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Last stage of PSD2 is incoming, but the road ahead is still fraught with danger

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Last stage of PSD2 is incoming, but the road ahead is still fraught with danger

Ralf Ohlhausen, Executive Advisor at PPRO and Vice-Chairman of ETPPA

Banks, FinTechs and Third-Party Providers (TPPs) are facing a very steep cliff-edge with the impending arrival of Strong Customer Authentication (SCA) and the final implementation of PSD2. Action must be taken very urgently by all PSD2 regulators in Europe to avoid plummeting. With the September 14th deadline fast approaching, the market is not fully prepared for it, which may leave customers vulnerable to service failures and fraud when accessing their bank data and carrying out payments online. For card payments this has been recognised and it looks like another 18 months will be given to get things right. Unfortunately, for TPPs who are brought into a similar situation with no fault on their side, this is not yet the case.

One of the major factors as to why they have arrived at this juncture is because all necessary Application Programming Interfaces (APIs) should have been in place by March 14th and in production mode by June 14th, but in reality, even today, many are not available at all and the vast majority is not functional as required. It is these APIs that TPPs shall migrate their services and customer base to, and thus, ensuring they are acting within the regulations. To make matters even worse the required eIDAS certificates to use the APIs were not available by this deadline either. All in all, this hasn’t been managed and executed effectively, resulting in the tricky conundrum we are now in.

Part of the reason that this is the current status when it comes to APIs is because the Regulatory and Technical Standards (RTS), which apply to PSD2, left room for too many different interpretations and created several unintended consequences, which no one could foresee at the time. The API Evaluation Group did a great job in clarifying what is needed, but the bank-driven API standardisation initiatives only implemented the recommendations, which the regulator categorised as explicitly legally required and ignored the implicit requirements leading to the obstacles, which hinder TPPs in migrating their services without losing much of their purpose.

Confirmed by the joint statement issued earlier this year, banks and TPPs have found some common ground and ways of working together, but whilst this is a positive step, there is much more to be done. Everyone agreed and still agrees that APIs are the way forward, but taking them live pre-maturely would jeopardise the whole financial services industry. They are not ready and must be improved significantly, both from a functional and stability perspective. Granting exemptions and thereby not requesting banks to allow TPPs falling back to their established and well-working current practice would be grossly negligent, and it is very surprising to see that regulators, which are otherwise so careful, seem willing to err on the risk side.

As long as APIs are not ready, TPPs must continue using the banks’ user interfaces directly. Not having expected this situation, many banks seem to be technically unable to introduce SCA for their customers, while providing TPPs a way around that for their automated services, where customers are not present to provide dynamic credentials. If banks and TPPs are not given a similar grace period as card payments to the introduction of SCA, this will bring many TPP services to a halt.

The ETTPA (European Third-Party Providers Association) requested such regulator action for many months, detailing the TPP business continuity requirements and the unintended consequences of the RTS and explaining the necessary measures to be put into place ahead of the deadline. Namely, these elements are; providing the necessary technical ability to use TPP’s current practice for contingency, enabling TPPs to identify themselves as stipulated, coordinate the introduction of SCA and, finally, allowing TPPs to handle the SCA for the required 90-day renewal of customer consent.

So far, only the UK’s Financial Conduct Authority (FCA) has announced it will hand a lifeline to TPPs, and delay its enforcement of SCA by six months after the deadline of September 14th, which takes the pressure off slightly. This is despite their APIs being 18 months older and more mature than those elsewhere. France and Germany are also taking action, but have not yet disclosed any details. The other NCAs seem not to care or wait for a green light from the EBA although they already indicated not wanting to harmonise this beyond card payments.

This leads us to the position we find ourselves in now, on the cliff-edge. Banks and TPPs are open to collaboration, common ground has been found and some progress made, but it is in the hands of the regulators to now provide the flexibility needed to get this right and not drop that guillotine on September 14th. Clearly, all sides support the aims of PSD2, which ultimately is the regulatory foundation for innovation, development and cooperation across the payments industry in Europe.

PSD2 was created to open up banking and allow customers to unlock their data there for more value-added services, whilst making online payments safer and increase consumers’ protection. It would be a disaster if it now led to the closure of existing services and if the outstanding technical difficulties would be ignored. This would lead to detrimental customer experiences, and possibly make their transactions less secure – the very things it was devised to protect against.

Europe is losing ground in many areas, but we were and still are ahead with Open Banking, so it’s extremely important to not screw this up, as the successful implementation of PSD2, and the consequent RTS, is a pre-requisite to keep that lead and also to go further on our way towards Open Finance and Open Data.

