So far the limited network have been used , for instance, by issuers of ticket sale applications, parking ticketing applications, or fuel card issuers. The eligibility criteria for an LNE are laid down in article 3(k) of Directive (EU) 2015/2366 of the European Parliament and of the Council (“PSD2”) and article 6(11) of the Polish Payment Services Act (“PSA”) of 19 August 2011, implementing PSD2. The new EBA guidelines are intended to create a uniform approach to LNE’s on the services market, and thus determining which payment instruments may fall under the exception and be offered on the services market without complying with further regulatory obligations, and which instruments cannot be able to fall under the exception.. Clearly, the above will require issuers to assess the guidelines in the context of the instruments they have issued so far.
According to the regulations, in order to be considered to meet the LNE’s criteria, , in addition to ensuring that it can only be used in a limited manner, the payment instrument has to meet at least one of the requirements described below:
- it enables the holder to acquire goods or services only on the premises of the issuer or within a limited network of service providers under a direct commercial agreement with a professional issuer, or
- it can be used only to acquire a very limited range of goods or services, or
- it fulfills the requirement specified in article 6(11)(c) of the PSA.
If these requirements are fulfilled, issuance of LNE instruments and the related services are not subject to Financial Supervision Authority (KNF) oversight. At the same time, the issuer of the payment instrument has to file the appropriate notification with the KNF once the total value of payment transactions processed using the payment instrument in the last twelve months exceeds EUR 1 000 000.
As the LNE regulations are quite vague and raise serious questions regarding interpretation and regulatory matters, and there is no passporting of this service, leading to different approaches to key LNE issues on the part of the various member states, EU-wide uniform oversight practices became necessary. In this context, there are a number of key aspects raised in the EBA guidelines relating to a limited network:
- to be eligible for a limited network, a payment instrument issuer must ensure that limited use of the payment instrument is ensured at both a technical and contractual level. This means that restricted use of the instrument must be ensured not only legally and administratively (such as in the regulations for using the instrument), but also by technical means to prevent it being used more broadly,
- when assessing compliance with limited network criteria, a regulatory authority has to consider the envisaged number of sellers and customers within the limited network, and whether they operate under a common brand that characterizes the limited network and clearly denotes it for users of the payment instrument,
- when assessing the criteria for a highly limited range of goods or services, the criterion of a functional connection between the goods and/or services has to be considered; in this context, the payment instrument issuer has to be able to state a specific category of goods or services that are functionally connected,
- payment service providers are required to make a clear distinction between payment services and LNE services, and inform users of the nature of those services,
- in the case of cross-border operations, the obligation to notify shall be triggered separately in each member state in which the users of the payment instrument are located when a threshold of EUR 1 000 000 in transaction value is exceeded in that member state.
The EBA’s standpoint on applicability of the functional connection criterion with regard to assessing the very limited range of goods and services differs from the KNF’s standpoint in the Communication of 24 December 2018 on exclusion from art. 6(11) of the Payment Services Act (available here: https://www.knf.gov.pl/knf/pl/komponenty/img/Komunikat_art_6_pkt_11_ustawy_o_uslugach_platniczych.pdf), which points to the importance of the element of countability of goods or services that can be acquired using the payment instrument, and does not mention the functional connection aspect. The KNF’s standpoint on this issue may no longer be valid from 1 June 2022, and may need to be revised in accordance with EBA guidelines.
The guidelines will become effective from 1 June 2022. Moreover, by September 1, 2022, entities entered in the KNF’s register due to a previously submitted notification of exceeding the transaction value threshold should submit a re-notification taking into account the content of the guidelines. In the near future, the KNF’s position regarding to the Polish supervisory approach to the guidelines is also expected.