European Payment Institutions Federation (EPIF)

…1 EPIF feedback in response to European Commission public consultation on tax fraud & evasion – strengthening rules on administrative cooperation and expanding the exchange of information to crypto-assets and e-money May 2021 ABOUT EPIF (EUROPEAN PAYMENT INSTITUTIONS FEDERATION) EPIF, founded in 2011, represents the interests of the non-bank payment sector at the European level. We currently have over 190 authorised payment institutions and other non- bank payment providers as our members offering services in every part of Europe. EPIF thus represents roughly one third of all authorized Payment Institutions (“PI”) in Europe. All of our members operate online.

…roughly one third of all authorized Payment Institutions (“PI”) in Europe. All of our members operate online. Our diverse membership includes a broad range of business models, including: • Three-party Card Network Schemes • E-Money Providers • E-Payment Service Providers and Gateways • Money Transfer Operators • Acquirers • Digital Wallets • FX Payment Providers and Operators • Payment Processing Services • Card Issuers • Independent Card Processors • Third Party Providers • Payment Collectors EPIF seeks to represent the voice of the PI industry and the non-bank payment sector with EU institutions, policy-makers and stakeholders. We aim to play a constructive role in shaping and developing market conditions for payments in a modern and constantly evolving environment. It is our desire to promote a single EU payments market via the removal of excessive regulatory obstacles.

It is our desire to promote a single EU payments market via the removal of excessive regulatory obstacles. We wish to be seen as a provider for efficient payments in that single market and it is our aim to increase payment product diversification and innovation tailored to the needs of payment users (e.g. via mobile and internet). Ref. Ares(2021)3559517 - 31/05/2021 2 Introduction EPIF welcomes the opportunity to share its views on the European Commission’s public consultation pertaining to the review of Directive 2011/16/EU as regards measures to strengthen existing rules and expand the exchange of information framework in the field of taxation to include crypto-assets and e-money. While EPIF is following actively European developments in the field of crypto-assets, our membership does not yet represent this market segment.

European developments in the field of crypto-assets, our membership does not yet represent this market segment. Therefore, the comments and proposals of EPIF in the context of this public consultation are limited to the European e- money sector. The nature of the European e-money sector E-money institutions as well as e-money are regulated through the E-Money Directive (2009/110/EC) as well as by the second Payment Services Directive (2015/2366/EU). Moreover, European e-money issuers are subject to strict AML and KYC requirements, and thus already subject to reporting obligations where they have reason to believe their products are being used for the purposes of tax evasion. The purpose and scope of the E-Money Directive is to create the regulatory and supervisory framework for the issuance, redemption and use of e-money for payment purposes.

…create the regulatory and supervisory framework for the issuance, redemption and use of e-money for payment purposes. E-money, as defined by EU legislation, is by design a means of payment for services and goods that contributes to financial inclusion rather than a deposit in the “ordinary course of a banking business”– both as regards to the overall value stored on average on an e-money instrument, as well as the timeframe over which this value is stored on an e-money instrument. Classical use cases are low value payments for digital goods and services or payments on public transport networks whereas industry evidence also shows that as customers depend more on e-commerce, they have grown to rely on e-money also for purchases of expensive items e.g. luxury holidays, cars, art, electronic goods.

…have grown to rely on e-money also for purchases of expensive items e.g. luxury holidays, cars, art, electronic goods. EPIF supports the objective to fighting tax fraud and tax evasion by capturing e-money accounts that are being used to hold large balances over a sustained period of time. Indeed, some e-money products provide a functionality resembling that of a bank account. However, EPIF strongly maintains that a clear demarcation is needed between those use cases where the holder of e-money clearly intends to use e-money instruments as a means of storing large amounts of capital and/or over a longer timeframe, from those use cases where the holder of e-money clearly intends to use e-money instruments to make purchases. To ensure that the reporting objective is met, EPIF proposes establishing clear reporting thresholds.