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Oil extends losses as Texas prepares to ramp up output

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Oil extends losses as Texas prepares to ramp up output 1

By Ahmad Ghaddar

LONDON (Reuters) – Oil prices fell from recent highs for a second day on Friday as Texas energy firms began to prepare for restarting oil and gas fields shuttered by freezing weather.

Brent crude futures were down $1.16, or 1.8%, to $62.77 per barrel, by 1150 GMT, while U.S. West Texas Intermediate (WTI) crude futures fell $1.42, or 2.4%, to $59.10 a barrel.

Unusually cold weather in Texas and the Plains states curtailed up to 4 million barrels per day (bpd) of crude oil production and 21 billion cubic feet of natural gas, according to analysts.

Texas refiners halted about a fifth of the nation’s oil processing amid power outages and severe cold.

However, firms in the region on Friday were expected to prepare for production restarts as electric power and water services slowly resume, sources said.

“The market was ripe for a correction and signs of the power and overall energy situation starting to normalise in Texas provided the necessary trigger,” said Vandana Hari, energy analyst at Vanda Insights.

Oil fell despite a surprise fall in U.S. crude stockpiles in the week to Feb. 12, before the freeze. Inventories fell by 7.3 million barrels to 461.8 million barrels, their lowest since March, the Energy Information Administration reported on Thursday. [EIA/S]

The United States on Thursday said it was ready to talk to Iran about both nations returning to a 2015 agreement that aimed to prevent Tehran from acquiring nuclear weapons.

While the thawing relations could raise the prospect of reversing sanctions imposed by the previous U.S. administration, analysts did not expect Iranian oil sanctions to be lifted anytime soon.

“This breakthrough increases the probability that we may see Iran returning to the oil market soon, although there is much to be discussed and a new deal will not be a carbon-copy of the 2015 nuclear deal,” StoneX analyst Kevin Solomon said.

(Additional reporting by Roslan Khasawneh in Singapore and Sonali Paul in Melbourne; editing by Jason Neely)

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Analysis: Carmakers wake up to new pecking order as chip crunch intensifies

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Analysis: Carmakers wake up to new pecking order as chip crunch intensifies 2

By Douglas Busvine and Christoph Steitz

BERLIN (Reuters) – The semiconductor crunch that has battered the auto sector leaves carmakers with a stark choice: pay up, stock up or risk getting stuck on the sidelines as chipmakers focus on more lucrative business elsewhere.

Car manufacturers including Volkswagen, Ford and General Motors have cut output as the chip market was swept clean by makers of consumer electronics such as smartphones – the chip industry’s preferred customers because they buy more advanced, higher-margin chips.

The semiconductor shortage – over $800 worth of silicon is packed into a modern electric vehicle – has exposed the disconnect between an auto industry spoilt by decades of just-in-time deliveries and an electronics industry supply chain it can no longer bend to its will.

“The car sector has been used to the fact that the whole supply chain is centred around cars,” said McKinsey partner Ondrej Burkacky. “What has been overlooked is that semiconductor makers actually do have an alternative.”

Automakers are responding to the shortage by lobbying governments to subsidize the construction of more chip-making capacity.

In Germany, Volkswagen has pointed the finger at suppliers, saying it gave them timely warning last April – when much global car production was idled due to the coronavirus pandemic – that it expected demand to recover strongly in the second half of the year.

That complaint by the world’s No.2 volume carmaker cuts little ice with chipmakers, who say the auto industry is both quick to cancel orders in a slump and to demand investment in new production in a recovery.

“Last year we had to furlough staff and bear the cost of carrying idle capacity,” said a source at one European semiconductor maker, who spoke on condition of anonymity.

“If the carmakers are asking us to invest in new capacity, can they please tell us who will pay for that idle capacity in the next downturn?”

LOW-TECH CUSTOMER

The auto industry spends around $40 billion a year on chips – about a tenth of the global market. By comparison, Apple spends more on chips just to make its iPhones, Mirabaud tech analyst Neil Campling reckons.

Moreover, the chips used in cars tend to be basic products such as micro controllers made under contract at older foundries – hardly the leading-edge production technology in which chipmakers would be willing to invest.

“The suppliers are saying: ‘If we continue to produce this stuff there is nowhere else for it to go. Sony isn’t going to use it for a Playstation 5 or Apple for its next iPhone’,” said Asif Anwar at Strategy Analytics.

Chipmakers were surprised by the panicked reaction of the German car industry, which persuaded Economy Minister Peter Altmaier to write a letter in January to his counterpart in Taiwan to ask its semiconductor makers to supply more chips.

