sustainable business has continued to gain traction in recent years. During the 2021 United Nations Climate Change Conference, the European Banking Authority (EBA) reiterated its commitment to support the European banking and financial sector in tackling climate change and the transition to a more sustainable economy. These elements are also prominent on the European Union’s (EU) agenda, with the European Green Deal setting out the long-term strategy to tackle such environmental challenges.

Whilst contributing towards reaching the Paris Agreement goals, the EBA continues to stress the need for improved banks’ management of Environmental, Social and Governance (ESG) risks, enhanced  transparency of ESG strategies and exposures, and the integration of ESG risk aspects in the bank’s business strategies. Banks should be aware that efforts are being made to enhance the entire supervisory and prudential regulatory framework to ensure that the financial system can continue to finance the transition to a more sustainable economy.

In January 2022 the EBA published Binding Standards on Pillar 3 disclosures on ESG risks, aimed at ensuring that stakeholders are well-informed about the institutions’ ESG exposures, risks, and strategies thereby enabling them to make informed decisions and exercise market discipline. The standards put forward comparable disclosures and KPIs, including a green asset ratio (GAR) and a banking book taxonomy alignment ratio (BTAR), as a tool to show how institutions are embedding sustainability considerations in their risk management, business models and strategy and their pathway towards the Paris agreement goals. The EBA also launched a >Discussion Paper on the role of environmental risks in the prudential framework, aimed at exploring whether and how environmental risks are to be incorporated in the Pillar 1 prudential framework for credit institutions and investment firms.

The financial sector should also give due consideration to the Taxonomy Regulation, or Regulation (EU) 2020/852 of the European Parliament and of the Council of 18 June 2020, on the establishment of a framework to facilitate sustainable investment. This regulation was further complemented with three Delegated Acts, namely the Climate Delegated Act EU/2021/2139 (sustainable activities for climate change mitigation and adaptation objectives of Taxonomy Regulation), Disclosures Delegated Act EU/2021/2178 (specifying content and presentation of information to be disclosed concerning environmentally sustainable activities), and the Complementary Climate Delegated Act EU/2022/1214 (including specific nuclear and gas energy activities covered by Taxonomy Regulation).