CJEU deliberates on the distinction between the issuance of E-money and payment services

Introduction

Following AG Sánchez-Bordona’s opinion last October, the European Court of Justice (“ECJ”) delivered on 22 February 2024, a preliminary ruling in the case ‘ABC Projektai UAB v Lietuvos bankas’ outlining the distinction of what qualifies as a payment service under Directive (EU) 2015/2366 (“PSD2”) and what constitutes the issuance of electronic money under Directive 2009/110/EC (“EMD2”). The request for a preliminary ruling concerned the withdrawal of the payment institution licence previously granted to ABC Projektai (“ABC”).

Background

ABC had obtained a licence from the Bank of Lithuania on 13 October 2016, to provide payment services under PSD2 as transposed under Lithuanian law. The Bank of Lithuania revoked the licence on 16 April 2020 due to, inter alia, ABC having issued electronic money despite not having the status of an e-money issuer, thereby violating EMD2 as transposed under Lithuanian law. The authority’s rationale was based on the fact that ABC had retained customer funds for longer than required to execute payment transactions, keeping funds received from customers in accounts for payments received without a specific payment purpose and retaining them without transferring the funds to the accounts of the recipients of those payments. The Bank of Lithuania relied on its previously adopted position regarding funds held in payment accounts, which stated that a payment institution may receive funds on a payment account opened with it only if such funds are accompanied by a payment order which must be executed within the time limits laid down in Lithuanian law, and that the payment institution must take sufficient measures to ensure that funds paid by third parties into a customer’s payment account are not held for longer than the time required to execute the payments. If those requirements are not met, the funds in the payment institution’s payment account are to be regarded as deposits, other repayable funds or electronic money. Accordingly, the Bank of Lithuania considered this as a de facto issuance of electronic money under EMD2.

Request for a preliminary ruling

ABC challenged the decision revoking its payment institution licence before the regional administrative court which dismissed the action. ABC appealed to the Supreme Administrative Court of Lithuania which in turn referred the below question to the ECJ:

Where a payment institution accepts funds without a specific payment order to transfer them on the same or following business day and the funds remain in the payment institution’s account intended for carrying out payment transactions for longer than the time limits for the execution of the payment service laid down by legislation, are the actions of the payment institution to be regarded as:

  1. a part of a payment service or a payment transaction, as defined in … Article 4(3) and (5) of PSD2, performed by the payment institution; or
  2. the issuance of electronic money as defined in … Article 2(2) of EMD2?

ECJ Considerations

The ECJ considered the provisions of PSD2, and highlighted the fact that no provision “precludes funds from being credited in advance to a payment account for the purpose of executing future payment orders, including payment orders not yet specified, or lays down any time limit within which, after such an account has been credited with a certain amount, that amount must be used for the purposes of a payment transaction.” On the contrary, PSD2 refers to certain payment services require funds to be credited in advance to a payment account without being accompanied by a payment order.

The ECJ proceeded to examine the potential reclassification under EMD2, concluding that “the issuance of electronic money is distinct from the mere entry in a payment account”. The judgment makes reference to the opinion of the Advocate General in this regard, which opinion emphasized the importance of, at the very least, having a contractual agreement between the user and the electronic money issuer. Such an agreement would provide for the issuance of a separate monetary asset up to the monetary value of the funds paid by the user and its subsequent storage. In the absence of such an agreement, and of any form of conversion or reclassification of the funds in question, the activity remains within the scope of PSD2 rather than EMD2.

Concluding Remarks

This ruling reaffirms the distinct characteristics of payment services and electronic money under PSD2 and EMD2 respectively, and the line between them. The purpose behind the receipt of funds and the reasons for them remaining on a payment account are indicative of their nature. The judgment also underscores how a lack of compliance with specific regulatory requirements could expose the given payment service provider to liability, but would not remove the activity or transaction from the scope of PSD2.

The facts of this judgement are testament to the regulatory limbo and uncertainty which has been pervading the payments and e-money frameworks. A distinction which also has been subject to strong debates at EU level is the difference between an electronic money account and a payment account, in relation to which the EBA in a 2021 Q&A (ID 2018_4221) had outlined that a payment institution may hold clients’ funds on payment accounts for the purpose of providing payment services, including the execution of not yet specified future payment transactions, in accordance with the framework contract for setting up the referred payment account.

This answer presented a difficulty in distinguishing between payment accounts and EMI accounts as they are very similar, if not identical, in nature since they have the same elements and serve the same purpose. In this respect, the EBA in its Opinion (EBA/Op/2022/06), while outlining that there is no difference between the process of crediting money to a payment account and issuing electronic money, had proposed merging the two terms in the revised framework of PSD2. In similar vein, the European Commission proposed that the Electronic Money Directive is merged into the new PSD3 (currently in draft form) wherein electronic money institutions will become a subcategory of payment service providers under the proposed framework with a more harmonised authorisation and common supervision process.

Disclaimer: Ganado Advocates is responsible for contributing this law report but was not in any way involved as legal advisor for the parties in the judgment being covered in this law report.

This law report was first published in ‘The Malta Independent on 27/03/2024.