No extra supplies were forthcoming, with one German industry source joking that the Americans stood a better chance of getting more chips from Taiwan because they could at least park an aircraft carrier off the coast – referring to the ability of the United States to project power in Asia.

Closer to home, a source at another European chipmaker expressed disbelief at the poor understanding at one carmaker of how it operates.

“We got a call from one auto maker that was desperate for supply. They said: Why don’t you run a night shift to increase production?” this person said.

“What they didn’t understand is that we have been running a night shift since the beginning.”

NO QUICK FIX

While Infineon, the leading supplier of chips to the global auto industry, and Robert Bosch, the top ‘Tier 1’ parts supplier, both plan to commission new chip plants this year, there is little chance of supply shortages easing soon.

Specialist chipmakers like Infineon outsource some production of automotive chips to contract manufacturers led by Taiwan Semiconductor Manufacturing Co Ltd (TSMC), but the Asian foundries are currently prioritising high-end electronics makers as they come up against capacity constraints.

Over the longer term, the relationship between chip makers and the car industry will become closer as electric vehicles are more widely adopted and features such as assisted and autonomous driving develop, requiring more advanced chips.

But, in the short term, there is no quick fix for the lack of chip supply: IHS Markit estimates that the time it takes to deliver a microcontroller has doubled to 26 weeks and shortages will only bottom out in March.

That puts the production of 1 million light vehicles at risk in the first quarter, says IHS Markit. European chip industry executives and analysts agree that supply will not catch up with demand until later in the year.

Chip shortages are having a “snowball effect” as auto makers idle some capacity to prioritize building profitable models, said Anwar at Strategy Analytics, who forecasts a drop in car production in Europe and North America of 5%-10% in 2021.

The head of Franco-Italian chipmaker STMicroelectronics, Jean-Marc Chery, forecasts capacity constraints will affect carmakers until mid-year.

“Up to the end of the second quarter, the industry will have to manage at the lean inventory level,” Chery told a recent Goldman Sachs conference.

(Douglas Busvine from Berlin and Christoph Steitz from Frankfurt; Additional reporting by Mathieu Rosemain and Gilles Gillaume in Paris; Editing by Susan Fenton)

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Aussie and sterling hit multi-year highs on recovery bets

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Aussie and sterling hit multi-year highs on recovery bets 3

By Tommy Wilkes

LONDON (Reuters) – The Australian dollar rose to near a three-year high and the British pound scaled $1.40 for the first time since 2018 on optimism about economic rebounds in the two countries and after the U.S. dollar was knocked by disappointing jobs data.

The U.S. currency had been rising in recent days as a jump in Treasury yields on the back of the so-called reflation trade drew investors. But an unexpected increase in U.S. weekly jobless claims soured the economic outlook and sent the dollar lower overnight.

On Friday it traded down 0.3% against a basket of currencies, with the dollar index at 90.309.

The Aussie rose 0.8% to $0.784, its highest since March 2018. The currency, which is closely linked to commodity prices and the outlook for global growth, has been helped by a recent rally in commodity prices.

The New Zealand dollar also gained, and was not far off a more than two-year high, while the Canadian dollar rose too.

Sterling rose to $1.4009 on Friday, an almost three-year high amid Britain’s aggressive vaccination programme.

Given the size of Britain’s vital services sector, analysts say the faster it can reopen the economy, the better for the currency. Sterling was also helped by better-than-expected purchasing managers index flash survey data for February.

The U.S. dollar has been weighed down by a string of soft labour data, even as other indicators have shown resilience, and as President Joe Biden’s pandemic relief efforts take shape, including a proposed $1.9 trillion spending package.

Despite the recent rise in U.S. yields, many analysts think they won’t climb too much higher, limiting the benefit for the dollar.

“Our view remains that the Fed will hold the line and remain very cautious about tapering asset purchases. We think it will keep communicating that tightening is very far off, which should dampen pro-dollar sentiment,” said UBS Global Wealth Management strategist Gaétan Peroux and analyst Tilmann Kolb.

ING analysts said “the rise in rates will be self-regulating, meaning the dollar need not correct too much higher”.

They see the greenback index trading down to the 90.10 to 91.05 range.

U.S. dollar

Aussie and sterling hit multi-year highs on recovery bets 4

The euro rose 0.4% to $1.2134. The single currency showed little reaction to purchasing manager index data, which showed a slowdown in business activity in February. However, factories had their busiest month in three years, buoying sentiment.

The dollar bought 105.39 yen, down 0.3% and a continued retreat from the five-month high of 106.225 reached Wednesday.

(Editing by Hugh Lawson and Pravin Char)

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