Payments regulation in 2024: A year of evolution

The UK and EU payments sectors continued to draw increasing regulatory scrutiny throughout 2023. The need to deliver compliance with new regimes required a great deal of attention and resources throughout the year.

Whilst waiting for the release of anticipated EU proposals, the UK remained in information-gathering mode with the launch of various new work programmes, which will feed into the UK’s ongoing assessment of whether divergence might make sense for the UK market.

In the EU, the focus was firmly on the third Payment Services Directive (PSD3) announcement, with many characterising the proposals as an ‘evolution’ and not a ‘revolution’. The proposals will repeal and replace PSD2 and second Electronic Money Directive (EMD2) to become PSD3 Payment Services Regulation will move much of PSD2 and EMD2 into a directly applicable regulation.

Pathway to implementation

The first proposals for PSD2 published in 2013 and (mostly) came into application in 2018. During 2024 we can expect to see ongoing negotiations of the text between various EU institutions and potentially significant changes.

The pathway might take shape as follows:

• Now: Review by the European Parliament and the Council of the EU. Final versions of the legislative texts of PSD3 and the PSR could be agreed as early as late 2024 or early 2025. However, European Parliament elections in Q2 2024 may delay this work.

• Potentially 2024/2025: The proposed PSD3 and PSR will enter into force on the 20th day after publication of the final texts in the Official Journal. Member states will then need to start work to transpose PSD3 into national law. Meanwhile, the European Banking Authority will focus on producing the various guidelines and technical standards.

• Potentially 2026: 18 months after entry into force, the proposed PSR will start to apply. Before this point, member states must have transposed PSD3 into national law which will also start to apply and PSD2/EMD2 authorised firms must have made their reauthorisation applications. Firms will have an additional six months (24 months after the PSD/ PSR comes into force) to comply with the new payee verification (confirmation of payee style) requirements.

For further insight and analysis watch the Latham & Watkins PSD3 webcast here

Continuing UK reform agenda

The pace is not expected to slow and the UK sector can expect a busy transition from 2023 to 2024 with some significant changes on the horizon.

Firms must continue to meet the pace of complex regulatory and technological change, whilst keeping one eye on the horizon for what is yet to come in 2024 and beyond.