Opinion of the European Central Bank of 14 July 2023 on payment services and payment systems (CON/2023/21)

OPINION OF THE EUROPEAN CENTRAL BANK of 14 July 2023 on payment services and payment systems (CON/2023/21) Introduction and legal basis

On 29 May 2023 the European Central Bank (ECB) received a request from Българска народна банка (Bulgarian National Bank (BNB)), acting on behalf of the Bulgarian Minister for Finance, for an opinion on a draft law amending the Law on payment services and payment systems (hereinafter the ‘draft law’). The ECB’s competence to deliver an opinion is based on Articles 127(4) and 282(5) of the Treaty on the Functioning of the European Union and the fifth indent of Article 2(1) of Council Decision 98/415/EC , as the draft law relates to payment and settlement systems. In accordance with the first sentence of Article 17.5 of the Rules of Procedure of the European Central Bank, the Governing Council has adopted this opinion.

1. Purpose of the draft law

As explained in the consultation letter accompanying the draft law, the draft law aims to ensure the smooth introduction of the euro in Bulgaria in the field of payment services and payment systems. The draft law would only enter into force on the date of the introduction of the euro in Bulgaria, as stipulated in the Council Decision adopted in accordance with Article 140(2) of the Treaty, and in the Council Regulation adopted in accordance with Article 140(3) of the Treaty. Separately, the draft law aims to facilitate the exercise of payment supervision and payment oversight. Those provisions will enter into force in accordance with the general regime under Bulgarian law. 1.1 Replacement of references to Bulgarian lev with references to euro The draft law proposes to replace a number of references to Bulgarian lev in the Law on payment services and payment systems with references to euro at a rate of two Bulgarian lev for one euro. Accordingly, the draft law proposes to replace references to BGN 500 million, 200 million, 20 million, 10 million, 2 million, 250 000, 100 000, 40 000, 600 and 100, respectively, with EUR 250 million, 100 million, 10 million, 5 million, 1 million, 125 000, 50 000, 20 000, 300 and 50, respectively. These references can be found in those provisions in the Law on payment services and payment systems that transpose the relevant provisions of Directive (EU) 2015/2366 of the European Parliament and

instruments, schemes and arrangements

The draft law provides that BNB will ensure compliance by entities, based in Bulgaria, that manage the functioning of electronic payment instruments, schemes and arrangements with the Eurosystem oversight framework for electronic payment instruments, schemes and arrangements (hereinafter the ‘PISA framework’). As noted in the explanatory memorandum, the proposed changes will enable BNB to effectively implement the PISA framework. In particular, where BNB identifies breaches in the activities of such entities, BNB may, depending on the nature and gravity of the breaches, issue a written warning and/or mandatory instructions, oblige the entity to discontinue and remedy the breaches within a predefined time limit, require changes in the internal rules and procedures, or prohibit that entity from conducting activities until the breaches are remedied. The draft law further authorises BNB to issue an ordinance on the implementation of these provisions.

1.5 Conditions for clearing and settlement of card-based payment transactions The draft law proposes certain refinements to the provisions governing the conditions for the clearing and settlement of card-based payment transactions. In particular, the draft law provides that card-based payment transactions in euro must be cleared and settled by a BNB-authorised operator of a system providing settlement finality, where both of the following conditions are met: (a) the cards’ issuers are payment service providers authorised by BNB or branches of payment service providers operating in Bulgaria; and (b) the point of sale or the automated teller machine is located in Bulgaria. The draft law further provides that the system operator must stipulate and make the terms and conditions of participation in the payment system publicly available, including with respect to indirect participants. 1.6 Other provisions in the draft law The draft law further regulates the conditions for payment institutions to grant credit in relation to payment services when payment institutions use their own funds. Furthermore, the draft law proposes certain refinements in relation to cooperation between authorities within the context of the exercise of the right of establishment and freedom to provide services, as referred to in Directive (EU) 2015/2366.

2. General observations

Subject to the specific observations, below, the ECB welcomes the draft law’s objective to facilitate a smooth introduction of the euro in Bulgaria, as well as a timely implementation of the necessary measures in connection therewith.

3. Specific observations

3.1 Replacement of references to Bulgarian lev with references to euro Upon the abrogation of Bulgaria’s derogation, in accordance with Article 140(2) of the Treaty, Article 5 of Council Regulation (EC) No 1103/97 provides that monetary amounts to be paid or accounted for when a rounding takes place after a conversion into the euro unit must be rounded up or down to the nearest cent. However, the ECB understands that rather than rounding monetary amounts after a possible future conversion to euro, the draft law aims to fully transpose the relevant amounts as specified in Directive (EU) 2015/2366 and Directive 2009/110/EC, which are expressed in euro. 3.2 Discontinuation of RINGS TARGET is legally structured as a multiplicity of payment systems, which make up the component systems of TARGET, and each Eurosystem central bank must operate its own TARGET component system. Bulgaria joined the Union on 1 January 2007, becoming a Member State with

a derogation in accordance with Article 5 of the Act of Accession . Following the abrogation of Bulgaria’s derogation, BNB will be a Eurosystem central bank, with an obligation to operate its own national component of TARGET, to the exclusion of any other real-time settlement system in lev, such as RINGS. The ECB therefore welcomes the proposed discontinuation of RINGS, which is consistent with BNB’s future legal obligations as a Eurosystem central bank. 3.3 Refinement of provisions relating to TARGET The ECB notes that TARGET offers various AS settlement procedures for the settlement of AS transfer orders, each supported by sub-accounts and a different AS technical account structure (for some of the AS settlement procedures, it is mandatory to use dedicated AS technical accounts, which cannot be reused for other AS settlement procedures). The ECB welcomes the account segregation measures proposed by the draft law as they are consistent both with the rationale of the participation of AS operators in TARGET – notably for the settlement of fund transfers for the participants in an AS – and the AS sub-account and technical account structure in the TARGET Guideline . 3.4 BNB oversight powers in relation to the PISA framework The ECB welcomes that the draft law aims to strengthen and provide a sound regulatory basis for BNB’s oversight role in the area of electronic payment instruments, schemes and arrangements to ensure a safer and more efficient functioning of these instruments, schemes and arrangements . While the explanatory memorandum specifies that powers have been conferred on BNB to enforce the PISA framework, within the context of its oversight of electronic payment instruments, schemes and arrangements, the draft law refers only generally to the Eurosystem requirements relating to the oversight of electronic payment instruments, schemes and arrangements. To avoid doubt, the ECB suggests that the draft law explicitly specifies BNB’s powers in relation to the PISA framework. 3.5 Conditions for clearing and settlement of card-based payment transactions The ECB understands that the restriction regarding card-based payment transactions is aimed at ensuring that such retail payments which are deemed to be closely linked to the territory of Bulgaria are cleared and settled in central bank money through TARGET. The ECB reiterates that this restriction should be considered in the light of the principle of open and non-discriminatory access 11 12 to payment systems, as enshrined in Union legislation and in international standards . In this

regard the ECB understands that the restriction would not hamper the cross-border acquiring of card-based payment transactions. To this end, and for the purpose of the cross-border acquiring of card-based payment transactions, the participation of payment service providers that (a) are authorised in other Member States and (b) provide payment services in Bulgaria without a branch into settlement finality systems that process card-based payment transactions and perform net settlement in TARGET should not be prohibited and non-discrimination of the payment system participants should be ensured.

This opinion will be published on EUR-Lex.

Done at Frankfurt am Main, 14 July 2023.

[signed]

The President of the ECB

Christine LAGARDE