DLK Legal assisted FreeNow in registration of a limited network instrument with PL FSA
DLK Legal successfully advised mytaxi Polska sp. z o.o. (Free Now) in its registration by the Polish Financial Supervision Authority (PFSA) as an entity benefiting from the limited network exemption under the Polish Act on Payment Services (PSA). The DLK team was headed by attorney-at-law Bartosz Wyżykowski and supervised by the partner dr. Krzysztof Korus. Also involved in the project was Aleksandra Księżak.
The registration covers the issuance of a payment instrument in form of the "Free Now" mobile application enabling users to make payments for the passenger transport services. Free Now is a leading urban mobility provider and part of the mobility joint venture between BMW and Daimler. Altogether Free Now's activity covers 17 markets and 150 cities around the world and has 45 million users.
It is only the fifth entry of an entity conducting activities specified in article 6(11) of PSA into the register kept by the PFSA. As a result of the ongoing development of new interoperable services, including those based on payment instruments, a rise of the number of such providers is expected in the near future. For example, hundreds of such entities have already been registered in Germany by the Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin). The list includes providers from other EU member states as well. Still, exemptions from the PSD2 regime raise numerous doubts as to their correct interpretation and application, in particular in case of cross-border services.
Above all, issuers of payment instruments are subject to their domestic laws. However, in case of cross-border services, where the payment instrument is issued, distributed, used or accepted on the territory of one or more member states neither PSD2 nor the PSA stipulate which law and to what extent is applicable. By way of example regulations do not expressly address a business model, where an issuer with seat in France distributes payment instruments used by clients in Poland, which eventually are accepted by merchants with seat in France. Of course, French law is applicable to the extent services are provided in the territory of France. However, as part of those services are in fact addressed to Polish market (customers), the Polish regulation shall apply as well. At the same time the PSD2 principle of single passport will not be applicable, as issuers benefiting from limited network exemption are by definition not qualified as payment service providers. In result, such issuer from France should ensure its compliance with Polish regulations, which although reflect requirements under PSD2, in practice may be slightly different.
Under the PSA the issuer of the payment instrument should monitor the value of transactions performed using the instrument on an ongoing basis. In the event of exceeding the statutory limit (EUR 1 000 000 in the last 12 months), the issuer should notify the PFSA within the statutory deadline (14 days from the end of the month the limit was exceeded). Failure to inform the PFSA in a timely manner is subject to a criminal sanction in the form of a fine of up to PLN 500,000. Till date no issuers with seat in member states other than Poland have been registered by the PFSA as entities benefiting from the limited network/range exclusion. However, the example of the BaFin, who registered entities from other member states such as France or Ireland indicates that a similar approach should be applied in regard to services provided by foreign companies in Poland.
Polish law does not expressly stipulate the criteria on how to calculate the notification threshold (EUR 1 000 000) in terms of cross-border use of exempt instruments. DLK Legal advise clients to consider only those transactions which result from providing services exempt from PSD2 in the territory of Poland (transactions with instruments issued in Poland regardless of the location of the merchant and with instruments accepted by a merchant in Poland regardless of the location of the payer).
If the entity's activity does not meet the conditions to benefit from the limited network/range exclusion, the PFSA issues a decision refusing to enter the entity into the register. In such case the entity is obliged either to adjust the size of the conducted activity within the scope of payment services within 3 months from the date delivering this decision or to submit within the same time limit an application in order to receive a permit to provide payment services as a payment institution or to be registered as a small payment institution. The latter option (application for a license) is generally available for domestic issuers only. Again, the PSA does not expressly specify whether foreign issuers of limited network/range instruments shall apply for a corresponding license in their home jurisdiction or just the former option (adjustment of the business scale) is available. Also, the question arises as to how the adjustment of the issuers activity (value of transactions executed) shall ensure compliance with the regulation, if in result of the PFSA’s decision the exemption is by definition not applicable, whereas the issuer intermediates in the transfer of funds. Nonetheless article 6c(5) PSA seems to indicate that the beforementioned adjustment results in the lack of the necessity to apply for a license or registration as a payment service provider. In any event, issuers should exercise caution, as provision of payment services or issuing electronic money without the necessary legal basis (license or registration) under the PSA is subject to a criminal sanction in the form of a fine of up to PLN 5,000,000 or imprisonment for up to 2 years, or both these penalties altogether.