ONLINE PAYMENT SERVICES – EU TECHNICAL STANDARDS ALREADY SET – SWITZERLAND IN REGULATORY LIMBO?17 September 2018 By Daniel Lucien Bühr, Katja Böttcher, Jonathon E. Boroski, Judit Ottrubay
Online payment service providers have increased their market share globally as an increasing number of payments are made utilising services such as PayPal, Alipay, Apple Pay and Samsung Pay.
In the European Union, the Payment Services Directive 2 (PSD2) recently opened the payments market to third-party payment service providers offering payment services based on access to information regarding their clients’ bank accounts. As of 14 September 2019, the regulatory technical standards for the implementation of PSD2, the final element in the implementation of PSD2, will apply.
Contrary to the EU, Switzerland has not (yet) issued a legal framework for the online payment services market but rather relies on the innovative nature of the payments market. As for client and money-laundering risks, the Swiss Financial Market Supervisory Authority (FINMA), requires foreign money transmitters to comply with banking and anti-money laundering (AML) regulations, if they use a network of agents located in Switzerland for receiving or paying funds. Accordingly, online payment service providers lacking a physical presence or one or more agents or auxiliary persons in Switzerland are not subject to Swiss regulation.
Online payment service providers are susceptible to crime related payments and money-laundering, as a recent court case in Lucerne has shown [Read article here]. In this case, a paedophile used an online payment service provider to make payments for live stream “chatting” with children in the Philippines.
In our view, Switzerland should regulate and supervise all online payment service providers active in Switzerland to level the playing field and address client and AML risks more broadly. Furthermore, online payment service providers should review and monitor the effectiveness of their compliance management systems, in particular their KYC and AML processes.