The Electronic Money Regulations 2011 (SI 2011/99) (the "Regulations") were published on 18 January 2011. The Regulations implement the second Electronic Money Directive (2009/110/EC) (the "Directive"), and govern the issuing of electronic money ("e-money"), and the supervision of businesses that deal with e-money. This article looks at the content of the Regulations and what they mean for businesses.
Electronic Money and Electronic Money Issuers
The Directive repealed the first Electronic Money Directive, and introduced new provisions intended to encourage investment in the electronic money market, which to date has grown more slowly than expected. In turn, the Regulations transpose the Directive into UK law, and replace the previous provisions contained in the FSA's Electronic Money Sourcebook, which are due to expire on 30 April 2011.
Electronic money is electronically stored monetary value. This value is typically stored on a card linked to a user's account, which can be used to pay for goods and services. Examples are pre-pay travel cards such as Transport for London Oyster cards, workplace canteen pre-pay cards and online gaming currency.
However, the Regulations will only apply to e-money that can be accepted as payment by an entity other than the issuer of the e-money, and do not cover e-money that can be used only within a limited network of service providers or for a limited range of goods or services. Therefore, single or restricted use schemes, such as theOyster card, would not be caught by the Regulations. This exemption is broader than under the previous regime, which means that some businesses that were previously caught by the legislation may now be exempt.
Where a company issues e-money that falls within the Regulations, that company must either be authorised by the Financial Services Authority ("FSA") or registered with the FSA as a "small e-money issuer".
The Regulations - key provisions
The Regulations introduce the following key changes to the e-money regime:
- The initial and ongoing capital requirement for e-money issuers will reduce from €1 million to €350,000. This less onerous obligation is intended to facilitate entry into the market.
- New safeguards to protect customers' payments into e-money schemes are being introduced. These include an obligation on e-money issuers to invest funds received from customers only in secure, low-risk assets, or to hold an insurance policy or bank guarantee to safeguard the funds. In addition, customers will rank above other creditors if the e-money issuer should become insolvent.
- E-money institutions will now be permitted to carry out mixed business. The government is hoping that this will open the door for new entrants into the market, such as mobile phone companies.
- The definition of e-money will now include "magnetically stored monetary value", which covers payment cards and computer hard drives.
- The Regulations introduce new provisions for the redemption of value held in e-money accounts, which permit e-money issuers to charge a fee if a customer: (i) requests a refund before the contract ends; (ii) terminates the contract before the end date; or (iii) requests a refund more than a year after the contract ends.
The Regulations will come fully into force on 30 April 2011. However, for certain purposes they came into force on 9 February 2011, including as regards:
- making an application to become an authorised e-money institution; and
- making an application for registration as a small e-money institution.
New forms for making these applications are available from the FSA website. Businesses that are already authorised or existing small e-money issuers may be eligible to be 'grandfathered' into the new regime without the need for a further application.
How the Regulations will affect businesses?
E-money issuers need to be aware of the safeguarding obligations described above, and should take steps to ensure that their compliance procedures are in line with the new Regulations.
Existing e-money issuers should note the 'grandfathering' process that may be available to them, but should also consider whether the new regime now places them outside the scope of the Regulations meaning that they no longer apply.
Businesses wishing to issue e-money for the first time should also be aware that the new application requirements are already in force and should proceed with the relevant application accordingly.
A copy of the Regulations can be found here.