SWIFT Institute examines regulation impact on payment providers

New and ongoing legislation and its impact on third party payment (TPP) providers and virtual currencies is the topic of the latest research from the SWIFT Institute.

The financial messaging services provider’s independent research arm has issued a white paper addressing both the European Union’s (EU) Payment Services Directive (PSD2) and the fourth Anti-Money Laundering Directive (AMLD4).

The paper, entitled ‘The evolution of third party payment providers and cryptocurrencies under the European Union’s PSD2 and AMLD4’, focuses on EU regulatory developments but also reviews the US and Asian markets, assessing current and ongoing legislative initiatives for their inclusion of TPPs.

It also addresses potential cryptocurrency regulation in terms of combatting money laundering and terrorist financing.

“In the last decade, the financial landscape has changed considerably under the influence of new technologies and communication methods,” says Peter Ware, director, SWIFT Institute.

“All over the world, new legal frameworks have been adopted to bring non-credit institution actors under regulation. However, there are two major new developments for which the legal framework is less clear and those are third party payment providers and virtual currencies.”

The research notes that that TPPs allow consumers to make online payments without the need for a credit card by establishing a “link between the payer and the online merchant via the payer’s online banking module”. They do not require the consumer to open an account directly with them. Instead, they gather information on the consumer’s existing bank accounts and present that information in an integrated manner.

In doing so, they gain possession of a significant amount of sensitive information, by providing a gateway from which consumers log in to their bank accounts using their unique identifiers and credentials.

Virtual currencies are mainly used in payment systems that do not rely on traditional actors such as banks and payment service providers (PSPs). The most notable example is cryptocurrencies – such as bitcoin – which are decentralised, and use pseudonyms for their transactions.

The research concludes that whilst the PSD2, AMLD4 and other regulations are a step in the right direction, certain aspects remain unclear and need further attention.  As a result, the report provides policy recommendations for both regulators and financial practitioners.

 Regulator recommendations:

  • Address remaining ambiguities.
  • Harmonise EU legal framework.
  • Coordinate global regulatory initiatives.
  • Avoid a nationalist approach to virtual currencies, but adopt a rational outlook. 

Financial practitioner recommendations:

  • Look beyond the disruptive forces.
  • Need for compliance.
  • Do not dismiss virtual currencies wholesale.
  • Mind the Block Chain.


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