EBA Guidelines and PFSA Communiqué – limited network instruments

SUMMARY

Limited network instruments are a category of payment instruments defined in Article 3(k) of PSD2, the implementation of which is Article 6(11) of the Payment Services Act. If an instrument is classified as a limited network instrument, the rules governing the provision of payment services (in addition to those dedicated to such instruments) do not apply to it.

There are three types of limited network instruments:

• those that allow the holder to purchase goods or services only at the facilities of the issuers of these instruments or within a limited network of entities linked by a commercial contract directly with the professional issuer of these instruments,
• serving only to purchase a very limited range of goods or services,
• that can only be used in a single member state, if such instruments are provided at the request of a business or a public finance sector entity, are regulated for specific social or fiscal purposes by a national or local government authority, and are used to purchase specific goods or services from suppliers linked to the publisher by a commercial contract;

On February 24, 2022, the European Banking Authority (EBA) published the Guidelines on Limited Network Instruments, which are applicable as of June 1, 2022. Following the entry into force of the Guidelines, the Polish Financial Supervision Authority (PFSA) issued an updated Communiqué on the above exemption on June 1, 2022.

The PFSA’s Communiqué clarifies the formal aspects of communication with the PFSA on instruments that benefit from the exemption.

IMPACT AND REQUIREMENTS

Guideline 1: specific payment instruments

• specified payment instruments that can only be used in a limited manner are payment instruments as defined in Article 4(14) of PSD2 (all types of payment instruments under PSD2 are to be used for the purposes of the exemption)
• certain payment instruments can be used to purchase both physical and digital goods and services
• providers of services based on an “exempted” payment instrument should apply technical and contractual restrictions that allow limited use of that payment instrument
• service providers may issue more than one specific exempted payment instrument, provided that each instrument meets the requirements of the Guidelines
• the possibility of redeeming the monetary value stored in the payment instrument should not be taken into account by the competent national authorities
• payment instruments subject to the exemption that hold monetary value may be reloadable instruments or intended for one-time use only
• exemptions may not be combined at the payment instrument level with another PSD2 exemption
• the issuer of the payment instrument may be located in a Member State other than the Member State of the competent national authority that received the notification under Article 37(2) of PSD2

Guideline 2: limited network of service providers

• the criteria for assessing whether the use of a particular payment instrument is restricted within a limited network of service providers include the anticipated maximum number of providers of goods and services operating within the limited network, the anticipated specific geographic area for the provision of goods and services, and the direct contractual agreement for the acceptance of payment transactions between the payment instrument issuer and each provider of goods and services operating within the limited network (depending on the specific business model, the guidelines provide for additional factors)
• the limited network of service providers may consist of only physical stores, only online stores, or a combination of physical and online stores
• the competent national authorities should not distinguish between types of stores and should not require that the type of goods and services offered in online stores be dependent on the type of goods and services offered in physical stores, or vice versa
• it should not be possible to use the same exempted payment instrument in different limited networks of service providers
• either the issuer of the payment instrument or the providers of goods and services may entrust the conclusion of an agreement for the acceptance of payment transactions, to a third party

Guideline 3: instruments used at the publisher’s premises

• instruments that allow the holder to purchase goods or services only on the publisher’s premises may only be used on physical premises and may not be used in online stores

Guideline 4: limited range of goods or services

• there should be a functional relationship between the goods and/or services that can be purchased with the payment instrument
• a leading good or service should be identified; competent national authorities should verify that the service provider has identified a leading good or service and ancillary goods or services and described the functional link between them in the notification under Article 37(2) of PSD2
• a functional link may exist between physical and digital goods or services
• when assessing whether a payment instrument should be considered restricted, the competent national authority should take into account additional indicators, i.e. the volume and value of payment transactions to be made with these payment instruments on an annual basis, and the expected maximum amount that can be credited to these payment instruments

Guideline 5: provision of services under exemptions by regulated entities

• payment service providers and e-money issuers may provide services based on certain payment instruments that can only be used in a limited manner, provided that the requirements referred to in PSD2 and the Guidelines are met; in such cases, regulated entities should separate regulated services from exempted services in a clear and easily recognizable manner, including through the use of different brands
• payment service providers and e-money issuers should inform the user of a particular payment instrument in a simple and clear manner that the services provided are not regulated and supervised and that users do not benefit from the protection for payment service users under PSD2
• the distinction between payment services and/or electronic money and exempted services should be sufficiently clear and appropriate, including ensuring transparency of communication with users of a specific instrument
• exempted services should not compromise the financial soundness of the payment service provider/electronic money issuer or the ability of the competent national authority to monitor compliance with all obligations under PSD2 and EMD2

Guideline 6: notifications under Article 37(2) of PSD2

• a notification should be submitted by a service provider providing goods or services subject to the exemption under Article 3(k)(i) and (ii) of PSD2 in different Member States to the competent national authority
• the notification should include information on the type of exemption under which the activity is carried out, and a description of the activity (i.e., whether the goods or services that can be purchased are physical or digital, and other member states where the notified service is provided by the same service provider)
• the service provider shall submit the notification only once; an additional new notification shall be submitted when any information regarding the same specific payment instrument provided in the original notification has materially changed, or when it is envisaged to provide the service on the basis of exemptions with respect to another specific payment instrument
• competent authorities may ask service providers to submit a new notification containing updated information if they deem it necessary
• the calculation of thresholds pursuant to Article 37(2) of PSD2 should be carried out at the level of each service provider; where a single service provider provides services on the basis of more than one specified payment instrument subject to the exemption, the calculation of thresholds should be carried out by aggregating all payment transactions carried out in a given Member State using all specified payment instruments offered by the same service provider

Guideline 7: limited network under Article 3(k)(iii) of PSD2

• instruments falling within the scope of Article 3(k)(iii) of PSD2 (instruments regulated for specific social or fiscal purposes by a national or regional public authority and used to purchase specific goods or services from providers that have entered into a commercial agreement with the issuer) should not be covered by Guidelines 2 and 4, which apply to a limited network of service providers and a limited range of goods and services

In addition to pointing out the above-described key issues that the PFSA takes into account in assessing whether an activity meets the criteria for a limited network exemption, the PFSA’s announcement also details the manner in which the notification should be submitted. The PFSA provides the form and postal addresses, including e-mail, to which the notification should be sent. It is also possible to send the notification via the PFSA’s dedicated form. In addition, the PSFA draws attention to the obligation under Article.139(1) and (2) of the PSA, i.e. the need to update the data in the PSFA register in any case within a maximum of 14 days from the date of obtaining information about the change.

FAQ

1. What does “functional linkage of services” mean within the meaning of Recital 13 of PSD2?
   • According to the solution adopted by the Guidelines and the Communiqué, functional linkage of services refers to the linkage of a lead product and/or service with related products and/or services. The key in this regard is therefore the designation of the lead product.
2. With the status of a national payment institution, can the LNE exemption be used?
   • Regulated entities (e.g., banks, payment institutions, electronic money institutions) may benefit from the LNE exemption for some of their services. However, they should ensure that there is an appropriate distinction between their regulated and unregulated services, so that payment service users, especially consumers, are aware that they are not benefiting from the protection that PSD2 provides to regulated services.
3. Within a limited network, can digital goods and services be purchased?
   • Yes, both physical and digital goods and services can be purchased within the limited network.

WHAT WE DELIVER

1. Representation in notification proceedings before the PFSA
   Preparation of notification and handling of proceedings before the PFSA on exceeding statutory limits
2. Auditing and adjusting the activities of entities intending to use and already using the exemption