CBPR1
CBPR1 came into force in 2009. Among other things it created a level playing field in terms of charges on cross border payments. Essentially, charges on cross border payments in Euro had to be the same as national payments of the same value.
Purpose of CBPR2
CBPR1 had the effect of drastically reducing charges for cross border payments in Euro within the Eurozone. However, charges for cross-border payments in Euro from non-Eurozone EEA states remains high. The recitals note that currency conversion charges remain a key part of these charges.
In order to tackle this, CBPR2 introduces transparency requirements in order to increase consumer awareness of the charges associated with cross border payments in Euros.
Of course, the Payment Services Regulations 2017 (PSRs) already contain an obligation for payers to disclose charges and exchange rates to the payer[1]. However, recital 6 to the CBPR2 notes that “those information requirements have not achieved sufficient transparency”. CBPR2 therefore goes further, making key amendments to CBPR1. So, what are the new transparency requirements?
Card based transactions
Where providing currency conversion services via an ATM or at point of sale, the currency conversion charge applied must be expressed “as a percentage mark-up over the latest available euro foreign exchange rates issued by the European Central Bank (ECB))”.[2] This disclosure must be made prior to the initiation of the transaction.
By stipulating the disclosure of the mark-up against a publicly referenced rate, CBPR2 requires PSPs providing currency conversion via card-based transactions to explicitly disclose their profit margins on the FX.[3]
In addition, the payer’s PSP is required to disclose the mark up to customers via electronic message (i.e. text or email) after the transaction is taken place.
I think we have all been in the position of having been stung using our debit cards on holiday in Europe, and it will be interesting to see whether the greater transparency will increase competition and drive down costs. It could certainly lead consumers to think more carefully about their means of payment while on the Continent.
Online credit transfers
There is also a disclosure obligation in relation to online credit transfers executed via the websites or mobile applications of PSPs. The new regulation[4] requires the disclosure of “estimated charges for currency conversion services applicable to the credit transfer”.
While this is not as onerous as the requirement to disclose the percentage mark up, it goes beyond the requirement in the PSRs to merely disclose the “exchange rate used” and the “amount of the payment transaction after the currency conversion”.[5] PSPs must now disclose the specific amount of the currency conversion mark up.
Potential solution
Of course the disclosure requirement only applies where the charges are “applicable to the credit transfer”. One solution would therefore be to clearly separate the currency conversion from the credit transfer.
For example, in the context of an e-money institution offering multi-currency accounts, the institution could firstly perform the FX conversion and corresponding transfer between their e-money accounts denominated in the sold and purchased currencies.
Only after this conversion was performed would it then execute the onward credit transfer to the beneficiary. In this case, the currency conversion charges would not be “applicable to the credit transfer”, and so the disclosure requirement would not apply.
FCA supervision
For UK based PSPs, two key facts mitigate the impact of CBPR2.
- It will cease to apply at the end of the transitional period on 31 December 2020. Recent news reports indicate that it is unlikely that the UK government would agree to any extension of the transition. CBPR2 is therefore likely to have a very short lifespan in the UK.
- The EU Commission has published a statement[6] noting that while it expects compliance from 19 April, it notes that in light of the current crisis it understands if competent authorities “enforce the new rules in a flexible manner”. The FCA have indeed indicated that this will be their approach.[7] While we don’t know the precisely what this flexibility will look like, it is clear that the FCA will have other priorities at the moment.
Please do not hesitate to contact me or one of my colleagues if you require assistance with your firm’s approach to CBPR2.
[1] See regulation 53(2)(c-d)
[2] See Article 3a(1), inserted by Article 1(4)
[3] There are also other prior information requirements, such as the requirement to disclose the amount to be paid in the payee’s currency and the amount to be paid by the payer in the currency of their own account (Article 3b(3))
[4] See Article 3(b), inserted by Article 1(5).
[5] See regulation 53(2)(d) of the PSRs.
This post contains a general summary of advice and is not a complete or definitive statement of the law. Specific advice should be obtained where appropriate.
