Select Committee on European Scrutiny Thirty-Ninth Report

3   Financial services

(30037) 14201/08 + ADDs 1-2 COM(08) 627 Draft Directive on the taking up, pursuit and prudential supervision of the business of electronic money institutions, amending Directives 2005/60/EC and 2006/48/EC and repealing Directive 2000/46/EC

Legal baseArticles 47(2) and 95 EC; co-decision; QMV
Document originated9 October 2008
Deposited in Parliament16 October 2008
DepartmentHM Treasury
Basis of considerationEM of 31 October 2008
Previous Committee ReportNone
To be discussed in CouncilNot known
Committee's assessmentPolitically important
Committee's decisionDo not clear; await further information


3.1  Directive 2000/46/EC, known as the Electronic Money Directive, established a regulatory regime for e-money[15] issuers across the Community and was a response to the emergence of new pre-paid electronic payment products. It was intended to create a legal framework for the e-money market to deliver its full potential. Whilst ensuring an adequate level of prudential supervision, it aimed to encourage new market entrants to the e-money market, so as to promote competition between non-banks and banks.

3.2  In July 2006 the Commission published a review of the Electronic Money Directive which concluded that the European e-money market had not developed as originally anticipated. The Commission:

  • recognised that the Directive had encouraged participation of non-banks in the provision of e-money but noted that few e-money licences had actually been granted;
  • considered that the way in which the Directive's requirements had been interpreted and implemented could have partially hindered development of the money market;
  • considered also that development of certain payment products might have been constrained by legal uncertainty regarding the scope and applicability of the Directive to businesses such as mobile network operators; and
  • said that Member States and interested parties consulted in the review process supported the need to re-assess the proportionality of the Directive's more onerous requirements in relation to the actual risks posed by e-money institutions.[16]

The document

3.3  Further to the 2006 review, the Commission now proposes this draft Directive to amend the legislation relating to e-money. The objectives include:

  • enabling innovation and the design of new and secure electronic money services, creating tangible benefits for consumers, businesses and the wider European economy;
  • providing market access to new players and fostering real and effective competition between all market participants; and
  • modernising the provisions of the Electronic Money Directive, ensuring consistency with the Payment Services Directive, Directive 2007/64/CE.

3.4  The draft Directive would clarify the definition of "electronic money" to ensure legal certainty, with a technologically neutral, simpler definition being proposed, and provide for a new prudential regime, ensuring greater consistency between the prudential requirements of e-money issuers under the revised Electronic Money Directive and prudential requirements of payment institutions under the Payment Services Directive. The main elements of the new prudential rules include:

  • an initial capital requirement of €125,000 enabling market access for smaller players, down from €1 million in the present Directive;
  • a new formula to determine ongoing capital for e-money issuers in addition to the three methods established by the Payment Services Directive;
  • removal of restrictions on mixed business;
  • safeguarding requirements for e-money issuers in line with safeguarding requirements for payment institutions under the Payment Services Directive;
  • redeemability requirements to ensure customers have the right to redeem funds at all times;
  • an updated waiver regime, under which small entities would be able to obtain a derogation for some of the prudential requirements, aligned with that of payment institutions under the Payment Services Directive;
  • updated anti-money laundering rules for e-money issuers, including alignment with Payment Services Directive provisions; and
  • amendments to the Capital Requirements Directive to change the status of e-money issuers.

The Government's view

3.5  The Financial Services Secretary to the Treasury (Lord Myners) says that the Government believes that any regulatory requirements need to be proportionate to the risks involved in the activity in question and in this context has consistently argued that the regulatory burden imposed by the existing Electronic Money Directive is too high. The Government supports the Commission's objectives of modernising the provisions of the Electronic Money Directive, ensuring consistency with the provisions of the Payment Services Directive and supporting market access and fostering effective competition to enable further growth and innovation in the e-money market and, ultimately, to create benefits for the Community's economy.

3.6  The Minister continues that the Government:

  • supports the Commission's aim of better aligning the prudential regime for e-money issuers with the specific risks involved, which are closer to those of payment institutions than those of credit institutions;
  • welcomes, from the perspective of encouraging market access for smaller providers, lowering the initial capital threshold to €125,000; and
  • welcomes removal of the restriction on mixed business, since this currently serves to constrain market access and, potentially, innovation in the market.

3.7  The Minister also says that the Government thinks that the proposed method of calculating ongoing capital for e-money issuers might merit further consideration. It thinks it important for any changes to the waiver regime for smaller e-money issuers to be considered in parallel with changes made to the prudential regime — so that small businesses can cope with the new requirements and are not disadvantaged by the overall package of provisions.

3.8  As for carrying the proposal forward the Minister tells us that:

  • the Government's priorities are to ensure that the UK and European payments market should be open and transparent, competitive, innovative and efficient, balanced with ensuring an appropriate and proportionate regulatory regime for e-money issuance and, ultimately, ensuring appropriate consumer protection. It will seek technical changes to the proposal where necessary; and
  • the Government intends to have a public consultation on its approach to the draft Directive and, as part of the consultation, will be publishing an assessment of the impact on UK business.


3.9  Any proposal to improve a regulatory regime is important and, potentially, welcome. We note the Government's support, albeit nuanced, for the draft Directive. However before considering the matter further we should like to hear about the outcome of the Government's consultation, any technical changes it is proposing and the likely outcome on them. Meanwhile the document remains under scrutiny.

15   Electronic money or e-money is defined by the Directive as monetary value as represented by a claim on the issuer which is stored on an electronic device, issued on receipt of funds of an amount not less in value than the monetary value issued and accepted as means of payment by undertakings other than the issuer. Back

16   (27760) 12007/06: see HC 34-xxxviii (2005-06), chapter 14 (18 October 2006). Back

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