Ukraine’s legislation on payment services may be updated for the first time in a decade

24/ 11/ 2020

On November 12, 2020, the Verkhovna Rada registered the draft Law №4364 of Ukraine “On Payment Services”. The business welcomed this document, as the functioning of payment systems is currently regulated by the Law “On Payment Systems and Funds Transfer in Ukraine” dated 2001 and last significantly amended in 2012. Meanwhile, for the last eight years, the payment services market has undergone significant technical innovations due to the emergence of new types of services. Therefore, a significant part of such innovative payment services is completely or largely left outside the scope of regulation by law. As of today, the legislation regulates only one type of payment service, namely fund transfers which implies the movement of a certain amount of funds to credit it to the recipient’s account or withdraw it in cash. This draft law proposes to introduce 9 types of payment services, 7 of which are financial payment services, and two - non-financial, which are commonly used in EU countries and require separate regulation, namely: 1) services for crediting cash to users accounts, as well as all services related to opening, servicing, and closing accounts (except electronic wallets); 2) cash withdrawal services from users accounts, as well as all services related to opening, servicing, and closing accounts (except electronic wallets); 3) services for execution of payment transactions with the users personal funds from the account / to the users account (except for transactions with electronic money), including credit and debit transfers, etc. 4) services for execution of payment transactions from the account/to the users account (except for transactions with electronic money) provided that the funds for the execution of the payment transaction are provided to the user by the payment service provider on credit terms, including credit and debit transfers, etc. 5) services for issuing payment instruments and/or acquiring payment instruments. 6) funds transfer services without opening an account; 7) services for the issuance and execution of payment transactions with electronic money, including the opening and maintenance of electronic wallets; 8) payment transaction initiation services; 9) account information services. Besides, the document aimed at implementing the provisions of the Second Payment Directive (PSD2) and the Electronic Money Directive (EMD), provided by the Association Agreement between Ukraine and the EU, will replace the outdated current Law and define the rules for payment services, rights of providers and users, in particular, setting requirements for the transparency of the payment services and information provision and its terms and conditions, a clear division of rights and responsibilities of users, etc. Thus, the draft law aims to change approaches to the legal regulation of the payment market, expand the range of payment service providers, and streamline their activities in the payment market. Also, to establish rules for the provision of payment services in Ukraine, set requirements for payment service providers, strengthen the protection of consumers of these services, increase security and efficiency of payment services, promote innovation, and bring Ukrainian legislation in line with EU legislation. According to the information provided in the Explanatory Note to the draft law, its adoption will enable the following: 1) adapting the legislation of Ukraine to the EU legislation and to form a legal basis for the integration of the payment system of Ukraine with the EU payment system; 2) modernizing the payment market of Ukraine and create a basis for its development, namely by: · introducing Open banking technology; · granting the right to non-banking institutions to issue payment cards, issue e-money, open and maintain payment accounts; · granting the right to public authorities to provide certain types of payment services without a license; · strengthening the protection of the rights of payment service users; · regulating the procedure for providing payment services in Ukraine by: bringing terms and their definitions in line with common international practice in general and EU legislation in particular; expanding the list of payment services that can be provided in Ukraine; resolving the issue of the provision of payment services by individual business entities, such as postal operators, telecommunications operators, small payment institutions, the provision of limited payment services by legal entities, etc; Thus, the draft Law № 4364 of Ukraine “On Payment Services” was developed with the consideration of the proposals made by the business community. However, the EBA member companies consider it necessary to make additional clarifications to certain provisions of the Draft Law to reflect European legislation more fully and avoid the possibility of an ambiguous understanding of its separate provisions. For example, the proposed wording of paragraph 2 of Article 24 of the Draft Law, according to business representatives, can be understood as a payment system operator acting as a technological operator must go through the registration to be included in the Register as a technological operator. The Association proposes to clarify Article 24, paragraph 4, to avoid an ambiguous interpretation of this provision. Thus, the European Business Association addressed the Chairman of the Verkhovna Rada – Mr. Dmytro Razumkov, the Chairman of the Verkhovna Rada Committee on Finance, Tax and Customs Policy – Mr. Danylo Hetmantsev, the Chairman of the Subcommittee on Payment and Information Systems and the Money Laundering Prevention of the Verkhovna Rada Committee on Finance, Taxation and Customs Policy – Ms. Olga Vasylevska-Smaglyuk with a call to adopt the Draft Law as a basis in the first reading and with a request to take into account the clarifying proposals and comments provided in its preparation for the second reading. We hope the voice of business will be heard! Be the first to learn about the latest EBA news with our Telegram-channel – EBAUkraine.

