The European Banking Authority (EBA) published an opinion and report in response to the European Commission’s Call for Advice on the review of the Payment Services Directive (PSD2) and the Mortgage Credit Directive (MCD).
Payment Services Directive (PSD2)
The opinion, together with its annexed report, outlines a large number of issues identified in the implementation and application of PSD2 and developed more than 200 proposals to address various issues; these issues relate to the scope and definitions of PSD2, authorization, supervision and enforcement, transparency of conditions and information requirements, rights and obligations, strong customer authentication (SCA), access to and use of payment accounts data in relation to payment initiation services (PIS) and account information services (AIS), access to accounts of payment institutions maintained with a credit institution, and cross-sectoral topics. EBA proposed amendments to the PSD2 Directive, aimed at enhancing competition, facilitating innovation, protecting consumers’ funds and data, fostering the development of user-friendly services, and preventing exclusion from access to payment services, in addition to ensuring a harmonized and consistent application of the legal requirements across the European Union. The proposed amendments include:
- merging the PSD2 and the Electronic Money Directive as well as clarifying the application of strong customer authentication and the transactions in scope.
- moving from "Open banking" to "Open finance" (or otherwise the expansion from access to payment accounts data toward access to other types of financial data) and the opportunities and potential challenges associated with it, based on the PSD2 experience.
- addressing underlying issues and obstacles to the provision of payment initiation services and account information services, including the proposals for AIS providers to apply their own SCA with their customers instead of relying on the authentication procedures by banks, empower customers to remain in control of their data, and support the development of high-quality application programming interfaces (APIs) across the European Union.
- addressing new security risks for customers such as social engineering fraud where customers are tricked into initiating a payment transaction.
- addressing concerns about authentication approaches (for example, based on smartphones) that have led to exclusion of certain groups of society from using payment services online.
- 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.
- adjusting the prudential requirements, in particular in relation to initial capital, own funds, the use of professional indemnity insurance, the proposal for recovery and wind-down for significant payment institutions and possible consolidation group supervision.
Mortgage Credit Directive (MCD)
The opinion, along with an annexed report, outlines issues identified in the implementation of the MCD and covers more than twenty proposals to address issues related to the scope of MCD; these issues include tying/bundling practices and provisions on foreign currency loans, the impact of digitalization on peer-to-peer lending platforms, information disclosure at pre-contractual and advertising stages, creditworthiness assessment and robo-advice, ways to facilitate the cross-border provision for mortgages, ways to contribute to financial stability, lessons learned from COVID-19, sustainability including green mortgages and properties at risk due to climate change, and other issues related to the application of the MCD. EBA proposed amendments to facilitate smooth functioning of the internal market for mortgages, foster a level-playing field across all types of lenders, and ensure a higher level of consumer protection across European Union member states. The proposed amendments include:
- revising the requirements on pre-contractual and advertising information to provide consumers with the appropriate information to make an informed decision and to compare products.
- ensuring that the requirements on information disclosure are fit for digital channels.
- introducing additional consumer protections measures when artificial intelligence systems are used for creditworthiness assessment.
- introducing borrowers-based measures in the information provided to consumers to promote responsible lending and borrowing while contributing to financial stability.
- establishing a European Union-wide definition of "green mortgages" to encourage sustainable lending and borrowing.
- Press Release on Review of PSD2
- Response to EC on Review of PSD2 (PDF)
- Press Release on Review of MCD
- Response to EC on Review of MCD (PDF)
Keywords: Europe, EU, Banking, PSD2, Mortgage Credit Directive, MCD, SCA, Cyber Risk, API, Data Sharing, Open Banking, Open Finance, Lending, P2P Lending, Disclosures, Green Mortgages, Climate Change Risk, Credit Risk, ESG, Artificial Intelligence, Borrower-Based Measures, EBA, EC
Dr. Denton provides industry leadership in the quantification of sustainability issues, climate risk, trade credit and emerging lending risks. His deep foundations in market and credit risk provide critical perspectives on how climate/sustainability risks can be measured, communicated and used to drive commercial opportunities, policy, strategy, and compliance. He supports corporate clients and financial institutions in leveraging Moody’s tools and capabilities to improve decision-making and compliance capabilities, with particular focus on the energy, agriculture and physical commodities industries.
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