Response to consultation on separation of payment card schemes and processing entities under the IFR
Go back
In order to reduce the risk of conflict between the draft RTS and applicable accounting standards pursuant to which legally separated scheme and processing entities produce their audited accounts, we respectfully suggest that the RTS should make clear that Article 4 (and the linked obligation in Article 3(2)) is directed at circumstances where there has been divisional separation.
Where legally separated scheme and processing entities produce separated audited statutory accounts, we consider that this would satisfy the requirement of Article 5(1) of the draft RTS. Article 5(2) would not appear to be applicable in such circumstances (since it would appear to us to be directed to circumstances where there is a divisional separation).
We respectfully suggest therefore that a new sub-clause of Article 5 should clarify that legally separated scheme and processing entities meet the audit requirement by having separate audited statutory accounts.
To the extent that Article 5(2) is applicable where there is legal separation between scheme and processing entities (and we explain above that we do not consider it to be applicable) we would point out that each such legally separate entity might have a different auditor. As such no single auditor may have access to all information relating to both the scheme and the processing activities. The wording of Article 5(2) would, in our respectful view, need to be amended to take account of this fact. This would not however be necessary if the preparation of separate statutory audited accounts would be compliant with Article 5(1) of the RTS which we believe would be the case.
The definition of this term in Article 14 is helpful, but as currently formulated, it introduces a level of operational uncertainty as to what constitutes "sensitive information". What constitutes information that may provide a competitive advantage is capable of different interpretations and could entail the exercise of judgement on a case by case basis, making it difficult to operationalise procedures to ringfence information. This is particularly so where both scheme and processing are conducted within the same legal entity or with different group entities.
JCBIE understands that the EBA does not want to limit the information that could be considered to be "sensitive information". However the existing definition does not provide sufficient guidance as to the scope of the definition. This could lead to inadvertent breach of the organisational separation requirements of the EBA draft RTS."
While Recital 32 of the draft RTS emphasises that national competent authorities should have regard to proportionality principles in applying the draft RTS, where an entity is based outside the EU, it is unclear who that entity's national competent authority will be. Accordingly, it will be difficult to determine which national competent authority's rules such an entity would need to comply with.
We recognise that both the limitations of the territorial scope set down in Article 1 of the IFR and the mandate provided to the EBA limit the EBA's power to provide guidance on this point, however to the extent it is within the EBA's mandate, we hope EBA could clarify how these principles of proportionality apply to entities who are not domiciled in the EU.
1. Do you agree with the proposals outlined in Section 1 of the draft RTS regarding general provisions?
JCB International (Europe) Limited (JCBIE") agrees with the proposals outlined in Section 1 of the RTS regarding general provisions."2. Do you agree with the proposals outlined in Section 2 of the draft RTS regarding accounting?
We consider that the requirement for scheme and processing entities to be separate in terms of accounting processes under Article 7(1)(a) of the Interchange Fee Regulation would be fully met by legally separated scheme and processing entities each presenting their own audited balance sheets, profit and loss accounts and explanatory notes to those accounts. This would also, in our view, satisfy the requirements of Article 3(1) of the RTS as presently drafted.In order to reduce the risk of conflict between the draft RTS and applicable accounting standards pursuant to which legally separated scheme and processing entities produce their audited accounts, we respectfully suggest that the RTS should make clear that Article 4 (and the linked obligation in Article 3(2)) is directed at circumstances where there has been divisional separation.
Where legally separated scheme and processing entities produce separated audited statutory accounts, we consider that this would satisfy the requirement of Article 5(1) of the draft RTS. Article 5(2) would not appear to be applicable in such circumstances (since it would appear to us to be directed to circumstances where there is a divisional separation).
We respectfully suggest therefore that a new sub-clause of Article 5 should clarify that legally separated scheme and processing entities meet the audit requirement by having separate audited statutory accounts.
To the extent that Article 5(2) is applicable where there is legal separation between scheme and processing entities (and we explain above that we do not consider it to be applicable) we would point out that each such legally separate entity might have a different auditor. As such no single auditor may have access to all information relating to both the scheme and the processing activities. The wording of Article 5(2) would, in our respectful view, need to be amended to take account of this fact. This would not however be necessary if the preparation of separate statutory audited accounts would be compliant with Article 5(1) of the RTS which we believe would be the case.
3. Do you agree with the proposals outlined in Section 3 of the draft RTS regarding organisation?
We agree with the principle set out in the draft RTS that sensitive information" should not be shared. However we believe that further clarity could be provided to assist in defining the types of information that would fall within the scope of "sensitive information".The definition of this term in Article 14 is helpful, but as currently formulated, it introduces a level of operational uncertainty as to what constitutes "sensitive information". What constitutes information that may provide a competitive advantage is capable of different interpretations and could entail the exercise of judgement on a case by case basis, making it difficult to operationalise procedures to ringfence information. This is particularly so where both scheme and processing are conducted within the same legal entity or with different group entities.
JCBIE understands that the EBA does not want to limit the information that could be considered to be "sensitive information". However the existing definition does not provide sufficient guidance as to the scope of the definition. This could lead to inadvertent breach of the organisational separation requirements of the EBA draft RTS."
4. Do you agree with the proposals outlined in Section 4 of the draft RTS regarding independence of decision making process?
JCBIE agrees with the proposals outlined in Section 4 of the RTS regarding general provisions.5. Do you have any other comments?
It is unclear from either the IFR or draft RTS the scope of application of the draft RTS to entities domiciled outside the EU. In particular it is unclear how the draft RTS accounting and audit requirements will apply to such entities.While Recital 32 of the draft RTS emphasises that national competent authorities should have regard to proportionality principles in applying the draft RTS, where an entity is based outside the EU, it is unclear who that entity's national competent authority will be. Accordingly, it will be difficult to determine which national competent authority's rules such an entity would need to comply with.
We recognise that both the limitations of the territorial scope set down in Article 1 of the IFR and the mandate provided to the EBA limit the EBA's power to provide guidance on this point, however to the extent it is within the EBA's mandate, we hope EBA could clarify how these principles of proportionality apply to entities who are not domiciled in the EU.