Opinion of the European Central Bank of  15 December 2005  on a proposal for an EC regulation on information on the payer accompanying transfers of funds (CON/2005/56)
Date: 2005-12-15
Institutions: European Central Bank
Subjects: European Central Bank, capital movement, credit transfer, judicial cooperation in criminal matters in the EU, terrorism, trade restriction

31.12.2005

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Official Journal of the European Union

C 336/109

EUROPEAN CENTRAL BANK

OPINION OF THE EUROPEAN CENTRAL BANK

of 15 December 2005

on a proposal for an EC regulation on information on the payer accompanying transfers of funds

(CON/2005/56)

(2005/C 336/07)

On 14 October 2005 the European Central Bank (ECB) received a request from the Council of the Euro-
pean Union for an opinion on a ‘Proposal for a regulation of the European Parliament and of the Council
on information on the payer accompanying transfers of funds’ (COM(2005) 343 final) (hereinafter the
‘proposed regulation’) (1).

The ECB's competence to deliver an opinion is primarily based on the first indent of Article 105(4), in
conjunction with the fourth indent of Article 105(2) of the Treaty establishing the European Community,
as the proposed regulation concerns a basic task of the European System of Central Banks (ESCB), namely
to promote the smooth operation of payment systems (2). In accordance with the first sentence of Article
17.5 of the Rules of Procedure of the European Central Bank, the Governing Council has adopted this
opinion.

1. Obligations of intermediary payment service providers

1.1 The definition of ‘intermediary payment service provider’ (hereinafter the ‘intermediary PSP’) contained
in Article 3(6) of the proposed regulation refers to a payment service provider (hereinafter the ‘PSP’)
which is neither that of the payer nor that of the payee and which participates in the execution of
transfers of funds'. Since both operators of payment, clearing and settlement systems and providers of
messaging services take part in the execution of transfers of funds they appear to be covered by the
scope of application of the proposed regulation.

1.2 However, such operators and service providers do not have a direct customer relationship with payers
or payees and do not, therefore, hold all the information required under the proposed regulation.
Therefore, obligations should only be imposed on credit institutions that are directly involved in
customer contacts or on financial entities that are part of the payment chain for the execution of
funds, since such entities would possess the necessary information (3).

(1) This opinion is based on the version of the proposed regulation on which the ECB was formally consulted, namely
the version of 26 July 2005. The ECB is, however, aware that the proposed regulation has undergone further elabora-
tion at Council working group level during the UK Presidency.

(2) In addition, the ECB's competence to deliver an opinion is based on Article 22 of the Statute of the European System
of Central Banks and of the European Central Bank concerning the task of the ECB and the national central banks to,
inter alia, ensure efficient and sound clearing and payment systems within the Community and with other countries.
(3) I.e. the information required under Chapters II and III of the proposed regulation. A similar comment was made by
the ECB in paragraph 12 of ECB Opinion CON/2005/2 of 4 February 2005 at the request of the Council of the Euro-
pean Union on a proposal for a directive of the European Parliament and of the Council on the prevention of the use
of the financial system for the purpose of money laundering, including terrorist financing (OJ C 40, 17.2.2005, p. 9).
In that opinion, the ECB pointed to the fact that payment system operators can only check the mere presence of
some information in a field; they cannot check the quality, completeness, accuracy or meaningfulness of that infor-
mation. The ECB recommended that payment system operators be exempted from a requirement to identify benefi-
cial owners, without prejudice to the payment system operators' obligation to ensure that the payment orders
entered into payment systems can be effectively traced by means of an appropriate identification of the system parti-
cipants.

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1.3 In view of the above, the ECB strongly recommends inserting an explicit exemption from the scope of
application of the proposed regulation for both operators of payment, clearing and settlement systems
and providers of messaging services, plus an explanatory recital. This exemption would be without
prejudice to the obligation of such system operators to ensure that the payment orders entered into
these systems can be effectively traced by means of an appropriate identification of the system partici-
pants. In this regard, the ECB notes that the Third Money Laundering Directive contains a recital clari-
fying that any natural or legal person that provides credit or financial
institutions solely with a
message or other support systems for transmitting funds or with clearing and settlement systems does
not fall within the scope of that Directive (1).

