21 June 2019
The European Banking Authority (EBA) published today an Opinion on the elements of strong customer authentication (SCA) under the revised Payment Services Directive (PSD2). The Opinion is a response to continued queries from market actors as to which authentication approaches the EBA considers to be compliant with SCA. The Opinion also addresses concerns about the preparedness and compliance of some actors in the payments chain with the SCA requirements that apply as of 14 September 2019.
Today's Opinion provides a non-exhaustive list of the authentication approaches currently observed in the market and states whether or not they are considered to be SCA compliant. The Opinion does so separately for each of the three SCA elements of knowledge, possession and inherence, and also provides clarifications regarding combinations of these elements.
The Opinion also responds to the concerns about market preparedness, by clarifying that the EBA is legally not able to postpone an application date that is set out in EU law. The Opinion also explains that sufficient time has been available for the industry to prepare for the application date of SCA, given that the definition of SCA had been set out in PSD2 when it was published in 2015, which gave clear indications that existing authentication approaches would need to be phased out, and because PSD2 already granted an additional 18-month period for the industry to implement SCA.
However, the Opinion acknowledges the complexity of the payments markets across the EU and the challenges arising from the changes that are required, in particular by actors that are not payment service providers (PSPs) and, therefore, not directly subject to PSD2 and the EBA's technical standards, such as e-merchants, which may lead to some actors in the payments chain not being ready by 14 September 2019.
The EBA, therefore, accepts that, on an exceptional basis and in order to avoid unintended negative consequences for some payment service users after 14 September 2019, NCAs may decide to work with PSPs and relevant stakeholders, including consumers and merchants, to provide limited additional time. This is to allow issuers to migrate to authentication approaches that are compliant with SCA, such as those described in this Opinion, and acquirers to migrate their merchants to solutions that support SCA.
This supervisory flexibility is available under the condition that PSPs have set up a migration plan, have agreed the plan with their NCA, and will execute the plan in an expedited manner.
In order to fulfil the objectives of PSD2 and the EBA of achieving consistency across the EU, the EBA will later this year communicate deadlines by which the aforementioned actors will have to have completed their migration plans.
The revised Payment Services Directive was published in November 2015, entered into force on 13 January 2016 and applies since 13 January 2018. The Directive brings fundamental changes to the payments market in the EU, in particular by requiring SCA to be applied by payment services providers (PSPs) when carrying out remote electronic transactions.
SCA is defined in the Directive as an "authentication based on the use of two or more elements categorised as knowledge (something only the user knows), possession (something only the user possesses) and inherence (something the user is) that are independent, in that the breach of one does not compromise the reliability of the others, and is designed in such a way as to protect the confidentiality of the authentication data." The Directive also provides that SCA is to be applied to all electronic payments, unless one of the exemptions applies.
The EBA had been mandated to support the Directive by developing regulatory technical standards (RTS) setting out the details on strong customer authentication and common and secure communication (RTS on SCA and CSC), including its exemptions, and to regulate the access to customer payment account data held in account servicing payment service providers.
The RTS were developed in 2015/16, consulted on during 2016/17, adopted as Commission Delegated Regulation (EU) 2018/389 on 27 November 2017, published in the Official Journal on 13 March 2018, and will legally apply from 14 September 2019. The RTS deliberately refrains from referring to any particular authentication approaches in the industry, in order to ensure that the RTS remains technology neutral and future-proof.
The EBA issued the Opinion in accordance with Article 29(1)(a) of its Founding Regulation, which mandates the Authority to play an active role in building a common Union supervisory culture and consistent supervisory practices, as well as in ensuring uniform procedures and consistent approaches throughout the Union.