Access to payment accounts with credit institutions for the purpose of providing payment services
I. Introduction
Banks and credit unions, like other private law persons, generally have contractual freedom, i.e. the freedom to freely choose a contractual partner.[1] This contractual freedom is modified only in exceptional cases[2], including Section 255 of the Payment System Act[3], which provides that a bank, a foreign bank operating in the Czech Republic through a branch, or a credit union (hereinafter a “credit institution”)
- shall enter into, with the payment service providers referred to in Section 255 of the Payment System Act[4] (hereinafter the “PSPs”), at their request, a payment account agreement that enables the PSP to provide payment services efficiently and without hindrance under objective, non-discriminatory and proportionate terms,
- need not enter into an agreement, and may terminate an obligation under such agreement or withdraw from such agreement only for reasons that are objective, non-discriminatory and proportionate, or where, if entering into the agreement or continuing to be bound by the agreement would violate the provisions of the AML or any other legal regulation; and
- if it refuses to enter into a payment account agreement, terminates an obligation under such agreement or withdraws from such agreement, it shall notify the Czech National Bank (hereinafter the “CNB”) without undue delay of this, together with its reasons, and shall provide an adequate explanation to the PSP concerned, to the extent that this is not prevented by any other legal regulation.[5]
Section 255 of the Payment System Act enables access to payment accounts with a credit institution
- for domestic PSPs, i.e. entities authorised under the Payment System Act. This provision does not apply to other domestic persons authorised to provide payment services who are not authorised to provide payment services by virtue of authorisation under the Payment System Act,[6]
- for foreign PSPs which, in the context of EU law, mean persons with a similar authorisation to provide payment services or issue electronic money from the supervisory authority of another Member State of the European Economic Area.
Pursuant to Article 255 of the Payment System Act, access to payment accounts with a credit institution shall also be granted to a person who has submitted an application for authorisation to operate as a PSP and the administrative procedure for granting the authorisation in question has been initiated and is being conducted (hereinafter a “potential PSP”).[7] A potential PSP may be either a person applying for the authorisation in question in the Czech Republic or a person who has applied for similar authorisation in a European Economic Area state. In the following, the abbreviation PSP also includes a potential PSP, unless the context indicates otherwise.
Therefore, Section 255 of the Payment System Act imposes obligations that credit institutions must comply with when entering into a payment account agreement with a PSP and when refusing to enter into a payment account agreement or when terminating a payment account agreement with a PSP. Their purpose is in particular to “ensure fair competition among payment service providers” (recital 51 in the preamble to PSD2).
In relation to these obligations, we state the following:
II. Obligations of credit institutions when entering into a payment account agreement with a PSP
- Terms and conditions for maintaining a payment account for PSPs
Pursuant to Section 255 of the Payment System Act, a payment account agreement entered into between a credit institution and a PSP is intended to enable the holder to provide payment services efficiently and without hindrance. Efficiently and without hindrance is primarily to be interpreted as meaning that the agreement will allow the PSP to provide payment services in accordance with the content of its authorisation and the envisaged business model. The agreement should therefore allow the PSP to gain access at least
- to a payment account that allows the PSP to provide payment services to its clients, or
- to a payment account that certain PSPs are required by law to maintain in order to protect funds received from clients (Section 22(1)(a) and Section 80(1)(a) of the Payment System Act)[8], as well as
- to a payment account that will be used by the PSP to ensure its operational activities (e.g. to make payments for goods and services to suppliers, to pay salaries, to fulfil obligations towards public authorities, etc.).
The credit institution must, however, take into account the situation of the applicant for access to the payment account, i.e. the specific circumstances of the case and the needs associated with the particular business model of the PSP, and not only with regard to the characteristics of the payment services the PSP provides or will provide under its authorisation.[9]
In addition, pursuant to Section 255 of the Payment System Act, a credit institution must enter into a payment account agreement (efficiently and without hindrance) under objective, non-discriminatory and proportionate conditions. To some extent, this requirement overlaps with the conditions for not entering into or for terminating a contractual relationship (see below), but it also covers the content of an agreement and the contractual terms that the credit institution may require when it enters into a payment account agreement with a PSP.