1.4 Moreover, Article 13(2) of the proposed regulation concerns the obligations of an intermediary PSP in
cases where it does not receive complete information on the payer. Paragraphs 12 and 13 of the
Revised Interpretative Note to Special Recommendation VII: Wire Transfers (2) (hereinafter the 'Inter-
pretative Note') of the Financial Action Task Force (FATF) does not contain a similar information
requirement. In this respect, the ECB advises against the proposal to make the intermediary PSP
responsible for informing the PSP of the payee that the information is incomplete. It would be more
appropriate for this obligation to fall upon the parties who are directly involved, namely the PSP of
the payer and the PSP of the payee, since they would in any event possess the required information
pursuant to the provisions of Chapters II and III of the proposed regulation. The only obligations of
an intermediary PSP should be those under Article 12 and Article 13(1) of the proposed regulation,
which require that all information on the payer received as part of the transfer is retained with the
transfer and that such information is kept on record for five years. Therefore, Article 13(2) of the
proposed regulation should be deleted altogether.

2. Definitions

2.1 As a general comment, it would be desirable to ensure as much consistency as possible between the
definitions in Article 4 of the proposed directive on payment services in the internal market (3) and the
definitions in the proposed regulation, in particular the definition of 'payment service user' in Article
3(8) of the proposed regulation.

2.2 Special Recommendation VII on wire transfers (hereinafter ‘SR VII’) of the FATF explicitly covers finan-
cial institutions, including money remitters. There is no express reference to money remitters in the
proposed regulation. It is highly likely that the definition of ‘payment service provider’ in Article 3(5)
of the proposed regulation would cover money remitters, but a reference to money remitters could be
inserted therein to ensure that the proposed regulation is explicitly consistent with SR VII.

2.3 Furthermore, a definition for ‘unique identifier’ should be added, which should reflect the various

possible combinations of data required for identifying the payer.

3. Commercial transactions

3.1 The ECB notes that recital 6 to the proposed regulation concerns the exemption, under certain condi-
tions of, inter alia, transfers of funds that flow from ‘commercial transactions’. There is no definition of
the term ‘commercial transaction’, but Article 2(2) specifies that the proposed regulation does ‘not
apply to transfers of funds which flow from a commercial transaction carried out using a credit or
debit card or any other similar payment instrument’.

(1) Recital 34 to Directive 2005/60/EC of the European Parliament and of the Council of 26 October 2005 on the
prevention of the use of the financial system for the purpose of money laundering and terrorist financing (OJ L 309,
25.11.2005, p. 15).

(2) Available on the FATF's website at www.fatf-gafi.org.
(3) ‘Proposal for a directive of the European Parliament and of the Council on payment services in the internal market
and amending Directives 97/7/EC, 2000/12/EC and 2002/65/EC’, 1 December 2005, COM(2005) 603 final; available
on the Commission's website at www.europa.eu.int.

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3.2 Paragraph 10.a of the Interpretative Note does not specifically use the term ‘commercial’. Rather, it
states that SR VII does not cover transfers that flow from transactions carried out using a credit or
debit card so long as the credit or debit card number accompanies all transfers flowing from the trans-
action. However, paragraph 10.a also states that when credit or debit cards are used as a payment
system to effect a money transfer, they are covered by SR VII, and the necessary information should
be included in the message. This implies that SR VII draws a distinction between using cards to pay
for goods and services (which is not covered by SR VII) and using cards to make credit transfers
(which is covered). The ECB suggests redrafting recital 6 and the first subparagraph of Article 2(2) of
the proposed regulation to ensure greater consistency with the Interpretative Note (1).

