Members of our association provide payment services to their clients on the basis of a PSD2 authorisation to act as a payment institution. As a payment institution, they maintain payment accounts for clients in such a way that they record sub-accounts (balances) in different currencies (CZK, EUR, USD, etc.) within a single payment account.

Our members offer clients the possibility to arrange spot curency transactions where the client buys one currency and sells another currency at the same time. Our typical member shall individually agree with the client all parameters for a specific spot curency transaction (currency the client sells, quantity of currency sold, exchange rate, currency the client buys, quantity of currency bought and transaction settlement date). The exchange rate agreed with the client is the actual exchange rate for that transaction (members do not offer a “spread" to the client) and is not set in relation to or by reference to any other reference exchange rate, indices, or other point of reference.

Spot currency trading does not involve the transfer of funds to another payment account of our member or to an account held with another provider. Settlement of a spot currency transaction is always against the current balance of funds in the sub-account in the currency in question, i.e. the client's funds remain in the client's payment account, effectively resulting in, for example, a corresponding amount in USD instead of the amount in EUR being credited to the client’s account.

Transactions are made with clients either over the phone or online via a web-based environment. Our members do not charge clients any specific fee for making a spot currency transaction.

The transfer to another payment account is always made by our typical member without currency conversion. The trading system is also set up in this way, so currency conversion cannot occur when transferring funds to another payment account with our member or another payment service provider.

We submit the following interpretation for consideration:

Article 5(1) of Regulation 2021/1230 stipulates as follows: "Where the payer's payment service provider offers a currency conversion service in connection with the reimbursement within the meaning of Article 4(24) of Directive (EU) 2015/2366, which is initiated directly online, namely via the payment service provider's website or mobile banking application, the payment service provider shall with regard to Article 45(1) and Article 52(3) of that Directive, inform the payer in a clear, neutral and comprehensible manner of the expected fees for currency conversion services relating to the relevant p reimbursement before the initiation of the payment transaction."

Article 4(24) of PSD 2 stipulates that a “reimbursement" [means for the purposes of this Directive] a payment service for the purpose of crediting the payee's payment account by means of a payment transaction or a series of payment transactions from the payer's payment account carried out based on the payer's instructions with a payment service provider with which the payer has opened a payment account."

Our association considers that the following is clear from these provisions:

A reimbursement in PSD 2 refers to a credit transfer from one payment account to another payment account i.e., a situation where one payment account incurs a debit and another account incurs a credit, thus leading to a transfer of economic value between two payment accounts. The term reimbursement under PSD 2 does not automatically include currency conversion per se; on the contrary, PSD 2 explicitly distinguishes between reimbursement and currency conversion (cf. Article 45(1)(d) and Article 48(d) of PSD 2).

In summary, the above currency conversion can explicitly stand alone apart from reimbursement. Currency conversion can also be carried out by a person other than the provider without the need for subsequent reimbursement.

Thus, the conversion itself in this case stands completely outside the payment services regulation under PSD 2, as it does not meet the features of a ‘reimbursement’ under Article 4(24) of PSD 2. As indicated, in the context of a conversion, the provider and the user agree on a separate transaction, which does not meet the features of a payment transaction or a reimbursement, and therefore payment services regulation does not apply. Thus, in the context of a conversion, the provider and the client are between them settling obligations not arising from the payment service, similar to the case, for example, where the provider pays interest to the client on funds entrusted to it or where the client pays a fee to the provider.

This conclusion is also supported by the European Commission’s FAQs document on Regulation 2019/518 in point 21(2), according to which the scope of Regulation 2019/518 (or Regulation 2021/1230) is not in place where a reimbursement is made without the payer provider having carried out a currency conversion, as "the client chooses to make the reimbursement in the currency in which the reimbursement is to be made".

From this wording we understand that the European Commission's interpretation is primarily directed at cases of reimbursements (i.e., transfers from a payment account to another payment account), i.e., smooth payments, and not at other cases such as a spot currency transaction that is not made in the context of a reimbursement [or in direct connection with a reimbursement] to another payment account (credit transfer).

From the perspective of transparency of payment services, even in the case of such a spot currency transaction, the client always has all the parameters of the transaction at his or her disposal prior to its conclusion. Moreover, it is entirely up to an individual client to decide whether or not to enter into a transaction under the given conditions. This represents a material difference from a situation where the client places a payment order and the conversion is carried out by the provider itself (according to its terms and conditions) without any further interaction with the client as assumed in Regulation 2021/1230.

Practical example

A client has Czech crowns and wants to receive e.g. EUR 1,000 through a FX spot transaction, which he or she can later transfer abroad. Here is a typical overview of the operations taking place in the client's sub-account before and after the arrangement/settlement of the foreign exchange transaction. The moment of placing an order for a spot transaction and the moment of placing a payment order for payment are independent of each other and entirely at the client's discretion (to simplify this, let’s assume that an individual exchange rate has been agreed for the conversion – EUR 1 = CZK 25):

a)         The initial balance in the payment account is CZK 35,000 and EUR 500

b)         After talking to the payment service provider, the client has agreed on a spot transaction – currency conversion (EUR 1,000 for CZK 25,000), i.e., the balance in the payment account is CZK 10,000 and EUR 1,500

c)         Placing of a payment order by the client – Outgoing payment from the payment account (- EUR 300), the payee accepts the payment in EUR

d)         New incoming payment to payment account (+ EUR 200)

e)         Placing of another payment order by the client

f)         Outgoing payment from the payment account (- EUR 1,000), the payee accepts the payment in EUR

g)         The final balance in the payment account is (CZK 10,000, EUR 400)

The FX spot transaction (point b) from the previous example is a separate operation independent of other operations taking place in the client's payment account (points c) through f)); a sufficient balance in the payment account in CZK is required for its execution. How this balance was previously created or how it was subsequently used is irrelevant for the execution of the FX spot transaction as the spot transaction is arranged with the client completely separately, without any link to other outgoing or incoming payments.