Objective conditions in a payment account agreement with a credit institution can be considered those based on applicable legislation – see Part IV below. In accordance with the explanatory memorandum to Section 255 of the Payment System Act, criteria based on the business model of the credit institution may also be considered an objective condition,[10] e.g. in relation to the type or types of payment accounts the credit institution offers in general and the technical and other prerequisites (IT system, configuration of AML processes, etc.). Another objective fact is whether the credit institution envisages accepting cash in its business strategy (e.g. a fully internet-based bank), etc.[11] These circumstances may mean that an agreement will not be entered into, but they may also have an impact on the content of an agreement if entered into - e.g. the acceptance of cash will not be necessary for the PSP and it will therefore accept a payment account that does not allow this.
Non-discriminatory conditions for access to a payment account with a credit institution may be considered to be those where the credit institution applies the same or similar criteria to all applicants for an account who are in the same or a similar situation. In particular, the same or similar terms and conditions, as well as the same or similar information and documentary requirements that the applicant must attach to its application for access to the payment account. Therefore, a credit institution cannot make unjustified differences between applicants in the same or a similar situation, whether they are PSPs or another entrepreneur with similar requirements or needs [e.g. a person making payments under one of the exemptions from the application of the Payment System Act (Section 3(3) of the Payment System Act) or a person making a large number of payments as part of a completely different business activity]. An approach whereby a credit institution does not, without justification, enter into agreements with persons with a certain line of business while continuing to provide services to existing clients with similar lines of business on the basis of good past experience with those clients could also be regarded as discriminatory. Any difference in treatment would have to be supported by clear and generally applicable reasons.[12]
Two types of requirements should be considered proportionate conditions for access to a payment account with a credit institution:
- Firstly, the requirements placed on an applicant are those that usually correspond to the services requested by that applicant. Thus, a requirement that does not normally occur in the context of the requested services (e.g., the submission of a bank guarantee as a condition for opening a current account or artificially and unjustifiably increased fees specifically for the PSP) and that can be replaced by other requirements with the same or similar effect that are less burdensome from the perspective of the PSP, would be contrary to this condition.
- Secondly, the requirement of proportionality regarding the duration and management of the very process by which the credit institution reaches the decision whether or not to enter into an agreement with the PSP, including feedback. This requires, inter alia, that the credit institution allows the applicant to have a constructive and meaningful discussion, within a reasonable timeframe, about its application and the criteria on which the credit institution makes its decision.
All three of the above conditions must be met concurrently. This means, inter alia, that even an objective and non-discriminatory requirement cannot pass muster unless it is also proportionate.
The same approach (i.e., objective, non-discriminatory and proportionate criteria) that a credit institution is obliged to apply to the conclusion of agreements with PSPs must, by its very nature, be applied by the credit institution to any changes to the rights and obligations under the agreement during the contractual relationship.
- Provision of information about the conditions of access to a payment account
Section 255 does not expressly provide that a credit institution must inform a PSP (in advance) of the conditions for access to a payment account. In order for the PSP to negotiate an account, it must be provided with sufficient relevant information on what accounts the credit institution maintains, under what commercial terms and conditions, on the procedure for entering into agreements (e.g., what information or documentation the applicant must provide to the credit institution in connection with its application), and on what criteria the credit institution’s decision-making process is based.
Banks and branches of foreign banks are obliged to make the terms and conditions for the provision of services available to customers at their business premises.[13] In addition, due to the nature of the matter, it is necessary to publish the terms and conditions on the credit institution’s website, or at least to communicate them in good time within the context of the negotiations on the application for a payment account. As a credit institution must always assess the situation of the applicant for access to a payment account in the light of the specific circumstances of the case, a credit institution may also set a condition during the actual negotiations with a particular PSP.
At the same time, a credit institution has an obligation to consistently comply with the criteria it has set for the purposes of Section 255 of the Payment System Act, otherwise it may run afoul of the requirement to have objective and non-discriminatory conditions for access to a payment account.
III. Obligations of a credit institution in the event an agreement is not entered into or a contractual relationship is terminated
A credit institution is under no absolute obligation to enter into or remain in a contractual relationship with a PSP. However, Section 255 of the Payment System Act provides that a credit institution may only refrain from entering into, or may only terminate, an agreement for objective, non-discriminatory and proportionate reasons.
To define these terms, reference may be made to the definition in Part II, including that all three criteria must be met concurrently.
Objective reasons for not entering into or for terminating an agreement are factually justified reasons that do not depend on the arbitrariness of the credit institution. These will primarily be reasons based on legislative requirements - see Part IV below. An objective reason for not entering into an agreement would be, for example, that the bank’s strategy does not include providing services to corporate clients (e.g., an exclusively retail bank) or the lack of infrastructure to provide the specific services required. An objective reason for termination of an agreement would be a change in the business strategy of the credit institution that is not driven solely by the intention to cease providing services to the PSP (e.g., a change to a retail credit institution), or a material change in the business model or an increase in the risk profile of the PSP. A material breach of the agreement by the PSP or the existence of legal acts binding on the credit institution’s activities that prevent it from providing the given service may also be considered an objective reason.