3.3 In general, Article 2(2) of the proposed regulation seems to be based on the assumption that it is
always possible for the PSP of the payer and/or the payee to identify whether debit and credit cards
have been used to pay for goods and services or to make credit transfers. However, this assumption is
not always correct, as all types of payment instrument can be used for such transactions. When a
payment is made by credit or debit card only the owner/operator of the credit or debit card scheme
receives information from which it can deduce the underlying purpose of the transaction. The PSPs of
the payer and of the payee only receive the information necessary to settle the transaction on their
customer's account, i.e. they receive no information on the underlying purpose of the transaction.
Imposing a regime on PSPs that would require them to check the purpose of such transactions would
therefore not be conducive to the smooth operation of payment systems. Thus, while the ECB under-
stands the desire to exempt transactions carried out using a credit or debit card to pay for goods and
services from the requirement to include full information on the payer, the proposal seems impractic-
able as the entities subject to the proposed regulation have no means which would in all circumstances
allow them to identify the underlying reason for a payment. However, the intention behind Article
2(2) may be that the settlement (via the PSP of the payer) of the bill relating to the underlying credit
card transactions made by the payer is not part of any credit transfer that could have been initiated
using the credit card, but a completely separate credit transfer from the payer to the credit card
company. If this is the case, the ECB agrees with the content of Article 2(2) but, in the interests of
legal certainty, would suggest making this intention clearer in the proposed regulation.

4. Batch file transfers

Article 7(2) of the proposed regulation governs batch file transfers to payees outside the Community. Such
transfers concern individual transfers from one payer to different payees, which have been bundled and are
then usually ‘unbundled’ by the first PSP in the process or a payment system operator and subsequently
sorted according to the PSP of the payee. Therefore, neither the payee nor its PSP will be able to identify
that the funds received have originally been transferred via a batch file. If the payee is situated in a country
which is a member of the FATF, the country in question must also apply SR VII. Consequently, the PSP of
the payee would need to contact the PSP of the payer within the Community or the first intermediary PSP
to obtain the relevant information. Therefore, it is noted that the use of batch file transfers at a cross-
border level will generate a large number of requests for provision of information on the payer.

5. Agreements with territories or countries outside the Community

Article 18 of the proposed regulation states that the European Commission may authorise agreements
between Member States and countries or territories outside the Community which contain derogations
from the proposed regulation. Such authorisation requires fulfilment of a number of conditions. In view of

(1) At the same time, the ECB points to the slightly confusing terminology of the Interpretative Note, which refers to the
use of cards as ‘payment systems’ when it states that card payments used for credit transfers are covered by SR VII.

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the consolidation of financial markets in the EU and the development of the Single Euro Payments Area,
the first and third conditions (i.e. that the country or territory shares a monetary union with the Member
State concerned or forms part of the currency area of the Member State concerned and that it requires
PSPs under its jurisdiction to apply the same rules as those established under the proposed regulation)
seem to be sufficient to achieve the aims of the authorisation requirement. Therefore, the second condition
(that the country or territory is a member of the payment and clearing systems of the Member State
concerned) could be deleted.

Where the above advice would lead to changes in the proposed regulation, drafting proposals are enclosed
in the annex.

6. Drafting proposals

Done at Frankfurt am Main, 15 December 2005.

The President of the ECB

Jean-Claude TRICHET

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ANNEX

DRAFTING PROPOSALS

TEXT PROPOSED BY THE COMMISSION (1)

AMENDMENTS PROPOSED BY THE ECB (2)

Amendment 1

Recital 6

[Proposal to insert a new recital 6 and renumber the subse-
quent recitals accordingly.]

The requirements of
this Regulation should be
in the payment chain
fulfilled by those entities
ensuring the execution of transfers of funds that have
a customer relationship with the payer and the payee.
As neither operators of payment, clearing and settle-
ment systems nor providers of messaging services
have such a customer relationship, they are exempted
from the scope of application of this Regulation.

