Payment Services

ZuFinG II – The Next Step Towards Strengthening Germany as a Financial Hub?

By Annabelle Rau on 10. October, 2024

Posted In Banking Law, Crypto Regulation, Financial Services, Payment Services

Following the initial steps with the Future Financing Act (“ZuFinG I“), the Federal Ministry of Finance presented the draft of the Second Future Financing Act (“ZuFinG II-E” and “Draft Bill“) on 27 August 2024. The Draft Bill aims to further develop the German financial market and revise some of the existing regulations. The primary focus is on facilitating access to the capital markets and relieving financial actors from excessive bureaucracy.

New Regulations for Payment Service Providers Regarding Customer Funds

Payment service providers are required to safeguard customer funds they receive according to the methods outlined in the German Payment Services Supervision Act (Zahlungsdiensteaufsichtsgesetz – ZAG). This can be done, for example, through an escrow account with a credit institution, as well as through insurance or a guarantee. ZuFinG II-E now introduces an additional provision, allowing customer funds to be deposited with the Deutsche Bundesbank or any other central bank of an EU member state. This gives payment service providers another option for safeguarding customer funds compliant with insolvency law.

To protect customers, the Draft Bill further proposes explicit regulations, whereby the received funds will be legally protected if they are held in a segregated account. Until now, this protection was based only on general, non-codified rules for escrow accounts. Payment service providers will likely need to review and potentially adapt their processes in light of the new regulations. However, these amendments also provide greater flexibility by offering an additional method for safeguarding funds. Furthermore, customer protection is enhanced through the explicit provisions, leading to increased legal certainty for payment service providers as well.

Loosening Employment Protection for High Earners in the Financial Sector

The conditions for high earners in the financial sector are set to become more flexible. ZuFinG II-E proposes loosening employment protection for individuals with very high incomes in the financial sector. This includes employees whose annual fixed remuneration exceeds three times the contribution assessment threshold for general pension insurance (Section 159 of the German Social Code VI) and who are not managing directors, plant managers or similar senior executives.

Specifically, high earners who are risk-takers will be treated similarly to executive employees in terms of employment protection. This means, for example, that the employer may submit an application for termination of the employment agreement in return for severance pay, which does not require any substantiation.

Such a regulation already exists under current rules for risk-takers at significant credit institutions. The limitation to significant institutions will now be lifted and extended to include securities institutions, asset management companies, and insurance companies, among others.

Further Measures to Reduce Bureaucracy: Less Effort, More Efficiency

Additionally, ZuFinG II-E seeks to further promote the reduction of bureaucracy in financial supervision through the following measures:

  • Simplifying cross-border services: The Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht – “BaFin“) will no longer be required to substantively review the notification of cross-border services provided by German investment firms. Instead, BaFin will simply forward the notifications to the competent authority in the host member state without a detailed examination.
  • Higher threshold for large exposures: The reporting threshold for large exposures and loans will be raised from EUR 1 million to EUR 2 million.
  • Facilitations for crowdfunding: An amendment to the German Asset Investment Act (Vermögensanlagegesetz – VermAnlG) will extend the prospectus exemption for crowdfunding offerings to also cover offers of cooperative shares.
  • Removal of the list for crypto securities:
    • Under ZuFinG I, the requirement to publish entries of crypto securities in the German Federal Gazette was abolished to reduce the bureaucratic burden and costs for issuers.
    • According to the Draft Bill, the public list of crypto securities maintained by BaFin will also be abolished to save costs and reduce the effort required by BaFin to maintain the list and by issuers to submit notifications.
  • Removal of the Employee and Complaints Register (Mitarbeiter- und Beschwerderegisters – “MBR”) at BaFin:
    • The obligation for institutions to notify BaFin of their investment advisors, sales representatives, and compliance officers, as well as to report complaints to the MBR, will be removed, which will reduce the administrative burden on both institutions and BaFin.
    • The obligation for institutions to only employ competent and reliable staff for the relevant tasks remains unchanged and is unaffected by the abolition of the MBR.

Looking Ahead: What’s Next?

The Draft Bill is still in the legislative process and is expected to undergo several amendments. However, financial sector participants can already consider how they might adapt their internal processes to comply with the upcoming regulations. In particular, the proposed bureaucratic relief and enhanced options for safeguarding customer funds present attractive opportunities for more efficient and flexible business practices.

