The world of financial services and payments has witnessed significant transformations with the advent of the Payment Services Directive (PSD) in the European Union. The first directive, PSD1, established the groundwork for a unified payments market in 2007. And then its successor, PSD2, took it a step further, addressing new payment services and enhancing consumer protection.
Since its partial implementation in 2018, PSD2 has already made a notable impact on the industry, particularly with rules like Strong Customer Authentication (SCA) coming into effect in September 2019. And now, as we look to the future, the anticipation and curiosity around the third Payment Services Directive (PSD3) continues to grow.
In this blog post, we're set to explore the potential scope of PSD3 and its potential transformative impact on the wealth management sector. And, based on what the European Banking Authority has published about it so far, we'll delve into the possible changes it might bring and the ways it could reshape the industry's landscape.
Anticipating the impact of PSD3
One of the main objectives of the PSD directives has been to enhance consumer protection in the payment services sector. PSD3 may continue to strengthen consumer rights and security measures to safeguard against fraud, unauthorized transactions, and data breaches. This aspect holds immense significance for wealth managers and investors alike, as they prioritize the safety and security of their financial information across all platforms.
Another goal of the PSD3 regulation is expanding its scope: Rather than confining its coverage to payment accounts exclusively, regulators are intent on encompassing a broader range of financial products. For example, credit accounts and investment savings. There's even an ongoing project to potentially incorporate insurance products into the framework. A key objective of PSD3 is to mandate larger wealth management entities to leverage APIs for seamless, quick, and secure sharing of financial and investment information with third-party entities.
It's crucial to note, however, that some entities might be excluded from the regulatory scope based on their smaller business volumes. This exclusion could impact small wealth management boutiques, which, in several markets like Spain, France, and Italy, represent a significant portion of the industry.
As of now, the regulatory body has yet to disclose specific details regarding the extension of these new regulations and the approach they intend to adopt. In light of this uncertainty, the OpenWealth Association standard, in line with Flanks' criteria, could serve as a guiding model.
Beyond the points mentioned above, the implementation of PSD3 regulation promises a range of advantages, including:
- Enhanced access to holistic, global financial advice.
- Simplification of account transfers and increased portability across financial institutions.
- Elevated market competitiveness, facilitated by the increased volume of information sharing.
- Heightened customer safety and security measures.
Lastly, PSD3 aims to strengthen enforcement and implementation across Member States, learning from the challenges faced during the PSD2 rollout. Inconsistent adoption and enforcement of PSD2 led to compliance variations and regulatory effectiveness issues. This time, PSD3 seeks to fix this by harmonizing regulations and enforcement mechanisms across EU countries, promoting a cohesive payment ecosystem for smoother cross-border transactions, benefiting consumers and businesses alike.
What’s ahead of us?
In conclusion, it's important to emphasize that the potential impacts discussed could undergo modifications once the official PSD3 regulations are unveiled. The forthcoming involvement of policymakers and stakeholders will hold immense significance in shaping the ultimate form of the directive. Additionally, it's worth noting that the deadlines for the application are currently confusing, as the EU must ratify the draft, and the final implementation may take two to three years to arrive.
Striking the right balance between encouraging innovation and safeguarding consumers and the financial ecosystem will be at the forefront of these deliberations. As the landscape evolves, staying informed through reliable sources (for example, the European Commision official website) will be key to understanding the concrete implications of PSD3 for the financial industry and its stakeholders.