Payment Services Directive 2 (PSD2)



11th January 2018

By Ross McKillop

You may have heard of the Payment Services Directive 2 (PSD2) which has recently been adopted into UK law through the Payment Services Regulations.

These regulations have never been of much concern to the telecommunications industry, and the FCA advise that these apply to firms such as “banks, building societies, e-money issuers, money remitters, non-bank credit card issuers, and merchant acquirers”.

However, some phone calls, including but not limited to premium rate services, are now considered to be payment for electronic services and this therefore affects us.

The rules provide for an “electronic communications exclusion” (ECE) which appears intended to ensure that Communications Providers remain outwith the scope of becoming a “payment services provider”. To take advantage of the exemption one must limit the cost of calls by a single subscriber to a service to £40 per call or £240 a month. We think – it isn’t entirely clear.

However, and this bit has us surprised, there is a direction under Regulation 39 which may affect communications providers. This suggests that if relying on the exemption, which is practically impossible not to, they may need to notify the Financial Conduct Authority as well as carry out an annual independent audit to prove compliance with various regulations.

This regulation states that where a “service provider” (i.e. you) provides, or intends to provide, a service for payment transactions falling within paragraph 2(l) of Schedule 1 to the PSRs 2017 (the “ECE”) which is specifically defined as activities involving electronic communications networks which do not constitute payment services that the service provider must;

(a) notify the Financial Conduct Authority (“FCA”), including with such notification a description of the service;

(b) provide an annual audit opinion testifying that the transactions for which the service is provided comply with the limits mentioned in paragraph 2(l) of Schedule 1 to the PSRs 2017.

The FCA’s own guidance on this matter can be found here

The deadline for this is 13th January 2018. The regulations were introduced in July 2017 but seem to have gone un-noticed by the whole industry, as you’d expect for something hidden in a regulation that typically only applied to the payment services industry. Indeed BT’s changes take effect from March, due to contractual requirements to provide notice to OLOs of such a change.

In essence, this legislation appears to say that by following certain requirements limiting the value of transactions, you are “exempt” from the Regulations as these do not constitute payment services. However, the burden of proof appears to be on the CP to “prove” they’re complying with this.

This feels somewhat akin to all non-car owners being legally required to notify the DVLA that they don’t have a car, and are therefore availing of an “exemption” in the Vehicle Excise and Registration Act to register something they don’t have(!)

We have a number of concerns about this;

  • If a full annual audit is required to prove that a CP is compliant with the ECE, and this potentially creates a significant financial cost for CPs.
  • The requirements of both the registration and audit are unclear at this stage, and we’re seeking clarification – alongside industry bodies – from the FCA here
  • The technical feasibility, where you don’t bill the end user, of ensuring a cumulative value of calls by a single subscriber doesn’t reach a specific amount – how do you determine the subscriber? By CLI? Originating trunk?

What are Simwood doing now?

To comply with the ECE, and on the assumption that all our customers will similarly seek to comply with this, shortly we will be implementing a £40 cap on the cost of any call. Any such call will be automatically terminated at the £40 cost, and we will include an appropriate Reason header allowing you to easily identify these calls.

It’s important to note that this is based on our cost to you, but it appears you have an obligation to ensure that your customer is not billed more than £40, so you may wish to implement similar limits yourself as (assuming you’re putting a markup on our rates) the call will have cost your subscriber more at that point.

We’re also going to similarly limit the duration of any inbound call to non-geographic numbers, both our own and those we host under a Virtual Interconnect or Managed Interconnect agreement, to prevent the charge to originating networks being in excess of £40.

This is in keeping with the approach other providers, including BT, have taken which mean that we would be unable to bill a call to them over that value. They haven’t done it both ways however, probably because it is impractical for them to do.

What is still to be done?

The above changes will ensure we, and the majority of our customers, stay within the ECE exclusion discussed above, however there is still the question of FCA notification and regulation.

We are seeking clarification from our own legal advisors and from the FCA regarding this, and there’s a lot of uncertainty in discussions so far. Until then, our own interpretation of the regulations as they stand is that it’s likely that many of our customers will need to register with the FCA which seems very over-reaching.

The above represents our opinion, and does not constitute legal advice. If you have any concerns about your compliance with the Payment Services Regulations 2017, or anything else, we strongly suggest you seek independent professional legal advice.

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