…purchases. To ensure that the reporting objective is met, EPIF proposes establishing clear reporting thresholds. 3 Proposal for capturing e-money under DAC8 EPIF proposes that e-money issuers should be exempted from DAC8 compliance: a) Where e-money customer funds on the account do not exceed a specific threshold of EUR 15,000; or b) Where a customer is enabled to hold funds in excess of EUR 15.000 for transactional purposes, however, the average end of day balance for the last 30 calendar days does not exceed EUR 15.000. Arguments in support of this proposal:  AML/KYC requirements: Any attempts at evading the threshold by holding funds immediately below the limit would be reviewed as part of suspicious activity or transaction reporting obligations. Indeed, European e-money issuers are already subject to strict AML and KYC requirements.

…reporting obligations. Indeed, European e-money issuers are already subject to strict AML and KYC requirements. Accordingly, they have put in place KYC and on-boarding practices that have a threshold of EUR 15,000. This is because of the AML enhanced due diligence. In the interest of both efficiency and consistency, the DAC8 threshold should be set at EUR 15,000 to align both the enhanced due diligence of the customer for AML purposes and the on-boarding of the customer for tax reporting purposes. In this case, e-money issuers would have to upgrade their compliance systems but not fundamentally re-design them. Furthermore, under the current EUR 15,000 AML threshold, e-money issuers can take the commercial choice to either only service clients below the 15,000 threshold thereby not having the associated compliance costs, or go beyond the 15,000 threshold and incur those costs.

…threshold thereby not having the associated compliance costs, or go beyond the 15,000 threshold and incur those costs.  OECD Common Reporting Standard Framework: The proposed absolute threshold is a good proxy for the use of the respective e-money instrument as a payment instrument. Section VIII(C)(17)g of the CRS framework recognises that depository accounts can be excluded from reporting obligations by national jurisdictions where these accounts present low risk for being used for tax evasion and does not otherwise frustrate the implementation of the CRS framework. One of the important examples given for excluded accounts are those that contribute to financial inclusion namely by providing limited and defined services and where monthly deposits do not exceed USD 1,250 per month. EPIF would argue that the proposed threshold meets these conditions.

…deposits do not exceed USD 1,250 per month. EPIF would argue that the proposed threshold meets these conditions. By definition, e-money provides clearly defined services limited to conducting payments, which are also subject to a clear regulatory framework in the EU. Taking aggregated monthly deposits over a year brings us to the EUR 15,000 above which, it could be legitimately argued that the e-money is held for other purposes than to conduct payment transactions.  FATF Recommendation 10 Customer Due Diligence (CDD): The proposed threshold is also consistent with the existing international standards for AML. FATF Recommendation 10 CDD sets the threshold for carrying out occasional transactions at USD 15,000 below which, full CDD is not required.

…10 CDD sets the threshold for carrying out occasional transactions at USD 15,000 below which, full CDD is not required. 4  A single threshold is fairly easy to implement for the industry and can be built up-front into the compliance process of any e-money issuer. It therefore meets the principles of proportionality and to ado a risk-based approach. This threshold would also be easy to communicate to customers and would ensure that no one is holding excessive amounts of funds in e-money accounts.  Overall, the proposal remains flexible. It does keep open the possibility for some issuers of e-money to cater for higher net individuals or other corporate use cases. Such use cases would rightly and automatically be subject to DAC8 compliance.

…individuals or other corporate use cases. Such use cases would rightly and automatically be subject to DAC8 compliance. The approach recommended by EPIF would recognise that the DAC8 reporting obligation would therefore clearly depend on the functionality and purpose of the respective e-money instrument. Exclusion for PSPs acting in passthrough capacity EPIF proposes to distinguish payment products where the payment service provider acts in a passthrough capacity, e.g. products that are used for money remittance, enable the acquiring of transactions for merchants, or are used for making payments to suppliers or to employees. The element these products have in common is that they are used by customers as a means of enabling immediate or near-term payments.

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