As of today, the legislation regulates only one type of payment service, namely fund transfers which implies the movement of a certain amount of funds to credit it to the recipient’s account or withdraw it in cash.

This draft law proposes to introduce 9 types of payment services, 7 of which are financial payment services, and two – non-financial, which are commonly used in EU countries and require separate regulation, namely:

1) services for crediting cash to users’ accounts, as well as all services related to opening, servicing, and closing accounts (except electronic wallets);

2) cash withdrawal services from users’ accounts, as well as all services related to opening, servicing, and closing accounts (except electronic wallets);

3) services for execution of payment transactions with the user’s personal funds from the account / to the user’s account (except for transactions with electronic money), including credit and debit transfers, etc.

4) services for execution of payment transactions from the account/to the user’s account (except for transactions with electronic money) provided that the funds for the execution of the payment transaction are provided to the user by the payment service provider on credit terms, including credit and debit transfers, etc.

5) services for issuing payment instruments and/or acquiring payment instruments.

6) funds transfer services without opening an account;

7) services for the issuance and execution of payment transactions with electronic money, including the opening and maintenance of electronic wallets;

8) payment transaction initiation services;

9) account information services.

Besides, the document aimed at implementing the provisions of the Second Payment Directive (PSD2) and the Electronic Money Directive (EMD), provided by the Association Agreement between Ukraine and the EU, will replace the outdated current Law and define the rules for payment services, rights of providers and users, in particular, setting requirements for the transparency of the payment services and information provision and its terms and conditions, a clear division of rights and responsibilities of users, etc.

Thus, the draft law aims to change approaches to the legal regulation of the payment market, expand the range of payment service providers, and streamline their activities in the payment market. Also, to establish rules for the provision of payment services in Ukraine, set requirements for payment service providers, strengthen the protection of consumers of these services, increase security and efficiency of payment services, promote innovation, and bring Ukrainian legislation in line with EU legislation.

According to the information provided in the Explanatory Note to the draft law, its adoption will enable the following:

1) adapting the legislation of Ukraine to the EU legislation and to form a legal basis for the integration of the payment system of Ukraine with the EU payment system;

2) modernizing the payment market of Ukraine and create a basis for its development, namely by:

· introducing Open banking technology;

· granting the right to non-banking institutions to issue payment cards, issue e-money, open and maintain payment accounts;

· granting the right to public authorities to provide certain types of payment services without a license;

· strengthening the protection of the rights of payment service users;

· regulating the procedure for providing payment services in Ukraine by:

bringing terms and their definitions in line with common international practice in general and EU legislation in particular;

expanding the list of payment services that can be provided in Ukraine;

resolving the issue of the provision of payment services by individual business entities, such as postal operators, telecommunications operators, small payment institutions, the provision of limited payment services by legal entities, etc;

Thus, the draft Law № 4364 of Ukraine “On Payment Services” was developed with the consideration of the proposals made by the business community. However, the EBA member companies consider it necessary to make additional clarifications to certain provisions of the Draft Law to reflect European legislation more fully and avoid the possibility of an ambiguous understanding of its separate provisions. For example, the proposed wording of paragraph 2 of Article 24 of the Draft Law, according to business representatives, can be understood as a payment system operator acting as a technological operator must go through the registration to be included in the Register as a technological operator. The Association proposes to clarify Article 24, paragraph 4, to avoid an ambiguous interpretation of this provision.

Thus, the European Business Association addressed the Chairman of the Verkhovna Rada – Mr. Dmytro Razumkov, the Chairman of the Verkhovna Rada Committee on Finance, Tax and Customs Policy – Mr. Danylo Hetmantsev, the Chairman of the Subcommittee on Payment and Information Systems and the Money Laundering Prevention of the Verkhovna Rada Committee on Finance, Taxation and Customs Policy – Ms. Olga Vasylevska-Smaglyuk with a call to adopt the Draft Law as a basis in the first reading and with a request to take into account the clarifying proposals and comments provided in its preparation for the second reading. We hope the voice of business will be heard!

Be the first to learn about the latest EBA news with our Telegram-channel – EBAUkraine.