Non-discriminatory reasons for not entering into or for terminating an agreement require that the credit institution treats a PSP in the same way as any other PSP when refusing to enter into or when terminating an agreement, but also other clients if they are in the same or a similar situation, not only in terms of the line of business but especially in terms of the risks and other contexts involved.
Proportionate reasons for not entering into or for terminating an agreement must always be assessed in the light of the relevant circumstances. The seriousness of the reasons for refusing to enter into or for terminating an agreement (even if those reasons are objective and non-discriminatory) must not be manifestly disproportionate to the impacts of such refusal or termination on the PSP.[14] It is also not possible to refuse to maintain an account for a certain fact, e.g., a secondary business of the PSP, without a specific assessment of proportionality. Thus it is not possible, for example, to refuse to enter into a payment account agreement if the disputed issues leading to the refusal could be resolved by a less burdensome measure (e.g., a requirement for more frequent reporting of information, a modification of the offered product so that only payments related to the client’s activity as a PSP and not payments resulting from its other activities pass through the account, a price for providing services commensurate with the increase in the credit institution’s costs if they can be quantified, etc.). [15]
The law stipulates that a credit institution may also not enter into or may terminate an agreement if it would breach the AML or another legal regulation by entering into such agreement or by continuing an obligation arising from such agreement (this other legal regulation may be, for example, Act No. 69/2006 Coll., on the Implementation of International Sanctions[16], or the Act on Banks, etc.), see Part IV below. In practice, these cases will overlap with the objective reasons described above, but if it concerns a clear obligation of a credit institution that does not leave room for consideration (e.g., Section 15 of the AML), it is not necessary to concurrently assess the proportionality and non-discriminatory nature of this procedure.
IV. Related obligations of a credit institution
A credit institution[17] is generally obliged to act prudently (Section 12(1) of the Act on Banks), and must have a management and control system which includes, inter alia, a risk-management system [Section 8b(1)(b) of the Act on Banks]. In connection with this, Section 29 of the Decree No. 163/2014 Coll. imposes on credit institutions, inter alia, the “continuous and effective performance of the risk-management function”, which must take into account the accepted level of risk determined by the management body of the credit institution Section [18(2)(b), Section 30(2)(e) of the Decree No. 163/2014 Coll.].
Specifically in the area of measures against money laundering and the financing of terrorism (AML/CFT), pursuant to Section 21(1) of the AMLA, a credit institution “shall establish and implement appropriate internal control and communication strategies and procedures to mitigate and effectively manage the risks of money laundering and the financing of terrorism...” However, pursuant to Section 21a(1), it “shall identify and assess the risks of money laundering and the financing of terrorism that may arise in the course of its activities...” The internal regulations of the credit institution, the so-called system of internal principles pursuant to Section 21(2) of the AMLA, must then define specific procedures for mitigating and managing the identified risks.
The law also defines certain cases in which a credit institution may not enter into a business relationship, i.e., may not enter into, or must terminate, a payment account agreement (Section 15 of the AMLA). These are cases where the client cannot be properly identified or checked due to the client’s refusal or failure to provide the necessary cooperation, where there are doubts about the veracity of the information provided by the client, or where the client is a politically exposed person and the credit institution “does not know the origin of the funds or other assets used in the transaction.”
In accordance with the explanatory memorandum to the amendment to the Payment System Act, the requirement for a certain PSP risk profile, which the credit institution determines on the basis of Section 6 of the AML Decree, can also be taken into account for the purposes of Section 255 of the Payment System Act.
Already when entering into a business relationship with a PSP, a credit institution needs to make sure that its prospective client will apply measures sufficient to prevent the credit institution itself from being used for illegal activities. This is not a procedure used exclusively in relations with PSPs. Obliged persons shall always consider such a procedure in relation to potential clients from the risky sectors identified in the national risk assessment. In particular, a credit institution shall focus in particular on the procedures described in the internal regulations of the PSP and on the risks detected in the risk assessment that the obliged person (including the PSP) must carry out (Section 21a of the AMLA). Before actually entering into a business relationship, it is necessary to verify whether the client-control obligations as set by the PSP meet the requirements of the credit institution and enable it to effectively monitor the business relationship and the risks associated with it. As part of client control, the credit institution itself must, in justified cases, ascertain the source of the funds to which the business relationship relates (Section 9(2)(e) of the AMLA) in such a way “as to be able to identify any suspicious transaction” (Section 8(1) of the AML Decree). In order to assess such information, the credit institution also needs to know the internal structure of the PSP (the identity of key persons and the functioning of internal AML processes) and the corresponding procedures to prevent abuse by its clients.
