The UK’s consultation on deregulating commercial agents could have knock-on impacts on payment services and create regulatory divergence from the EU.
On 16 May 2024, the UK government launched a consultation into the deregulation of the Commercial Agents (Council Directive) Regulations 1993 (the Commercial Agents Regulations). The Commercial Agents Regulations implemented Council Directive 86/653/EEC (the Commercial Agents Directive) and defined certain pro-agent terms of engagement between businesses and their self-employed commercial agents who are authorised to negotiate the sale or purchase of goods on their behalf.
The stated purpose of the consultation is to ensure that the Commercial Agents Regulations serve the needs of UK businesses post-Brexit, and to remove the legal complexities resulting from the interaction of the Commercial Agents Regulations with the English legal system’s rules on agency and contract law. The UK government’s current proposal is for existing contracts under the Commercial Agents Regulations to remain in force until termination or expiry, and to prevent new contracts from being subject to the Commercial Agents Regulations.
In addition to affecting relationships between UK agents and their principals, the proposals could also have knock-on effects for the payments sector, which we explore in this post.
Commercial Agents and Payment Transactions
The amended Payment Services Directive (PSD2) came into effect in the UK in January 2018 through the implementation of the Payment Services Regulations 2017 (the UK Payments Regulations). PSD2 includes an exclusion to the effect that certain payment transactions will not constitute a regulated payment service if the transaction is concluded through a commercial agent who, acting on behalf of either the payer or the payee, is authorised in an agreement to negotiate or conclude the sale or purchase of goods or services. Many e-commerce platforms and marketplaces have historically relied upon this exclusion to remain outside the scope of the regulated payment services regime, allowing them to facilitate the passing of funds from buyers to sellers without having to obtain payment services licences.
In June 2023, the European Commission proposed a new Payment Services Directive (PSD3) and a new Payment Services Regulation (PSR). The proposal aims to harmonise and clarify the concept of the commercial agent exclusion given the significant divergence in the local implementations of the exclusion and PSD2. The European Commission’s proposal is therefore to:
- rely on the definition of a commercial agent as set out in the Commercial Agents Directive;1 and
- further narrow the commercial agents exclusion by requiring the following conditions to be satisfied:
- The commercial agent must be authorised via an agreement to negotiate or conclude the sale or purchase of goods or services on behalf of the payer or the payee (but not both), irrespective of whether the commercial agent possesses the client’s funds.
- Such agreement gives the payer or the payee a real margin to negotiate with the commercial agent or conclude the sale or purchase of goods or services.
The proposed PSR (which is subject to proposed amendments of the European Parliament) further provides that the European Banking Authority should develop guidelines specifying the criteria for the exclusion for payment transactions from the payer to the payee through a commercial agent. These guidelines should provide further clarity and convergence among competent authorities and may include a repository of use cases typically covered by the commercial agent exclusion.
What Is the Impact of the UK and EU Proposals?
The European Commission’s proposals for PSD3 and the new PSR will not take effect in the UK. They do, however, pose various questions for the UK government to consider if commercial agents are deregulated in the UK and UK Payments Regulations are to be updated in the future.
One question is whether the UK government will seek to revisit the commercial agents exclusion under the UK Payments Regulations and, if so, how it will define what a commercial agent is for the purpose of the exclusion.
As part of the UK government’s January 2023 Call for Evidence on the Payment Services Regulations, the government sought views on whether the exclusions under the UK Payments Regulations continue to be appropriate (including the commercial agent exclusion). A fulsome review of the UK Payments Regulations has since been pending as part of the government’s Smarter Regulatory Framework workplan, and we are yet to hear specific Labour government plans for UK Payments Regulations and the continuance of this process. Because the current UK Payments Regulations, PSD3, and the PSR originate from the same source, the outcome of the UK consultation on the deregulation of commercial agents may result in further divergence between the commercial agency exclusion under the UK Payments Regulations and the equivalent exclusion in the EU. The FCA’s existing Perimeter Guidance on the availability of the commercial agent exclusion does not focus on the margin to negotiate or conclude agreements, and arguably that is not what the legislation requires when it refers to “negotiate or conclude”. This appears to be a new focus of the Commission and one which could significantly narrow the exclusion’s availability and use, compared to the UK’s current stance and its prevalence in the UK.
Even absent further divergence, commercial agents providing payment services in both the EU and UK will likely be required to comply with two distinct regulatory regimes after the implementation of PSD3 and the PSR in the EU and, potentially, use two distinct operating models to continue to offer their services in both markets.
The UK government’s consultation on deregulation of commercial agents was open until 1 August 2024, while final versions of PSD3 and the PSR are expected towards the end of 2024 or early 2025.
