With the emergence of financial technologies, and its constant evolution, financial legislation has had to adapt. The European Union (“EU”) was amongst the first major jurisdictions to recognise and legislate on the matter. Since the 1990s, the EU has created two important distinctive classifications of company: the Electronic Money Institution (“EMI”) and the Payment Services Provider (“PSP”). Both classifications allow for a company to provide payment services, with the EMI being able to provide electronic money (“emoney”) services. However, in recent years, the distinction between the two has become somewhat blurred. This was the subject of a request for a preliminary ruling made by the Supreme Administrative Court of Lithuania (the “National Court”) to the Court of Justice of the European Union (the “CJEU”) in ABC Projektai UAB v Lietuvos bankas (Case C-661/22) (the “Case”). This article explores the road to this Case and the CJEU’s rejection of the wide interpretation of emoney.
How we got here
The EU has historically always regulated payment services and emoney services under two separate regimes. The first Electronic Money Directive was initially issued in 2000 and was later amended and supplemented in 2009 with the second Electronic Money Directive (“EMD2”). The first Payment Services Directive was introduced in 2007 and later recast in 2015, reflecting the advances made in the field (“PSD2”). When EMD2 was introduced, emoney primarily meant stored-value cards and electronic purses. By the time PSD2 entered into force in 2018, the fintech market had shifted significantly. Digital wallets, fintech platforms, prepaid accounts and app-based payment services were now the norm and the line between an EMI and a PSP was starting to blur.
The overlap between the two regimes, combined with the difference in interpretation by national competent authorities (“NCAs”) has led to persistent uncertainty as to the correct regulatory classification of stored customer funds, exposing a fundamental ambiguity between PSD2 and EMD2.
In 2022, the European Commission issued a Call for Advice on the review of PSD2. The European Banking Authority (the “EBA”) issued an opinion (the “Opinion”) in response in which it proposed several amendments, including the merging of PSD2 and EMD2. The Opinion underlines the issue which has arisen, namely the “difficulty in distinguishing between payment accounts and [emoney] accounts.” Article 4(12) PSD2 defines the payment account as being “an account held in the name of one or more payment service users which is used for the execution of payment transaction.” EMD2 does not have a corresponding definition for emoney accounts. As fintech business models increasingly combined the characteristics of both, the absence of a legislative definition of an emoney account made it difficult to keep both regimes separate.
The EBA agrees that both types of accounts are almost identical in nature since they both serve to execute payment transactions. The EBA argued that the principle of “same activity, same risk, same rules”, it could be worth considering merging the two regimes. In the Opinion, the EBA expressed its concern with the lack of clarity with regards to certain definitions within EMD2, including emoney accounts and what requirements would apply to such accounts. It also made reference to the issue raised by Article 8(3) PSD2 which states that “Any funds received by [PSPs] from payment service users with a view to the provision of payment services shall not constitute a deposit or other repayable funds within the meaning of Article 9 of [EMD2].” This article has created confusion and a distinction between funds for the execution of payment transactions, emoney and repayable funds has never been entirely uniform. To clear the regulatory fog surrounding this issue, the EBA proposed that the term “payment account” to be the term used for both types of accounts.
The Opinion makes reference to a ruling issued by the CJEU regarding the Case C-191/17 Bundeskammer für Arbeiter und Angestellte (Austria) v ING-DiBa Direktbank Austria Niederlassung der ING-DiBa AG (the “Ruling”). In this case, the CJEU concluded that online savings accounts should not be considered to be “payment accounts”. However, the CJEU caveats this by saying that the mere name of an account as being a savings account is “not sufficient in itself to exclude the categorisation of payment account and … the determining criterion for the purposes of that categorisation lies in the ability to perform daily payment transactions from such an account.” The CJEU posited that the possibility of making a transaction to a third party or vice versa is the “defining feature” of the payment account, and as such an account which requires the use of an intermediary to transact, would not fall within the meaning of payment account under PSD2. The Ruling was one of the steps required to move towards a more uniform definition of the payment account.
The EBA also referred to the Questions and Answers (the “Q&As”) issued by the same authority, specifically Question 2018_4272. The EBA was questioned whether a reference account and a whether an account linked to a designated reference account could nevertheless constitute a “payment account” for the purposes of PSD2. The answer provided by the European Commission was that “the fact that the payment account is coupled with a reference account does not in itself affect its qualification as payment account.” To determine whether an account qualifies as payment account, one must assess whether the account can be used for the execution of payment transactions as per the Ruling.
Another issue which was identified in the Opinion is the difference between money held on an account (“scriptural money”) and emoney. The EBA argued that the difference between these terms is “very negligible” . Essentially, emoney and scriptural money have the same functionality and are exposed to the same risk and as such the delineation between emoney and payment services does not seem necessary. From the perspective of the account owner, there is no practical difference between having emoney or scriptural money in one’s account. The EBA makes particular reference to the fact that both emoney and scriptural money can be transferred anonymously, and one can be exchanged for the other. Furthermore, the crypto assets regime has created further confusion with the creation of the emoney token (the “EMT”). Regulators now have to distinguish between scriptural money, emoney, crypto assets and EMTs. The EBA recognised that these categories overlap with each other in their economic function.
It was against this backdrop of growing support for a single, unified regulatory framework that the dispute in ABC Projektai emerged.
