The regulation of electronic money has changed. The second Electronic Money Directive (2EMD), which aims to encourage the growth of the electronic money market, was implemented in the UK on 1 May 2011 through the Electronic Money Regulations 2011 (EMRs).
The following provides an overview of the new regime.
What is e-money?
Electronic money (e-money) is electronically (including magnetically) stored monetary value, represented by a claim on the issuer. This claim is issued on receipt of funds for the purpose of making payment transactions and is accepted by a person other than the electronic money issuer. Types of e-money include pre-paid cards and electronic pre-paid accounts for use online.
Who do the EMRs affect?
The Electronic Money Regulations 2011 (EMRs) affect electronic money issuers and their customers. Most electronic money issuers are required to be either authorised or registered by the Financial Services Authority (FSA) and to comply with certain rules about issuing and redeeming e-money. The rules are set out in the EMRs, the Payment Services Regulations 2009 (PSRs) and parts of the FSA Handbook. The E-Money Approach Document also provides more detailed information for electronic money issuers.
What will change under the new regulatory regime?
The issuance of e-money has been regulated since 2002. The EMRs introduce a few new conduct requirements for all electronic money issuers. They also provide new authorisation/registration and prudential standards for electronic money institutions (EMIs). In summary, the main changes from the current regulatory regime are as follows:
- Electronic money issuers are no longer allowed to set a time limit on the e-money holder's right to redeem (although a proportionate fee can be charged for redemption in certain circumstances). They are also not allowed to refuse to redeem e-money if it is worth less than €10.
- Electronic money issuers are not allowed to grant interest or other benefits related to the length of time e-money is held.
- EMIs can provide payment services that are unrelated to the issuing of e-money without additional authorisation/registration and engage in other business activities, subject to relevant EU and UK law.
- Businesses with average outstanding e-money not exceeding €5 million can apply to be registered as small EMIs. They will not be able to passport into other European Economic Area states.
- The initial and minimum ongoing capital requirement for authorised EMIs has been reduced. There are initial and minimum ongoing capital requirements for some small EMIs.
- All EMIs must safeguard funds received from customers for e-money so that, if it becomes insolvent, the e-money issued will be protected from other creditors' claims and can be repaid to customers.
What does this mean? See our action points for an outline of key steps to consider.