This content is from: Local Insights

Liberalisation for payment system operators

Jasmina UzovaRebeka Kleytman

An amendment to the Payment Services and Payment Systems Act (PSPSA), effective as of June 30 2011, introduced a more liberal regulation of the activity of payment system operators in Bulgaria. It remains to be seen what secondary legislation the Bulgarian National Bank (BNB) will issue to complete the details of the new regulation relevant for operators of payment systems.

The amended PSPSA follows the provisions of the Payment Services Directive (Directive 2007/64/EC of November 13 2007) and the Settlement Finality Directive (Directive 98/26/EC of May 19 1998) and aims at reflecting the last amendments of the Settlement Finality Directive, introducing a new and more liberal system of regulation of payment system operators.

Pursuant to the amended PSPSA, a payment system is an agreement between the participants in the system (being three or more participants, without counting the system operator, a possible settlement agent, a possible central counterparty, a possible clearing house or a possible indirect participant), functioning on the basis of rules of the system obligatorily regulating certain topics set out in the law. The participants are free to choose the law of any member state to govern the agreement for the system, if at least one of them has its head office in such member state.

According to the current version of the PSPSA (effective until June 30 2011), any operator of a system operating in Bulgarian leva is subject to licensing by the BNB. This licensing requirement restricts foreign operators from entering the Bulgarian market. Repealing of operations in local currency as the criterion triggering a licensing requirement from BNB by the amended PSPSA is a step forward to procuring free movement of services in the EU.

The amended PSPSA sets out a requirement for a licence by BNB only for operators of payment systems that qualify as systems with settlement finality and are based on agreements governed by Bulgarian law. In other words, operators of payment systems with settlement finality which are not governed by Bulgarian law, as well as operators of systems without settlement finality are not subject to licensing by the BNB.

Following June 30, if a payment system with settlement finality is governed by the laws of another member state, Bulgarian banks that want to use its services may decide to join it if they accept the agreement for such system (that is governed by the foreign law). The existing legislation regulating payment services on the level of the European Communities is expected to reduce the differences between the laws of the member states and contribute to the competitiveness of the market of payment services.

The absence of a specific licensing requirement for operators of systems without finality of settlement in the amended PSPSA should be interpreted as an indication that operators of payment systems without finality of settlement may operate without a licence after June 30, unless such operators are also providers of payment services, in which case they will need to be licensed on these separate legal grounds.

On the basis of the EU principle of free movement of services, and unless the BNB issues secondary legislation containing restrictions based on public policy and security of payment systems arguments, EU operators of payment systems should be entitled to conduct their activity in Bulgaria freely, and a licence will be required only for operators of systems with finality of settlement functioning on the basis of an agreement governed by Bulgarian law.

In order to qualify for licensing by the BNB, all payment system operators (before the amendment in the PSPSA takes effect) have to comply with extensive requirements. The applicant shall be a Bulgarian joint-stock company with a share capital of at least BGN5 million ($3.7 million) and with a registered office and actual place of management in Bulgaria; the management board members shall have appropriate qualification, professional experience and reputation; the shareholders holding more than 10% shall prove their worthiness to guarantee stable management of the operator; and the activity of the payment system managed by the applicant shall not endanger the coherence of the functioning of other payment systems and the stability of the country's financial system. The BNB has a certain degree of discretion to decide whether the applicant meets the requirements. The licence is issued for an indefinite period. The requirement that the applicant is a Bulgarian company in the context of the PSPSA before June 30 2011 is another example of restriction of the freedom to provide services. Following June 30, this requirement will become logical, since the BNB licence will only be required for a payment system governed by Bulgarian law.

Unlike other countries, Bulgarian law also introduced special requirements for payment systems processing card payments. The applicable Regulation 3 (dated July 16 2009), issued by BNB in its version before harmonising it with the amendments of the PSPSA effective as of June 30, states that clearing and settlement instructions for payments initiated by payment cards in Bulgaria shall be carried out by an operator of a system with finality of settlement licensed by the BNB.

It is expected that as a result of the amended PSPSA, Regulation 3, being a piece of secondary legislation, shall also be amended until June 30 in order to introduce the more liberal regulation. After all relevant secondary legislation has been put in place, foreign operators of payment systems will be able to determine the exact scope of services they could offer to Bulgarian banks.

Jasmina Uzova and Rebeka Kleytman

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