How Brexit will affect your cross-border payments?

Cross-border payment is one of the crucial benefits of being part of the European Union. Residents of all member states could make free transfers between the countries without any difficulties. Now that the United Kingdom has left and the EU law has stopped being implemented from January 2021, cross payments between the two have become far more complicated. This article will explore the difference in views in banks followed by the impact of Brexit on cross-border payment between the UK and the EU/EEA.

The European Union spent almost a decade harmonising borderless transactions for the sake of its residents. They implemented the Second Payment Services Directive (PSD2) to create a unified competitive payments market. All transfers in any currency within the EEA and UK were to be treated as domestic payments by the Payment Service Providers (PSPs). Residents were given the protection for their principal amount, eliminated transfer costs and simplified data requirements. With Brexit, all cross-border operations with the EU/EEA were withdrawn. Many payment service providers had to restructure their business model and transaction schemes. Existing regulations came up with new complex measures to operate alongside the current European payment scheme. 

The European Banking Authority has clarified some of the changes on cross-border transactions as a result of Brexit. Below are the results that Brexit had on borderless payments:

1. Providing additional data

Anyone making a cross-border payment or setting a direct debit between EU and UK will need to provide additional data. Under the Funds Transfer Regulation, transactions between EU and UK now requires the account holder to provide the payer's address, personal document number, customer ID number, date and place of birth. The payment service provider may reject the transaction if the information is not provided.

2. Paying additional charges

Since payments between the UK and EEA/EU are no longer considered as intra-EEA payments under PSD2, cross-border transactions are not protected from fee deductions or chargebacks. As of January 2021, UK will be participating in the SEPA scheme as a "non-EEA SEPA" country. However, the view is varied amongst banks as the payment will be treated at transactions made between EEA and non-EEA jurisdictions.

Some European banks have been imposing additional charges on payments between the UK and Europe. Some banks in Spain particularly are charging account holders exorbitant fees (as high as 18 GBP) for transactions between Spain and UK and some are rejecting direct debits from UK. While the EPC urges account holders to contact submit a complaint to the relevant authority in the member state, it does not offer much of a solution.  Because according to section 4 of the SCT (Inst) and SDD (B2B) Rulebook, the level of charges levied against an account holder is entirely a matter between them and the banks and that the EPC are not in the position to evaluate the legality of the transactions.

Meaning many transactions will keep being charged until the state takes a massive action against the institutions.

3. IBAN discrimination

IBANs or International Bank Account Number is a system of identifying bank accounts globally around the world to make cross-border payments secure and easier. Even though the European Payment Council has confirmed that the UK will continue to participate in the SEPA scheme, some companies are refusing SEPA payments and direct debits from GB IBAN. Known as IBAN discrimination, it is illegal and account holders should submit a complaint to relevant authorities should they face such a barrier. Read our article on avoiding IBAN discrimination to learn more about it. 

4. Deposit protection scheme

EU/EEA residents are not prevented from having a bank account in the UK and vice versa. Accounts held with UK banks will be subject to UK laws and will be protected by their deposit protection scheme. However, if the bank account is held in an EU branch, then the UK deposit protection scheme will not apply to that account. If you hold a UK bank account in an EU branch, you should get in touch with the branch authority or the national supervisory authorities of the member state to find more about your deposit protection scheme.  

On the other hand, if you hold an EU bank account in a UK branch, it will be covered by the UK deposit scheme. 

Last update: 24/09/2021

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