Justification — See paragraphs 1.1-1.3 of the opinion

Amendment 2

Recital 6

(6) Due to the lower risk of money laundering or terrorist
financing associated with transfers of funds that flow from a
commercial transaction or where the payer and the payee are
payment service providers acting on their behalf, it is appro-
priate to exempt such transfers from the scope of this Regu-
lation, under the condition that it is always possible to trace
them back to the payer.

(6) Where there is a lower risk of money laundering
or terrorist financing associated with transfers of
funds it is appropriate to exempt such transfers
from the scope of this Regulation. These exemp-
tions cover credit or debit cards, ATM withdra-
wals, direct debits, truncated cheques, payments
of taxes, fines or other levies, and where the
payer and payee are payment service providers
acting on their own behalf.

In addition, in order to reflect the characteristics
of national payment systems, Member States may
choose to exempt electronic ‘giro’ payments
providing that it is always possible to trace the
transfer back to the payer. Where Member States
have applied the derogation for electronic money
in Directive 2005/60/EC that derogation should
also be applied in this Regulation provided the
amount transacted does not exceed EUR 1 000.

Justification — See paragraphs 3.1-3.3 of the opinion

Amendment 3

Article 2(2), first subparagraph

This Regulation shall not apply to transfers of funds
2.
which flow from a commercial transaction carried out using
a credit or debit card or any other similar payment instru-
ment, provided that a unique identifier, allowing the trans-
action to be traced back to the payer, accompanies all
transfers of funds flowing from that commercial transaction.

This Regulation shall not apply to transfers of funds
2.
which flow from a transaction carried out using a credit or
debit card or any other similar payment
instrument,
except when a credit or debit card is used to effect a
credit transfer, provided that a unique identifier, allowing
the transaction to be traced back to the payer, accompa-
nies all transfers of funds flowing from that transaction.

Justification — See paragraphs 3.1-3.3 of the opinion

(1) Italics in the body of the text indicate where the ECB proposes deleting text.
(2) Bold in the body of the text indicates where the ECB proposes inserting new text.

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Amendment 4

Article 2(2), second subparagraph

[Proposal to insert a new second subparagraph of Article
2(2) and renumber the existing second subparagraph of
Article 2(2) so that it becomes the third subparagraph
thereof.]

This Regulation shall not apply to operators of
payment, clearing and settlement systems or to provi-
ders of messaging services.

Justification — See paragraphs 1.1-1.3 of the opinion

Amendment 5

Article 3(5)

5.
‘payment service provider’ means a natural or legal
person whose business includes the provision of payment
services to payment service users;

5.
‘payment service provider’ means a natural or legal
including money remitters, whose business
person,
includes the provision of payment services to payment
service users;

Justification — See paragraph 2.2 of the opinion

Amendment 6

Article 3(8)

8.
legal
‘payment service user’ means a natural or
person who makes use of a payment service, in the capa-
city of payer or payee;

8.
legal
‘payment service user’ means a natural or
person who makes use of a payment service, in the capa-
city of either payer or payee, or both;

Justification — See paragraph 2.1 of the opinion

Amendment 7

Article 3(10)

[There is no current Article 3(10) — the proposal is to
insert an extra definition.]

‘unique identifier’ means a combination of
10.
symbols, determined by the
letters, numbers or
payment service provider,
in accordance with the
protocols of the payment and settlement system or
messaging system used to effect the transfer.

Justification — See paragraph 2.3 of the opinion

Amendment 8

Article 13(2)

If, in the case referred to in paragraph 1, an inter-
2.
receive
mediary payment
complete information on the payer,
inform the
payment service provider of the payee accordingly, when
transferring the funds.

service provider does not

it shall

[Delete.]

Justification — See paragraph 1.4 of the opinion

Amendment 9

Article 18(1), second subparagraph, point b)

b) it is a member of the payment and clearing systems of the

b) [Delete.]

Member State concerned;

Justification — See paragraph 5 of the opinion