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A senior European payments policy official has insisted he is "not judging" the European Central Bank (ECB) based on its position on safeguarding accounts for payments and e-money firms.

In a policy announcement in July 2024, the ECB stated that such firms should not be able to open safeguarding accounts with member state central banks if their local market is unwilling to provide an account, saying “it is not a core function of central banks to act as a substitute for credit institutions in providing safeguarding services”.

“We have taken note of this decision from the Eurosystem,” said Eric Ducoulombier, head of the retail and payments unit in the European Commission’s financial watchdog, DG FISMA, speaking at the annual conference of the European Payment Institutions Federation (EPIF). 

The ECB statement said that “Eurosystem central banks shall not offer safeguarding accounts to non-bank PSPs. In the event that a participant relies on client funds for settlement activities, it remains the responsibility of the participant to ensure that its operational model complies with the respective national legislation.”

This goes against the European Commission’s proposal that payments firms should be able to get access to a safeguarding account with central banks. 

“I can certainly reveal that we’ve had communication and discussion following the issuance of this guidance payment, which rules out the possibility for the Eurosystem central banks to offer a safeguarding account,” Ducoulombier said.

It was not possible to give mandation to the central banks on this, he said, stating that this was due to legal issues that separate the roles of the ECB and the commission. 

“One option could have been — I’m not judging — could have been a more case-by-case approach looking at the merits.” 

Whether this is “the final word” is uncertain, he acknowledged. 

Sources in Brussels have suggested that this has become a point of contention between the ECB and the European Commission, where chasms have also opened up regarding the EU’s Financial Data Access (FIDA) file, which the ECB has been clear that it does not want a role in overseeing. 

However, one source from a Eurosystem central bank said that “it would prove to be the right decision”, even if “people aren’t happy about it”.

Could the EU payments package save the day?

Ducoulombier was positive about changes to revised Payment Services Directive (PSD2), stating that if these are “efficient and effective”, then safeguarding accounts with the central bank “will become less of an issue”. 

For example, the Payment Services Regulation (PSR) stipulates that banks can only refuse to open an account for payment and e-money firms in limited situations, an access right extended to entities in the process of applying for authorisation as a payment institution, and to agents or distributors of payment institutions.

If a credit institution refuses to open, or closes, a payment account in such circumstances, it will need to notify the relevant entity and “duly motivate any such decision” by reference to specific risks. 

In this instance, the institution in question will be able to appeal to the appropriate national competent authority.

“I believe this issue can be solved by proper legislation combined with adequate enforcement of the legislation,” Ducoulombier said. 

He acknowledged that “it is a fact” that the PSD2 provisions have “not proved very effective” in allowing payments and e-money firms access to safeguarding accounts, as they were supposed to via Article 36 of the legislation. 

“We got the message and if you look at the new article, it is much longer and it addresses all the deficiencies in the PSD2 article,” he said, stating that it expands beyond just opening accounts.

This is because de-risking has been an integral part of the problem for payments and e-money firms that face consistent issues of their banking relationships being terminated, something that has been flagged by authorities including the European Banking Authority and the Bank of Lithuania. 

Ducoulombier went on to suggest that co-legislators in the European Parliament and Council have been supportive of this change. 

“We shall see, of course, what in the end will be the final compromise but this is a very important provision for us. It is about this famous level playing field, and it is for us one brick achieving this level playing field.

“We are taking this article very seriously and we are fighting tooth and nail to preserve its breadth, wording and objectives. We don’t want to see it watered down, this would be a red line for the commission.” 

When will the PSR and PSD3 be ready?

Brussels insiders appear sceptical about the prospect of the co-legislators coming to an agreement anytime soon, with sources suggesting that the most they expect from this year is for the European Council to have signed off its general approach document, which it will use to enter into negotiations with the European Parliament and European Commission. 

It has been suggested that minimal attention has been given to the file by the outgoing presidency, and that the amount of work that needs to be done to instigate an agreement between the member states means that although the Polish presidency in the first half of next year is likely to make progress, it is more likely that the Danish presidency will be the one to sign off the legislation.