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
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| Legal base | Articles 47(2) and 95 EC; co-decision; QMV
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| Document originated | 9 October 2008
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| Deposited in Parliament | 16 October 2008
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| Department | HM Treasury |
| Basis of consideration | EM of 31 October 2008
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| Previous Committee Report | None
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| To be discussed in Council | Not known
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| Committee's assessment | Politically important
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| Committee's decision | Do not clear; await further information
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Background
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.
Conclusion
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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