Does the European "Payment Service Directive" apply to trade
Posted: Wed Jun 04, 2008 1:00 am
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]
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]
