Does the European "Payment Service Directive" apply to trade

[PetervanRaak]

I'm presently involved in a project regarding the implementation of the "PSD", i.e. the Payment Service Directive (Directive 2007/64/EC of the European Parliament and of the Council of 13 November 2007 on payment services in the internal market).
I suppose this PSD is one of the major issues on the agenda of all banks of the European Community at present as it covers a really wide scope of all sorts of intra-European payments (and related services) in EUR, but also in GBP, DKK, etc. (any currency of membercountry of the Community).
Though this Directive is primarily aimed at payment services for "consumers", it also has some "generic" elements which may also apply for payment services offered to the business sector (e.g. strict rules for the value date of settlements).
In fact, in The Netherlands the present interpretation of this official European PSD (which has to be incorporated in Dutch Law and regulations) by one of the committees of the Dutch Banker's Association is, that - with respect to documentary trade, such as documentary letters of credit and documentary collections - the L/C and collection 'as such' are not subject to PSD, but the payments resulting from Ls/C and collections are.
Unfortunately it seems that no expert on documentary trade has been involved in this interpretation and when I speak to my colleague-documentary payment-experts of other Dutch banks, they all are of the opinion that these two elements of the same "product" cannot really - in practice - be separated in the way the legal interpretation as mentioned earlier would require.

I personally see several arguments which do not quite tally with the formal Dutch interpretation at present. First of all that fact that trade finance services clearly represent a "value added" product specifically for the business sector (and it certainly is no "main stream payment product" aimed at "consumers").
Quote from the preambles (6) to the PSD:
"it is not appropriate for that legal framework to be fully comprehensive. Its application should be confined to payment service providers whose main activity consists in the provision of payment services to payment service users. Nor is it appropriate for it to apply to services where the transfer of funds from the payer to the payee or their transport is executed solely in bank notes and coins or where the transfer is based on a paper cheque, paper-based bill of exchange, promissory note or other instrument, paper-based vouchers or cards drawn upon a payment service provider or other party with a view to placing funds at the disposal of the payee."

This is more or less repeated in another paragraph (19) from the preambles to the PSD:
"This Directive should apply neither to payment transactions made in cash since a single payments market for cash already exists nor to payment transactions based on paper cheques since, by their nature, they cannot be processed as efficiently as other means of payment. Good practice in this area should, however, be based on the principles set out in this Directive."

In this connection Article 3-g of the PSD stipulates that the PSD does NOT apply to (i.a.)
payment transactions based on ... any of the following documents drawn on the payment service provider with a view to placing funds at the disposal of the payee: paper cheques / paper-based drafts.

Now, if this ("they cannot be processed as efficiently as other means of payment") is valid for payment transactions based on cheques, the same is equally (and/or imho even to a much larger extent) valid for payment transactions based on (or resulting from) trade finance services.

Further, it so seems that a "payment transaction based on a paper draft" is excluded (but e.g. a collection consising of only 'commercial documents' is not?).

What is more: documentary credits and collections are subjected to internationally agreed and applicable rules, such as the UCP600/URR525/URC522 as published by the International Chamber of Commerce, which rules and regulations define the several responsabilities and liabilities and (e.g.) also maximum timelimits allowed for certain events within the lifecycle of trade finance transactions which apply to banks as well as to their corporate-customers (applicants or beneficiaries).

PSD Article 73 concerns the valudate which banks must apply for payments/settlements. E.g. this PSD-article could (imho) make a "negotiation" as defined under UCP600, where (also depending on the individual L/C's reimbursement instructions, if any) we would usually apply a future valuedate to the creditentry into the beneficiaries' bankaccount, rather problematic (if not practically impossible).
Etc ..................

In my opinion this present Dutch interpretation is incorrect, so I wonder what position the other European membercountries resp. banks take with respect to this issue (concerning the applicability of PSD for trade finance services). Perhaps the (European) readers of this forum are not -themselves- involved in their institution's "PSD-project", but this subject will - no doubt - be an issue at any European bank. As this rather is a European issue rather than a Dutch, I would appreciate any information with respect to the position banks and/or governmental authorities in the other European countries are taking on this subject of the PSD being applicabe to trade finance (or not).
[edited 6/4/2008 6:24:58 PM]

[PetervanRaak]

Is this topic really only being discussed in the banking community in The Netherlands?

[PetervanRaak]

Rather strange that this post doesn't get any reply whatsoever.
Let me also mention that the above would e.g. similarly apply for settlements to the beneficiary "under reserve" or "subject to final payment", which are not unusual for trade finance transactions.
.
I give another simple example, where PSD would/could be hard to comply with:
Article 73 states: "Member States shall ensure that the credit value date for the payee's payment account is no later than the business day on which the amount of the payment transaction is credited to the payee's payment service provider's account. The payment service provider of the payee shall ensure that the amount of the payment transaction is at the payee's disposal immediately after that amount is credited to the payee's payment service provider's account."
This could e.g. be problematic with respect to proceeds of collections, which not unusually are received "in bulk" to the credit of nostro-accounts.
I'm personally not convinced that all European banks could guarantee to identify such proceeds (and map/match it to the collection-transaction concerned) and indeed also credit it to the customer's (exporter's) account that very same day.

[NigelHolt]

I admire your 'staying power' Peter.

I'd like to help but I do not know the first thing about the PSD. Sorry.
[edited 9/2/2008 3:50:21 PM]

[PetervanRaak]

AN UPDATE:
I'm happy being able to let you know that we've meanwhile been able to convince the relevant committee of the Dutch Banker's Association that, given the (paper) nature of documentary credits and documentary collections, trade finance transactions should be treated at least similar to cheques under PSD. This especially also as trade finance (as a whole) only represents a rather insignificant part of the total volume of all payments within Europe and - at the same time - only a very small percentage of all trade finance transactions in our country (less than 5%) would be subject to PSD anyhow, because of
(1) country of the counterparty, (2) currency and (3) a draft being involved in it. So the investment to realize the necessary modifications in trade finance systems would probably be rather disproportional for the issue under consideration, whereas the Dutch interbank working-group on trade finance also concluded that a strict application of PSD to trade finance transactions could even have negative effects for the customers concerned and/or result in (near) conflict situations with customs, practices and (ICC-)rules, which are generally accepted and applied for trade finance on the larger global scale.

Now that we have been able to convince the committee of the Dutch Banker's Association, we'll have to wait and see if the Dutch Ministry of Finance is also open for our arguments.
Note the Dutch interbank working-group on trade finance meanwhile also suggested to bring up this topic for discussion on a European level.