The proposed Third Payment Services Directive (PSD3) will materially revise the European regulatory framework for payment and e-money institutions (PIs and EMIs).

To start, the difference between PIs and EMIs will disappear. The issuance of e-money will become a payment service and issuers of e-money payment institutions.

For institutions that are already licensed under the Second Payment Services Directive (PSD2) and the revised Electronic Money Directive (EMD2), this raises an important practical question: what will happen to their existing authorisation once PSD3 enters into force?

Based on the latest compromise text, the transition to a PSD3 license is not a full re-authorisation process. Articles 44 and 45 PSD3 provide for a transitional regime under which existing payment and e-money institutions may continue providing the services for which they are currently authorised, but certain information (updated policies) must be provided to the regulator

PSD3 transition period for existing payment and e-money institutions

Payment institutions

Under the proposed text of article 44 PSD3, payment institutions that are already authorised under PSD2 may continue providing the payment services covered by their existing authorisation until 27 months after PSD3 enters into force. During that period, they do not need to obtain a new authorisation under article 3 PSD3.

During the 27-month period, the institution must provide the competent authority with the information specified in article 3 (3) PSD3. Based on this information, the competent authority will assess whether it complies with the authorisation requirements from Title II PSD3.

If the competent authority has verified the compliance, the institution will then be deemed authorised under PSD3 and entered in the relevant PSD3 registers. If the institution has not provided the necessary information, or if the competent authority has not been able to verify its accuracy, the services of the institution may be suspended until the outstanding information has been provided and verified.

E-money institutions

For licensed e-money institutions under EMD2, a similar regime applies. Article 45 PSD3 allows existing e-money institutions to continue their activities during a 27‑month transitional period, provided they demonstrate compliance with the new PSD3 authorisation requirements.

However, article 45 PSD3 facilitates the conversion of a license category that will cease to exist under PSD3. Under the new framework, electronic money issuance becomes a standalone payment service (payment service 8) rather than a separate licensing regime. As a result, licensed e-money institutions will be transitioned into PSD3 as payment institutions and authorised for the specific e-money service they provide.

Importantly, under current EMD2 approach, it is possible for an EMI to provide payment services alongside the issuance of e-money under the umbrella of its EMI license. This approach seems to disappear under PSD3 as the issuance of e-money will be a separate payment service. A former EMI authorised only for the issuance of electronic money (service 8) will not automatically be authorised to provide certain payment services in relation to the issuance of e-money, such as acquiring, money remittance or the execution of payment transactions. Those services must be separately included within the institution’s PSD3 authorisation. Both Article 44 and 45 therefore seem to be applicable on the existing e-money institutions.

Which information must be submitted for authorisation under PSD3?

Articles 44 and 45 PSD3 identify information under article 3 (3) PSD3 that existing payment and e-money institutions – depending on the exact payment services they provide – must provide as part of the transition process, including (amongst others) information on the initial capital, DORA-requirements and strict safeguarding measures.

Although articles 44 and 45 PSD3 expressly refer to seven categories of information from article 3(3) PSD3, the ultimate assessment by the competent authority will be focused more broadly on compliance with Title II PSD3. This follows from articles 44 (1) and 45 (2) PSD3, which states that payment institutions shall be deemed authorised pursuant to article 13 PSD3 and registered in accordance with article 17 and 18 PSD3 upon verification by the competent authority that it complies with Title II PSD2. Title II covers the wider authorisation and prudential framework and is not limited to these seven information items.

Payment institutions should therefore be cautious about approaching the transition as a narrow document-production exercise. A submission covering only the seven expressly identified items may not provide sufficient comfort that the institution continues to satisfy the broader conditions of Title II PSD3.

PSD3 authorisation and DORA compliance

As expected given the ICT focus in the financial services industry last years, one of the elements of the required information to be provided under article 44 and 45 PSD3, is focused on the ICT-framework and the compliance with the Digital Operational Resilience Act (DORA).

For payment and e-money institutions, this means that PSD3 transition planning and DORA implementation should not be treated as separate projects. Work already performed under DORA may provide an important part of the evidence required for the PSD3 transition. However, institutions should verify that their DORA documentation is properly integrated into the broader policy framework and is ready for a sign-off in relation the PSD3 authorisation.

For existing payment and e-money institutions

The precise calendar deadlines are not yet known. The 27-month transition period is linked to the date on which PSD3 enters into force. The Directive will to enter into force on the twentieth day following its publication in the Official Journal of the European Union. Absolute deadlines can therefore only be determined once the final Directive has been adopted and published.

While PSD3 is not adopted yet, payment and e-money institutions should start assessing whether their existing license file and compliance framework remain fit for purpose. Given the potential suspension measure if the 27-month deadline is breached, it is good to start preparing soon.

Key takeaways

• A 27-month transition period applies after PSD3 enters into force.
• Existing PSD2 payment and e-money institutions will not need a full re-authorisation, but information must be provided in accordance with article 44 and 45 PSD3.
• After the 27-month period, payment and e-money institutions must comply with Title II PSD3.
• E-money institutions will transition into the new PSD3 framework as payment institutions.
• DORA compliance documentation will play an important role during the transition.

Need help? Our Financial Services team is ready to advice you on the PSD3 authorisation.