If, using these procedures, a credit institution finds a higher than acceptable level of risk (determined by the procedures under the Decree No. 163/2014 Coll.) in the person interested in maintaining an account and it is not a case under Section 15 of the AMLA, this is not a reason for automatically rejecting a business relationship. Any refusal may be part of the “procedures in the event of the exceeding ... of the accepted level of risk” that a credit institution is required to implement pursuant to Section 28 of the Decree No. 163/2014 Coll. as well as the “procedures for mitigating and effectively managing the risk of money laundering” pursuant to the AML. However, a credit institution must also meet the conditions pursuant to Section 255 of the Payment System Act. In accordance with the spirit of the obligation to contract, a credit institution must seek - also in cooperation with the relevant PSP - primarily other ways of mitigating the risk to an acceptable level in order to meet the requirement of proportionality of the reasons for refusing to maintain an account.
In general, in such cases, a credit institution may, for example, given the level of risk detected, offer only certain tailored products and services for which the higher risk will not be a hindrance and regarding which the credit institution will be able to manage such risks. In relation to an account that allows the “efficient and unhindered” provision of payment services, it will be more appropriate to discuss with the PSP how to set up its internal procedures and processes so that the level of risk is acceptable for the credit institution and it would be possible to enter into a business relationship. It is then, of course, up to the PSP to decide whether it considers such adjustments acceptable and whether it will agree to such a process.
V. Obligation of a credit institution to inform the CNB and the PSP that a payment account agreement will not be entered into or will be terminated
Section 255 of the Payment System Act provides that if a credit institution refuses to enter into a payment account agreement or terminates an agreement, it shall notify the CNB together with the reasons. Notification is normally done by sending an email to the relevant inspector of the credit institution.
A credit institution shall provide notification of both full and partial termination of a payment account agreement if this concerns elements of the agreement material to the business of the PSP (in such cases, this is equivalent to full termination). The deadline for notification is defined by law as “without undue delay”, which should be interpreted as the time necessary to process the notification in question, including its justification, i.e. a matter of several days at most.
The notification sent to the CNB must contain sufficient details of both the facts of the case and the reasons that led the credit institution not to enter into or to terminate the agreement so that the action by the institution is justified. The reasons in the justification must be sufficiently specific and, where appropriate, should also be supported by a copy of the relevant supporting documents (e.g., the credit institution’s terms and conditions or the proposal by the PSP for the conclusion of an agreement, etc.). It should be clear from the credit institution’s justification that it acted in accordance with Section 255 of the Payment System Act, i.e., that it genuinely assessed the case in relation to the individual situation of the PSP and that its reasons for refusing to enter into the agreement or to terminate the contractual obligation were objective, non-discriminatory and proportionate, or that it acted on the basis of the reasons set out in a legal regulation.
Section 255 of the Payment System Act also obliges a credit institution to provide a reasonable explanation to the PSP concerned without undue delay, to the extent that this is not prevented by other legislation (such other legislation may be, for example, the AML which, in Section 38, regulates the confidentiality of obliged persons regarding the notification and investigation of suspicious transactions). A reasonable explanation must take into account the specific situation and be of a scope appropriate to that situation. The explanation must make clear to the PSP the specific and individual reasons why no agreement will be entered into or why an agreement will be terminated. Therefore, a general explanation, e.g., referring to an unsatisfactory risk profile or a general statement of “high AML risk”, is not sufficient without the credit institution identifying the specific risk factors, or combination thereof, present at the PSP concerned that led it to this decision. All the more reason why a reference to “group policy” etc. will not suffice.
With regard to the specific situation, a credit institution may refer in its explanation to the content of pre-contractual discussions or previous correspondence, but such references must be sufficiently unambiguous and documented to enable the identification of the specific reasons for refusing the account application or for terminating the agreement with the PSP. The explanation must also take into account the conclusions and views expressed by the PSP in the discussion of its application.
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[1] Article 2(4) of the Constitution of the Czech Republic, Article 2(3) of the Charter of Fundamental Rights and Freedoms, and for banks specifically Section 37(1) of the Act on Banks.
