4. PERG: PS21/19 - Changes to the SCA-RTS and Approach Document
- Posted on: 17 December 2021
- Written by: Matthew Baxter
PS21/19 introduces new guidance in Chapter 15 of the Perimeter Guidance Manual (PERG) related to exclusions from the scope of the Payment Services Regulations 2017 (PSRs). The updated guidance is related to two exclusions, the so-called ‘Limited Network Exclusion’ (LNE) and the ‘Electronic Communications Exclusion’ (ECE). Importantly, this means firms need to review the updated guidance to ensure they still meet the conditions for exclusion.
Without being involved in FCA discussions on the topic of exclusions, one could get the impression from the latest guidance that the FCA has been aware of an increasing number of cases whereby entities have used the exemptions with a wider interpretation than intended in order to circumnavigate the need for authorisation.
Limited Network Exclusion (LNE)
And so the obvious first question, what is the LNE? Well, the LNE focuses on specific payment instruments that can only be used in a (very) limited way. The limitations that apply cover the premises, service providers and the range of goods or services available for which the payment instrument can be used. As such, a difficulty for some entities has been determining what is considered suitably limited when it comes to these payment instruments.
What has changed?
In the update to PERG15.5, the FCA has extended its guidance to include features of a payment instrument that do not provide sufficient limitations, taken from the recitals of PSD2. These features include functionality of the payment instrument to acquire goods and services within more than one limited network or acquire an unlimited range of goods, general purpose instruments and instruments that can be used in a network of providers that continuously grows. Additional to these updates, there is wide ranging guidance on:
- the use of terms and conditions to limit a payment instrument:
- requirements for direct commercial agreements between the issuer and merchants:
- issues related to the ability of a network to grow; and
- membership caps
Electronic Communications Exclusion (ECE)
So then, what is the ECE? The ECE applies to “payment transactions resulting from services provided by a provider of electronic communications networks or services” e.g. mobile phone network operators. The premise of this exclusion is to allow providers of electronic communications networks or services to complete payment transactions for services that are linked to communications services provided to a subscriber to the network or service. Additionally, previous guidance detailed that the exclusion only applies to the purchase of digital content or when performed for donations or the purchase of tickets. It is important to remember throughout, that the payment must be charged to the related (mobile phone) bill for communications services.
What has changed?
Similar to the LNE, the FCA has included clarifications on specific cases that might previously have been considered under the exclusion. In this case, it has been specifically stated that the exclusion does not apply to purchases via mobile phones. That said, purchases for digital services can apply if provided in addition to the electronic communications services and charged to the related bill. Clarification has also been included that in no instance does the exclusion apply to the purchase of physical goods.
A new question has also been introduced to PERG15.5. Question 41B focuses on the “cascade” as enabled under the PSRs when dealing with an exclusion. This ensures that where a network operator benefits from the exclusion, the provider of any other payment service related will also benefit. However, the guidance is clear that if the ECE is applied incorrectly, this impacts the other providers involved in the transaction.
There are differing notification requirements for each exclusion. Importantly, in all cases where the ECE is used, the FCA must be notified initially of intention to use the exemption and then provided with an annual audit opinion that confirms compliance with transactions limits.
The case of the LNE is slightly different. Notification is made to the FCA in cases where the total value of payment transactions executed, is in excess of €1 million in any 12-month period. Notification is not required by pre-paid cards provided by local authorities to benefits recipients or government-issued childcare vouchers.
If you think your firm’s activities fits one of these exclusions, or is incorrectly applying an exclusion, we have a Payment Services department ready to help. While the exclusions covered in the Policy Statement do provide exactly that, an exclusion from needing to seek registration or authorisation, the new guidance may bring into question the application of the relevant exclusion by some entities. Consequently, there is merit in obtaining a professional opinion from FCA compliance experts.