EMD3 and PSD3: What the EU's New Payment Framework Means for UK EMIs

The European Commission published its proposals for a revised Payment Services Directive (PSD3) and a Payment Services Regulation (PSR) in June 2023, alongside the proposal to merge the Electronic Money Directive (EMD2) into this new framework. This represents the most significant structural change to EU payment regulation since PSD2 entered into force in 2018. For UK-authorised electronic money institutions, the implications are material, particularly for firms with EU customer bases, EU agent networks or aspirations to operate across European markets. This article examines the key changes and their practical impact on UK EMIs.

What Is EMD3 and Why Is It Happening?

The term 'EMD3' is used colloquially to describe the absorption of the Electronic Money Directive into the new PSD3 framework. Strictly speaking, there is no standalone EMD3: the European Commission's approach is to merge e-money regulation into PSD3 and the accompanying Payment Services Regulation (PSR), eliminating the separate directive entirely. The rationale is that the distinction between payment institutions and electronic money institutions has become increasingly artificial. Many PIs issue stored value that functions identically to e-money, and many EMIs provide payment services that are indistinguishable from PI activities. The Commission concluded that maintaining two separate authorisation regimes for substantially similar activities creates unnecessary complexity, regulatory arbitrage opportunities and consumer confusion.

Under PSD3, the issuance of electronic money becomes a regulated payment service, meaning it can be conducted under a single payment institution authorisation. The separate EMI licence category ceases to exist in the EU. Existing EU-authorised EMIs move to the new framework through a transitional regime. They must submit information showing they meet PSD3 within 27 months of entry into force, or 30 months where the regulator could not process an on-time submission. Until then they continue under their EMD2 authorisation.

Key Changes Under PSD3/PSR for E-Money

Single authorisation framework. EU firms will no longer need to choose between PI and EMI authorisation. A single licence covers all payment services including e-money issuance. This simplifies the authorisation landscape but requires existing EMIs to transition their permissions.

Enhanced safeguarding requirements. EMIs must safeguard customer funds by the end of the business day after receipt, down from five business days under EMD2. Firms should avoid holding all customer funds with one credit institution, and the European Banking Authority will set technical standards on managing safeguarded funds. The EU approach differs from the UK's CASS 15 regime, in force since 7 May 2026 under PS25/12.

Stronger consumer protection. The PSR makes payment service providers refund customers tricked by fraudsters impersonating the provider, where the customer reports it to the police and the provider. Providers must also check that a payee's name matches its account identifier. The UK's reimbursement rules for authorised push payment fraud are wider in scope and work differently.

Open banking evolution. PSD3 strengthens requirements around access to payment account data, addressing the practical barriers that have limited open banking adoption under PSD2. Account servicing payment service providers (ASPSPs) face enhanced obligations to provide reliable API access.

Stricter AML integration. The new rules sit alongside the EU's Anti-Money Laundering Regulation (AMLR), which applies from 10 July 2027, and the Anti-Money Laundering Authority (AMLA), the new EU-level AML supervisor.

Impact on UK EMIs

The UK is not adopting PSD3 or the PSR. The FCA retains the existing regulatory framework under the Payment Services Regulations 2017 (PSRs 2017) and the Electronic Money Regulations 2011 (EMRs 2011). There are no current UK proposals to merge PI and EMI licensing, so UK EMI authorisation and API authorisation remain separate routes. This means UK and EU payment regulation will diverge further as PSD3 comes into force.

No passporting. Since 31 December 2020, UK EMIs cannot passport into the EU. This position does not change under PSD3. UK firms serving EU customers must either establish an EU-authorised entity (under the new unified PI framework) or partner with an EU-licensed institution. Firms that previously relied on passporting and have not yet restructured their EU operations face an increasingly urgent timeline.

Dual-regime compliance. UK EMIs with EU operations, whether through subsidiaries, agents or direct customer relationships, will need to comply with both the UK's EMRs 2011 framework and the EU's PSD3/PSR framework simultaneously. The divergence in safeguarding requirements, consumer protection obligations and AML standards will increase compliance complexity and cost.

Competitive positioning. The unified EU authorisation may make it simpler for EU-based competitors to offer combined payment and e-money services, while UK EMIs operating in the EU must navigate the new framework from scratch. Conversely, the UK's retention of a distinct EMI regime may offer regulatory clarity for firms operating exclusively in the UK market.

Safeguarding divergence. The UK's PS25/12 safeguarding reforms and the EU's PSR safeguarding provisions are developing on parallel but distinct tracks. UK EMIs operating in both jurisdictions will need to maintain safeguarding arrangements that satisfy both regimes, which may require separate safeguarding accounts, different reconciliation frequencies and dual reporting.

Timeline and Legislative Process

The agreed text is now public, so UK EMIs with EU exposure can plan against it.

What Firms Should Do Now

1. Audit your EU exposure: identify all EU customers, agents, distributors and partner relationships that may be affected by PSD3.
2. Assess your EU market strategy: determine whether you need an EU-authorised entity under the new framework or whether partnering arrangements are sufficient.
3. If establishing an EU entity, begin the authorisation planning process now: Lithuania, Ireland and the Netherlands are among the jurisdictions UK groups often consider.
4. Map safeguarding divergence: compare your current UK safeguarding arrangements against the emerging PSR requirements to identify where dual compliance will require operational changes.
5. Review AML frameworks: assess whether your AML programme can accommodate both UK MLR requirements and the EU's new AMLR framework.
6. Engage specialist regulatory counsel to navigate dual-regime planning and EU authorisation strategy.

Regulatory Context and Outlook

The divergence between UK and EU payment regulation is accelerating. While both jurisdictions are strengthening safeguarding, consumer protection and AML requirements, they are doing so through different legislative instruments with different timelines and different detailed requirements. For UK EMIs, this creates a compliance environment of increasing complexity, but also opportunity. Firms that plan proactively for dual-regime operation will be better positioned than those that react to legislative deadlines.

Regulatory Counsel advises UK EMIs on PSD3/EMD3 implications, EU market access strategies, dual-regime compliance planning and EU authorisation applications. Contact us for a written proposal. See our EMI sector page for more on our EMI advisory services.