From payment service providers to professional football clubs: New EU regulations to combat money laundering adopted

By Annabelle Rau on 30. April, 2024

Posted In Banking Supervision, Crypto Regulation, Financial Services, Money laundering, Payment Services

On April 24, 2024, the European Parliament adopted a new anti-money laundering legislative package to strengthen the EU’s tools to combat money laundering and terrorist financing.

The package includes

• the sixth Anti-Money Laundering Directive (“AMLD6”) as well as
• the EU Regulation on a Single Rulebook and
• a new central supervisory authority.

Extended access to beneficial ownership data

A key aspect of the new legislation is to ensure that persons with a legitimate interest – including journalists, civil society organizations, supervisory authorities and other relevant stakeholders – have direct and unhindered access to beneficial ownership data.

This information, stored in national registers and networked at EU level, also includes historical data going back at least five years. In the case of legal entities, a beneficial owner is any natural person who owns more than 25% of the capital or voting rights of a legal entity or exercises control in any other way. The information on the beneficial owner includes the name, date of birth, nationality, country of residence and the nature and extent of the beneficial interest of the owner.

Stricter due diligence obligations for obliged entities under money laundering law

The new regulations require obliged entities to implement stricter due diligence measures.
Obliged entities under money laundering law include, for example

• Banks
• Asset managers
• Crypto asset service providers (“CASPs”)
• Real estate and virtual real estate agents
• Lawyers, auditors and notaries
• Retailers of luxury goods

In future, the obliged entities will not only have to check the identity of their customers more thoroughly, but also report suspicious activities.
From 2029, this will also apply to professional football clubs involved in high-value financial transactions.

Restrictions on cash payments and stricter monitoring

The legislative package introduces an EU-wide limit for cash payments of EUR 10,000, except in the non-professional sector between private individuals.
In addition, increased monitoring of particularly wealthy individuals (total assets of at least EUR 50,000,000, excluding their main residence) will be implemented.

New central supervisory authority: AMLA

The new Anti-Money Laundering and Terrorist Financing Authority (“AMLA”) will be established in Frankfurt, Germany. AMLA will not only directly supervise the highest-risk financial companies but will also serve as a central coordination point for national supervisory authorities and monitor the enforcement of targeted financial sanctions.

Outlook

Formal adoption by the Council of the European Union is still pending before the new regulations can enter into force. Once adopted, the laws will be published in the EU Official Journal.
Those subject to anti-money laundering obligations should therefore familiarize themselves with the new regulations and extended due diligence obligations now.

PSD3 on the horizon?

By Annabelle Rau on 17. August, 2022

Posted In Payment Services

The European Commission is currently consulting on the revision of the Payment Service Directive 2 („PSD2“).

PSD2 regulates uniform EU-wide requirements for payment service providers and the provision of payment services. In Germany, the regulatory requirements of PSD2 are implemented by the Payment Services Supervision Act (“ZAG“).

In this regard, the European Banking Authority (“EBA“) submitted proposals to amend PSD2 to the European Commission in a 126-page opinion on June 23, 2022.

The proposals include:

  • Adjustments to the catalogue of payment services, e.g., streamlining and clarification to enable clearer delineation between individual payment services as well as splitting and merging of individual payment services.
  • Adjustments to the licensing procedure and supervision of payment service providers (e.g., with regard to capital requirements, the distinction between freedom to provide services and freedom of establishment, regulatory arbitrage and the resulting forum shopping, and delays in the licensing procedure).
  • Clarification of liability rules and related key terms in connection with unauthorized transactions, which are said to have recently led to legal uncertainty and inconsistent application of the Directive.
  • Specification and adaptation of strong customer authentication (“SCA”), e.g. with regard to liability and necessity of implementation.
  • Requirement for account servicing payment service providers to make more information available to providers of account information and payment initiation services and exploration of the possibility of a single application programming interface (“API“) for these services as a standard in the EU.
  • Enforcement of PSD requirements, such as measures to address the delayed implementation of SCA in card-based e-commerce.

The targeted consultations ended already at the beginning of July 2022, the public consultation end-ed on August 2, 2022. Against the background of the comprehensive opinion of the EBA, it is expected that the European Commission will deal with one or the other proposal even more intensively.