Qualification of the activities of the payment institutions (PIs) and e-money institutions (“EMIs) in a host Member States (MS) using agents or distributors is always a complicated task which has not been specifically addressed so far. To this end, for the first time, the European Banking Authority (EBA) has issued an opinion giving a clarity on the criteria determining when the use of an agent or distributor triggers an “establishment” of the appointing institution in the host Member State (MS) or falls under the free provision of services.
Under the EBA Regulatory Technical Standards on passporting, it is an obligation of the competent authority (CA) of the home MS to assess the nature of the passporting notification (“freedom of establishment” vs. “freedom of services”) and then to communicate this information to the CA of the host Member State. Since the treatment of activities executed by PIs and EMIs via agents or distributors in another MS has significant differences across the MS, such opinion of the EBA is a good starting point.
The qualification of agents’ and distributors’ activities is crucial because this has legal implications for the PI/ EMI. In contrast with “free provision of services”, “establishment” in a host MS means more obligations for the principal PI/EMI as well as the wider scope of the supervision functions of the CA of the host MS.
The EBA points out that in the process of qualification of the activities concerned, the primary source of the EU legislation, EU Treaty provisions on the right of establishment and the free provision of services as well the Court of Justice of the European Union case-law interpreting these freedoms should be taken into account. Further, as the EBA highlights that even though e-money or payment services do not fall within the scope of application of the Services Directive (Directive 2006/123/EC of 12 December 2006 on services in the internal market), the general principles that this directive enshrines are helpful in a more holistic interpretation of the concept of “establishment”.
In the EBA’s view, at least the following three criteria should be considered in the assessment of the CA whether the activities carried out by PIs and EMIs through agents or distributors located in a host MS fall under the right of establishment or the free provision of services:
- Whether the agent/ distributor has been empowered to carry out a specific task on behalf of the PI/EMI performed on an occasional basis (which may be an indication that those services fall under free provision of services) or, on the contrary, it has been mandated to provide the services on behalf of the PI/EMI on a regular or continuous basis (which may be an indication that those services fall under the right of establishment).
- The overall duration of the contractual relationship or arrangements between the PI/EMI and the agents/distributors.
- Whether or not the activities carried out through agents or distributors enable customers in the host MS to take advantage of the services offered by the PI/EMI in the host MS.
These criteria are not exhaustive and other aspects may be taken into account by CAs. Also, none of the said criteria may be itself be determinative and each passporting notification should be assessed. Nevertheless, the EBA explains that Given the nature of the activities performed by an agent of a PI/EMI, the engagement of an agent located in the host MS is likely to trigger, in most cases, an establishment of that PI/EMI in the host MS, if the mandate given to that agent involves a sufficient degree of stability.
Qualification of PI/EMI activities using an agent or distributor in the host MS also matters in the AMLD context. According to AMLD, where PI/EMI operates an establishment in another MS, that establishment has to comply with the AML/CFT rules of the host MS. The compliance of such establishments with the AML/CFT rules of the host MS will be supervised by the CAs of the host MS. Since the agents and distributors are not listed as obliged entities in the AMLD, these actors are not themselves required under the AMLD to comply with the AML/CFT rules in the host MS in which they operate. It follows that when a PI/EMI has an establishment on another MS’s territory, the appointing PI/EMI has the obligation to comply with the AML/CFT requirements of that MS.
For detailed analysis, please see EBA’s opinion.