The opinion was issued after an analysis was carried out concerning the approaches adopted by different authorities (to name a few: ACPR, BaFin, Bank of Italy, FCA) across EU Member States, concerning the handling of passport notifications of payment institutions (“PIs“) and electronic money institutions (“EMIs“). The analysis revealed significant differences in the treatment of activities carried out by PIs and EMIs through agents or distributors in another Member State.
The qualification of these activities can fall under the right of establishment or the free provision of services. This distinction is important as the existence of an “establishment” in a host Member State triggers additional legal obligations for the PIs and EMIs operating in the host country when compared to the obligations under the free provision of services.
Moreover, such distinction may have consequences for the allocation of competencies between the regulators of the host and home Member State, as far as the supervising activities are concerned.
As of today, there is no specific rule which sets forth when the passport application of a PI/EMI license, referring to the involvement of an agent or a distributor in the host Member State, gives rise to an establishment. The EBA opinion therefore suggests taking into account the EU Treaty provisions on the right of establishment and the free provision of services.
What has been regarded, according to past court’s case law, as a very important criterion to assess whether or not cross-border services are provided with an establishment, is the participation in the economic life of the host country on a “stable and continuous basis”. The CJEU stated that an undertaking that maintains a “permanent presence” in a host Member State is operating under the right of establishment, “even if that presence does not take the form of a branch or agency, but consists merely of an office managed by a person who is independent but authorised to act on a permanent basis for the undertaking“.
On the basis of this decision of the CJEU, it could be argued that a commercial relationship entered into by a PI established in a Member State with an agent established in the host Member State may lead to an establishment within the meaning of the Treaty if that relationship “make[s] it possible for the operator to participate, on a stable and continuous basis, in the economic life of the host Member State, and must thus be such as to enable customers to take advantage of the services offered through a permanent presence in the host Member State”.
By contrast, according to the Court’s case law, a service or activity carried out on a “temporary” or “occasional basis” would always fall under the freedom to provide services. Of course, the assessment of the nature of the activity (whether continuous or temporary) has to be performed on a case-by-case basis.
Both the Services Directive and the General Data Protection Regulation state that an establishment may consist of an office managed by a provider’s own staff or by a person who is independent but authorised to act on a permanent basis for the undertaking, as would be the case with an agent. But it is also true that payment services fall under a different regulation (the Payment Service Directive 2 – “PSD2“) which does not make any specific reference to this definition.
Under PSD2, an agent is a person who acts on behalf of a PI or EMI in providing one or more of the payment services set out in Annex I to PSD2 and a distributor is any person entitled to carry out distribution and/or redemption of e-money on behalf of an authorised EMI, according to the relevant Electronic Money Directive 2 (“EMD2“); in both cases, the PI/EMI retains full responsibility for the acts performed by any of its agents or distributors on its behalf.
So what is the EBA position, after having assessed the CJEU’s case law and the Directive’s definitions? The EBA proposal to the regulators is to take into account the following criteria when an agent or a distributor based in the host Member State is involved:
In relation to criterion (a), it should be assessed which limitations apply to the mandate given by the agent/distributor and whether an extensive network of agents/distributors has been created, even if each one of the agents/distributors does not itself meet the criteria to be considered an establishment.
The EBA suggests that the regulator should not rely on one single criterion in their decision but should rather consider all of them in the assessment of the nature of the passport notification. Moreover, the assessment of the nature of the passport application in accordance with the RTS (Regulatory Technical Standards) on passporting lies primarily with the home regulator and not with the host regulator.
According to the EBA opinion, if one considers the nature of the activities performed by an agent of a PI/EMI, the engagement of an agent located in the host Member State is likely to trigger, in most cases, an establishment of that PI/EMI in the host Member State, if the mandate given to that agent involves a sufficient degree of stability. Similarly, the distribution of e-money through distributors located in a host Member State may come under the scope of the right of establishment under the same conditions that apply to agents.
As a result of the above, PIs/EMIs operating on a cross-border basis in another Member State, whether or not they have an establishment in the host Member State, are subject to the passport notification requirements under PSD2 and the RTS on passporting and the reporting requirements under PSD2 for statistical purposes. This is because Article 29(s) PSD2 gives the host regulator the option to apply PSD2 and the RTS to all passporting PIs/EMIs using agents or distributors in the host Member State.
The same conclusion applies in relation to the compliance of such establishments with the AML rules of the host Member State. PIs/EMIs have to comply with the AML requirements of the host Member State in respect of all regulated activities that they carry out through the establishment on that territory.
The opinion’s conclusions may have a significant impact on the cross-border activity of PIs/EMIs. But the suggested criteria may not be always be easy to apply: what if an agent, for example, is only marketing the PI services? Is this a strong limitation to the mandate given to the agent? Or is it enabling customers in the host Member State to take advantage of the services offered by the PI/EMI and is therefore creating an establishment?
In theory, it seems that according to the EBA position, PIs and EMIs operating by means of agents/distributors will give rise very often, if not always, to establishment in the host Member State with all the relevant consequences.
This article was originally published in the May 2019 edition of Osborne Clarke’s EPSM Legal Research Newsletter.
 Article 49 et seq. of the Treaty on the Functioning of the European Union (“TFEU“); ex-Article 43 et seq. of the Treaty establishing the European Community (“TEC“) and Article 56 et seq. TFEU
 By applying the principle of the decision C-347/09, Jochen Dickinger and Franz Ömer , paragraph 35.