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Oversight of cashless means of payment

Challenges and objectives

Cashless payments play an increasingly prominent role in the French monetary system. Their security is thus paramount in order to maintain public confidence in the currency and guarantee the smooth functioning of the economy. In short, consumers need cashless payment instruments that are efficient, reliable and secure.

In supervising cashless means of payment, the Banque de France must take care to avoid stifling competition and innovation in what is clearly a rapidly evolving, hi-tech field. The Bank therefore refrains from promoting any particular technological solution; the choice and marketing of individual solutions are left to issuers and managers of means of payment.

 

Legal framework

The Banque de France was given specific responsibility for the oversight of cashless payment instruments by the law of 15 November 2001, which requires it to ensure “that the means of payment other than fiduciary currency, are secure and that the regulations applicable thereto are pertinent” (Article L.141-4 of the French Monetary and Financial Code).

The scope of the Banque de France’s oversight is broad. Article L. 311-3 of the Monetary and Financial Code defines cashless means of payment as “any instrument which enables any person to transfer funds (…), regardless of the medium or the technical process used”. In practice, this covers all bank transactions, as well as all activities relating to the issuance and management of non-cash payment instruments. The law of 28 January 2013 extended this scope further to cover special payment vouchers such as luncheon and holiday vouchers, which are subject to special legal and regulatory requirements. Moreover, the Bank is responsible for verifying the security and efficiency of work carried out by third-party service providers on behalf of credit and payment institutions.

In order to perform its duties, the Banque de France conducts assessments of existing payment instruments and may request access to any information it deems useful. On the basis of these checks, under Article L.141-4 of the Monetary and Financial Code, “if it considers that any means of payment offer insufficient guarantees of security, it may recommend that the issuer take all appropriate measures to remedy the situation. If such recommendations are not followed, it may, having obtained the issuer’s observations, decide to draft a negative opinion for publication in the Official Journal”.

These explicit responsibilities are unique in Europe, where the oversight of means of payment by national central banks most often falls within the scope of payment systems supervision. This is also the case for the Eurosystem, whose mandate for means of payment stems from the founding treaties of the European Union (Article 127.2 of the Treaty on the Functioning of the European Union) and from the Statutes of the ESCB and the ECB (Articles 3.1 and 22) on the promotion of the smooth operation of payment systems.

It is on this basis that the Eurosystem intervened to define a set of core principles for assessing card payment systems and transfer and direct debit schemes. Now that the changeover to SEPA has been completed, the Banque de France is increasingly required to work in cooperation with its European partners.

 

Implementation

The operational framework for the oversight of cashless means of payment comprises two main axes:

 

  • Definition of security objectives

To ensure that payment instruments are secure, the Banque de France verifies that they meet a set of explicit and publicly available criteria, presented in the form of minimum security requirements (oversight framework) for each type of instrument.

The standards, defined by the Banque de France, or by the Eurosystem in the case of euro area-wide instruments, constitute a basic framework for the conduct of security oversight. In following these standards, the Banque de France ensures its procedures are as transparent as possible and provides issuers with a guarantee of fair treatment.

Among the various frameworks it has established, the Banque de France has defined a set of consumer protection criteria for online banking in conjunction with the banking industry (September 2004), as well as oversight frameworks for cheques (July 2005) and universal service employment cheques (or CESUs, February 2007, revised in 2014). In 2015 it also published an oversight framework for special payment vouchers, along with an assessment guide for issuers. The Eurosystem, meanwhile, has published harmonised oversight frameworks for payment cards (January 2008), direct debits (October 2010) and bank transfers (October 2010). Assessment guides are also available for all three types of instrument.

 

  • Off-site controls and on-site inspections

As part of its oversight, the Banque de France carries out off-site assessments which consist in verifying the self-assessments produced by payment instrument issuers in order to check whether they comply with the relevant oversight framework.

Payment instruments governed by a standard Eurosystem framework are verified using a harmonised approach which was first defined in 2009 and then updated in 2011: Harmonised Oversight Approach and Oversight Standards for Payment Instruments.

To gain a better insight into user habits and the risks associated with cashless payments, the Banque de France compiles annual statistics on aspects such as the use of payment instruments and incidents of fraud.

The ACPR also consults the Banque de France when processing applications for licences from payment institutions and electronic payment institutions. Under Article L. 141-4 of the Monetary and Financial Code, it asks the Bank to verify the technical, IT and organisational resources put in place by the applicants to ensure the security of their proposed activities; the Bank in turn issues a positive or negative assessment - positive assessments may or may not be subject to conditions.

In addition to these activities, the Banque de France carries out several on-site inspections each year. These can be at payment service providers, payment card providers or technical service providers, and their aim is to verify as broad as possible a selection of payment instruments or methods of payment origination. The inspections give the Bank greater insight into those segments of the market that need to be monitored more closely.

 

Oversight frameworks and assessment guides

 

Eurosystem public oversight frameworks

Banque de France public oversight frameworks

Updated on: 12/06/2016 15:14