Thursday, September 24, 2020

Facebook: a limited network exemption in the Netherlands?

Here is a brief post, to alert professionals in the field to the fact that Facebook Inc has in the Netherlands been registered as an exempt institution out of scope of the payments directive based on the article 3k/3l in the PSD2:

The filing occured in february 2020 but it is not the only entry in our registers. The same company holds an incoming EU-license, originating from Ireland, to do payments business as a cross-border service. So there is a generic incoming payments license (see the blog here), the discussion on Libra/Calibra (see here) but also a local exemption.

What is the exemption all about: origins

When we go back to the original legislation we see the PSD2 having an exemption for small scale payment methods. 

This exemption dates back to the e-money directive of 2000 which stipulated a waiver for small scale appearances of e-money. 

And this waiver was born out of the understanding of supervisors that it would not make sense to go about checking all kinds of sports events, local stadiums or situations where owners of closed loop ecosystems offered digital forms of money on cards. It specifically took out campus-money systems as too irrelevant to be concerned about. Although also those campus systems were bound to rules as to refunding on request, proper contractual arrangements and limits on the devices.

Exemption in practice for Facebook: for gaming

The register seems to outline in-gaming payments as the focus for the exemption: 

Facebook provides an in-gaming payment service which enables Facebook users to purchase digital content within online games.

Now, as I don't know the details of the mechanism at play, nor the considerations of the regulator, I do wonder how this works. Does this mean that if Facebook puts in place a closed loop payment environment for games, they steer away from all regulation? Regardless of their worldwide scope?

I don't think this was really the intention of that exemption, so I am a bit puzzled here. 

Or is it a crypto-asset?

The next question is: would it perhaps fall under the definition of crypto-asset of the recently proposed EU legislation:"

(b) ‘crypto-asset’ means a digital representation of value or rights, which may be transferred and stored electronically, using distributed ledger or similar technology;  

Technically I would say yes, because similar technoloy in terms of distributed ledgers is a wide concept, effectively encompassing all ICT-tooling available. But the jury is still out of course.

Where are we heading with Facebook in Europe?

While we can fuss about the small print, as above, I think the regulators would be well advised to look at the broader picture. Facebook has a bad track record in terms of supporting proper communication, democracy and being responsible to parliaments. It violates EU privacy laws and is taking the EU to court to push away that problem.

Meanwhile all the stablecoin reports have a huge red bulb flashing: watch out for worldwide bigtech platforms doing their own payment think and destabilising economies. Don't let them move. With the result that Facebook quickly rebranded its Libra initiative into a different name (separating profitable single wallet business from the dead-on-arrival Libra-long term identity play - see 3 blogs here).

Of course I might be missing something here in the picture. But if anyone can explain why it would make sense to exempt inpayment gaming payments on worldwide Facebook as a limited network, I am open to ideas.