New regulations have recently been implemented to govern the issuance of electronic money in Ireland. Electronic money has broad commercial application, but it will be particularly useful in facilitating electronic commerce as it enables online payment with lower risk and transaction costs than existing payment methods, such as credit cards. Ireland, with its established IT and financial services industries, is expected to become a European centre for the issuance of electronic money, and the new legislation, which implements European directives in this area, will underpin this emerging industry by providing a clear legal structure with pan-European effect.
The legislation, entitled the European Communities (Electronic Money) Regulations 2002 (Statutory Instrument 221 of 2002), gives effect to Directive 2000/28/EC, which relates to the taking up and pursuit of the business of credit institutions, and the E-money Directive (2000/46/EC).
The regulations provide a definition of 'e-money' and set out the essential requirements, in terms of capital adequacy and operations, for e-money issuers. E-money, which is stored on an electronic device such as a chip card or computer memory, is essentially an electronic replacement for coins and banknotes, and is intended for the purpose of effecting electronic payments to third parties other than the institution which issued the e-money.
In relation to the issuers of e-money, these regulations introduce a regulatory regime which includes the concept of a single European passport for these institutions. This will allow entities authorized in Ireland to offer services in other European states with mutual recognition between regulators and home responsibility for supervision. The regime is based on the existing prudential supervisory regime applicable to credit institutions. However, it differs in order to respond to the specific risks associated with the issuance of e-money. The regulations also limit the other business activities which e-money institutions may pursue, restricting their activities to services which are closely related to the administration of e-money, such as data storage, administering other means of payment or other ancillary activities.
An e-money institution is not permitted to grant any form of credit or to issue e-money at a discount. The regulations also provide that a sum of money which is immediately exchanged for e-money shall not be treated as if it were a deposit for the purposes of the Central Bank Acts 1942 to 1998, and as such sums converted into e-money would not be subject to deposit protection. However, to protect the consumer and to ensure bearer confidence, the consumer at all times maintains the right to exchange his or her e-money back into coins and banknotes of the same amount (redeemability at par value). Issuers are also subject to initial capital and ongoing own-funds requirements, including requirements relating to investment of funds received, corresponding to levels of e-money issued. To limit the scope for money laundering, the regulations limit the value of a single 'e-purse' to €5,000.
For further information on this topic please contact David Sanfey at A & L Goodbody by telephone (+353 1 649 2000) or by fax (+353 1 649 2649) or by email ([email protected]). The A & L Goodbody website can be accessed at www.algoodbody.ie.