Payment institutions

09 April 2009

Article contents:

  1. Licensing and mutual recognition
  2. Minimum capital and own funds requirements
  3. Non-exclusive activity
  4. Safeguards
On 1 November 2009, a new system for regulating payment services will be introduced in Bulgaria.

The changes are intended to comply with EU law and contribute to the creation of a single euro payment area. They involve the repeal of the 2005 Money Transfers, Electronic Payment Instruments and Payment Systems Act, to be replaced by a new Payment Services and Payment Systems Act (and secondary legislation to implement it which has not yet been produced).

The key changes are: 

Licensing and mutual recognition

  • a new category of payment service providers, payment institutions, which are to be licensed by the Central Bank and, depending on their licence, may provide payment services throughout the EU (under the mutual recognition principle)

  • all companies carrying out payment services which are regulated under the new Act must apply to the Central Bank for a licence

  • by 31 January 2010, all payment system operators and companies licensed to undertake cash money transfers will have their licences updated and be registered in a special Payment Institutions Registry

  • by 31 January 2010, all existing payment service providers must bring their activities into compliance with the new system

Minimum capital and own funds requirements

In line with EU law, payment institutions are subject to lower minimum capital requirements than credit institutions.  Minimum capital requirements are: 
  • BGN 40,000 where only cash transfer services are provided

  • BGN 10,000 where payment transactions are only executed with the payer’s consent given by telephone, mobile or internet device and the payment is made to the telephone, mobile or internet network operator acting as intermediary between payer and supplier

  • BGN 250,000 in all other cases
 Payment institutions must also maintain funds of a set percentage of their payment volume at all times.

Non-exclusive activity

Payment institutions may engage in additional business activities, including: 
  • operational and closely related ancillary services such as money exchange, document keeping and data processing

  • acting as a payment system operator provided there is no settlement finality

  • any other business activity (in which case the Central Bank is authorised to require its separation from the payment services activity if it may affect the financial stability of payment institution or the ability of the Central Bank to monitor its compliance with the law)

  • lending activity, subject to certain conditions

Safeguards

Whether or not payment institutions conduct other business activities:
  • where they maintain payment accounts, they may receive funds from users only for the purpose of providing payment services

  • funds received from users do not represent deposits (as defined in the Credit Institutions Act), are not interest bearing and are not subject to deposit guarantee schemes

  • they must keep client funds separate from their own funds for other business activities

  • they must deposit client funds in a bank account, if they are not delivered to the payee or to another payment service provider by the end of the business day after the day on which such funds are received from the user

  • client funds deposited in such bank accounts cannot be subject to injunction or enforcement proceedings for the payment institution’s own liabilities to persons other than the payment service users

  • if the payment institution becomes insolvent, funds received to execute payment transactions are not included in the insolvency estate
 Law: Directive 2007/64/EC; Payment Services and Payment Systems Act
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