In May 2023, a group of paytech representatives called on legislators to ensure a fair playing field for all fintech providers and their obligations to performing customer due diligence (CDD) as the EU anti-money laundering regulation was discussed. Eight months later, the same groups have called on legislators to clarify the compromise text reached on recital 34 of the AML Regulation in the technical trilogues.
The organisations looking for this clarification are the European Third Party Providers Association (ETPPA), the European Fintech Association (EFA), the Electronic Money Association (EMA) and the European Payment Institutions Federation (EPIF). There are fears that European payment initiation services (PIS) could be at risk without further clarification of recital 34.
According to the organisations, recital 34 needs to be further clarified in two crucial respects. They have said that this can be done within the realm of the already existing political agreement. Otherwise, it will be
impossible for European PISPs to compete with other payment solutions such as card acquirers (Visa/Mastercard), ApplePay and Ideal/EPI, all of whom have to perform due diligence only on the merchant to whom they provide services.
The firms pointed out that a user of PIS never has an account or balance with the PISP, but the PISP merely initiates a payment from the user’s existing bank account. This is similar to how cards, ApplePay, GooglePay, Ideal/EPI, etc. work. In all of these cases, the acquirer, i.e. the provider of the service to the merchant has an obligation to perform CDD on their customer, the merchant, but never on the payer.
It is the understanding of the firms that the intention of Recital 34 has always been to clarify that a PISP’s CDD obligations are vis-a-vis the merchant only, not the payer, i.e to allow European PISPs to compete on a level playing field. They explain that the compromise’s wording however is not clear about this and leaves room for various interpretations, including one where also the payer could come into the scope of CDD if the payer uses the services of a PISP multiple times.
To be clear, payers never get into the CDD scope of e.g a card acquirer, independently of how many times they use such services or what amounts they pay. This can be clarified at the technical level, in particular, given that Article 15 has already been amended to clarify that PISPs’ CDD obligations in relation to occasional transactions are vis-a-vis the merchant, not the payer.
The same clarification should be made with regard to the establishment of a business relationship, to clarify that also here, such relationship is only established vis-a-vis the merchant (not the payer).
Not discriminating PIS collection
The second concern raised by the organisations relates to the completely new proposed last sentence of Recital 34. It appears to be discriminating PIS against cards and all other payment types when combining it with collecting the payments on behalf of the payee, i.e. merchant.
In their view, Recital 34 should rather clarify that a collecting PSP has to perform its relevant CDD obligations, independent of whether the PSP provides PIS per se or not; in the case a PSP also provides PIS, the CDD obligation of the PSP is towards the merchant, both for the provision of PIS and the provision of payment collection, as was suggested by the Parliament.
All the firms are confident that this topic can be addressed on the technical level given that the current wording of the Recital is not aligned with the rest of the AML framework, which has a payment collecting PSP performing CDD on the payee/merchant, and appears outright discriminatory.
An urgent matter
If the latest draft compromise text for recital 34 becomes law, there would be an extreme detriment for PIS, Europe’s home-grown payment solution.
As such, ETPPA, EMA, EPIF, EFA and OFA call on the European co-legislators to ensure in AMLR technical trilogues that Recital 34 of the AML Regulation makes it 100 per cent clear that merchant-facing PISPs should perform CDD on the payee only, both in terms of the establishment of a customer relationship and for occasional transactions, and no matter whether they touch payee (merchant) funds or not.