The Court of Justice of the EU (CJEU) has issued a decision in Case C‑339/25 Iulicris Recycling SRL v Ibanfirst SA. The case concerns the interpretation of Article 18(1)(a) of the second Payment Services Directive (PSD2), which sets out the ‘operational and closely related ancillary services’ that payment service providers (PSPs) may offer. According to the ruling, payment institutions (PIs), and by extension e-money institutions, may provide foreign exchange (FX) hedging services to clients without holding a licence under the Markets in Financial Instruments Directive (MiFID).
The Court concluded that PSPs may offer FX hedging services even where these do not qualify as spot FX transactions or constitute a means of payment. As a result, PIs can provide a broader range of FX services without MiFID authorisation than the market had generally assumed to date, including FX hedges.
This clarification addresses a recurring question for firms that operate under a payment licence and serve clients with cross-currency payment needs. The question is where permitted ancillary FX activity under PSD2 ends and regulated investment activity under MiFID begins.
Conditions under MiFID II
The Court did not, however, adopt the more lenient position set out by the Advocate General. It held that a PI’s investment activity must be incidental within the meaning of MiFID II (Directive 2014/65/EU). This requires the activity to meet three conditions under Article 4 of Regulation 2017/565.
First, there must be a close and factual connection between the professional activity and the investment service provided to the same client, so that the service can be regarded as accessory to the main activity. Second, providing investment services to clients of the main activity must not aim to create a systematic source of income for the provider. Third, the provider must not market or otherwise promote its ability to provide investment services, unless those services are disclosed to clients as an accessory to its main professional activity.
Hedging linked to payment transactions
The Court also considered how these criteria apply to PIs. It noted that a PI’s business consists of providing payment services. Where such an institution offers currency forward contracts, the Court found these should be regarded as an ancillary activity. The contracts are offered to reduce exchange-rate risk when carrying out payment transactions, an activity governed by Directive 2015/2366.
The ability of PIs to offer FX hedges is therefore not unlimited. However, the judgment indicates considerable scope for payment and e-money institutions to offer such products where they hedge exchange-rate risks related to future payment transactions. Providers such as Ibanfirst that intend to rely on the ruling will need to assess their offerings against all three incidental-activity criteria. Those criteria include the limits on generating systematic income and on promoting investment services.
