Treasury consults on EMD2 implementation: Treasury is consulting on implementing the second e-money Directive (EMD2) into UK law. EMD2 has substantially updated the first e-money Directive and Treasury plans to implement it by:

  • amending the definition of e-money to include magnetically stored value, and to bring it into line with the Payment Services Regulations (PSR) definition of "payment transaction";
  • creating a new regulatory category of "Electronic Money Institution" with its own prudential and conduct regime, with a partial exemption from some of the prudential requirements for small e-money issuers (rather than the full current exemption). The "limited network exemption" is also being realigned to be closer to the PSR exemption. The prudential regime will apply to all e-money institutions that are not banks or building societies and will be similar to that for payment institutions;
  • setting requirements for safeguarding and redeeming funds of customers. In place of the current rules that limit permitted investments for issuers will be a requirement, again similar to the PSR requirement, that they must safeguard funds in secure, liquid low-risk assets. They can either place customers' funds (or the assets in which they are invested) in a segregated account(s) or take insurance or a bank guarantee;
  • no longer restricting e-money issuers from activities other than issuing e-money, so they will be able to undertake mixed business activities including unrelated payment services and unregulated activities;
  • applying the same AML requirements to e-money business as those that apply under the PSR; and
  • making various other adjustments to the current regime, for example to set clearer redemption rights.

Treasury plans to ask FSCS to include e-money issued by banks and building societies within its scope as it will not be subject to the safeguarding requirements and would otherwise be unprotected. The consultation also looks at safeguarding dormant e-money accounts, charges, prescription periods and storage limits. It includes draft Regulations which will all take effect before the end of April 2011. Treasury wants comments by 30 November 2010.