PSD2/ZAG: Update: Intra Group Exemption remains in Effect

The implementation of the Second Payment Services Directive (PSD2) in form of German Zahlungsdiensteaufsichtsgesetz (ZAG – Payment Services Oversight Act) required a number of adjustments in payment services as of January 2018. Exempted from the regulation were those payment services within a group of affiliated companies (so called intra group exemption or intra group privilege). The exemption covered all “payments and related services within a group of companies or between members of a trade cooperative in the credit economy.” Enterprises thus created respective domiciles. Commonly known as payment factories, these operated all payments of member companies and passed on the cash to the relevant accounts. So far the general practice pursuant to the wording.

In the course of implementation of PSD2, Germany’s Federal Financial Supervisory Authority (BaFin) reconsidered this intra group exemption in favor of a stricter interpretation issued in its ZAG explanatory note. BaFin suggested to consider only payments between group members to qualify for the privilege, but argued all payments into the group” or out of the group” do not find support in the regulation’s wording. To enforce this strict interpretation would have meant a regular application for payment services licenses for these payment factories. This stirred broad scale opposition from practitioners.

Coordinated efforts among interest groups and business associations established a dialogue with BaFin noting the substantial economic impact as well as BaFin’s concern for effective anti-money laundering regulation. The exchange proved successful and adhering to certain precautions, the intra group exemption is to remain as is covering all payments of a group of companies and no licence requirement for centralised cash management. The precautions for intra group payment services include suitable contracts and a comprehensive documentation of all payments. The groups are to develop standards, processes and monitoring systems to effectively satisfy legal requirements including (but not limited to) money laundering prevention. Internal control and compliance systems must be implemented which make all these efforts reproducible and transparent for third parties as well as sustainably correct any potential irregularities of these standards.

The trend to centralise a group’s cash management may continue in Germany. BaFin and business associations remain in active dialogue on all outstanding related issues (e.g. centralised purchasing). In the course of these dialogues BaFin does not feel a necessity to act against the domiciles, but at the same time does not see a need to revisit the ZAG explanatory note.

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