[2] In addition to Section 255 of the Payment System Act, Section 210 et seq. of the Payment System Act, which regulates the establishment of a basic payment account for consumers, also modifies the contractual freedom of banks; a prohibition of discrimination also applies.
[3] Section 255 of the Payment System Act transposes Article 36 of Directive (EU) 2015/2366 of the European Parliament and of the Council of 25 November 2015 on payment services in the internal market, amending Directives 2002/65/EC, 2009/110/EC and 2013/36/EU and Regulation (EU) No. 1093/2010 and repealing Directive 2007/64/EC (PSD2) The current wording of Section 255 of the Payment System Act is effective from 1 July 2022, when the amendment to the Payment System Act No. 129/2022 Coll. came into effect.
[4] Payment institutions, electronic money institutions, payment account information managers, small-scale payment service providers, small-scale electronic money issuers, foreign payment institutions, foreign electronic money institutions and foreign payment account information managers.
[5] The transposed Article 36 of the PSD2 reads “Member States shall ensure that payment institutions have access to payment account services with credit institutions on an objective, non-discriminatory and proportionate basis. This access shall be sufficiently extensive to allow payment institutions to provide payment services efficiently and without hindrance. Any refusal shall be duly justified by the credit institution to the competent authority.”
[6] Credit institutions and foreign credit institutions, postal licence holders, the Czech National Bank.
[7] The effectiveness of a payment account agreement with a potential PSP can be linked, pursuant to Section 255(3) of the Payment System Act, to the granting of the relevant authorisation to the potential PSP.
[8] We consider that the nature of this account meets the characteristics of a payment account pursuant to Section 2(1)(b) of the Payment System Act.
[9] For example, in the case of PSPs whose business model relies on a high level of cash transactions, it may be relevant to set up an account that allows cash deposits, etc.
[10] In addition, pursuant to the explanatory memorandum to Act No. 129/2022 Coll., “Objective, non-discriminatory reasons may include, for example, the risk profile of the account applicant, the business model of the credit institution, etc.” However, see below regarding the need to meet the proportionality condition at the same time.
[11] Cf. similarly the commentary by J. Beran on Section 255 of the Payment System Act in Beran, J.; Nýdrle, T.; Strnadel, D. Zákon o platebním styku (the Act on Payment Systems). Commentary. Prague: Wolters Kluwer ČR, 2020, p. 910.
[12] Sometimes discrimination is understood as any distinction, as opposed to absolute equality. Here, the meaning of the term “non-discriminatory” corresponds more to the definition by the Constitutional Court, which stated that equality is a category that is “only relative” and cannot be applied mechanically, adding: “This conclusion is also in accordance with the opinions of legal doctrine and European case law, which includes under the term “discrimination” cases where a person or a group of persons without adequate justification is treated worse than other persons” (Pl. ÚS 5/95).
[13] Section 11(1) of the Act on Banks.
[14] A material breach of a contractual obligation may be considered a proportionate reason for termination of an agreement (cf. Section 1977 of the Civil Code) or a more serious one-off breach, or repeated less-serious breaches, of obligations arising from or based on legal regulations (e.g., AML regulations) by the PSP. Similar breaches in the past, i.e., the credit institution’s previous experience with the PSP, can also be taken into account as a reason for not entering into an agreement.
[15] For example, a credit institution should not, under current legislation, enter into an agreement containing an obligation not to open PSP accounts. If it is bound by such an agreement, it should modify it in agreement with the other party to the agreement so that it corresponds to the existing legislation (see also Section 2006 of the Civil Code). Should such a contractual obligation nevertheless arise or continue, the CNB will assess, through its supervisory practice, the proportionality of such reason for not entering into or for terminating the credit institution’s agreement with the PPS according to the specific circumstances, in particular whether the obligation is unavoidable with regard to the credit institution’s business model and whether it is not possible to ensure the effective functioning of the business model without such a commitment.
[16] The explanatory memorandum to Act No. 129/2022 Coll. similarly states: “The reasons laid down by the legal regulation are in particular if the legal regulation expressly prohibits the establishment of a business relationship (e.g., in the event of insufficient identification of the client or doubts arising during an inspection of the client under the regulations against the legalization of proceeds from crime) or, for example, if the law regulating the implementation of international sanctions so provides.”
[17] Note: Some of the rules in this part do not apply to branches of credit institutions from member states of the European Economic Area; in their case similar obligations under the law of their home state apply. For clarity, only the rules for banks are listed, but the same or similar rules apply to credit unions.