FSA consults on new regulatory regime for e-money issuers

Commenting on the Consultation Paper, David Strachan, Director of Deposit Takers said:

"The regime we are proposing is intended to encourage innovation. We believe it will help to build consumer confidence in a new and relatively untried means of payment."

Duncan Goldie-Scot, Chairman of the Electronic Money Association ("EMA") said:

"This is an important step forward for e-money. The EMA is grateful for the open manner in which the FSA is addressing the needs of the industry. "It welcomes the pragmatic nature of the regulatory framework and looks forward to full participation in the consultation process."

Key issues for firms

The key characteristics of the proposed framework for e-money issuers relate to their financial soundness:

• E-money issuers must only undertake e-money issuance or closely related activities. Issuers will need to ring fence their e-money activities from other areas of business risk.
  
• Funds held in exchange for the issue of e-money must be invested in high quality liquid assets.
  
• E-money issuers must have sound and prudent systems and adequate internal control mechanisms.
  
• E-money issuers must comply with the FSAs money laundering requirements.
  
• There will be a minimum capital requirement for issuers at least 2% of outstanding e-money liabilities.
  
• The FSA will be empowered to grant waivers from regulation to small or locally based firms, although these will still have to submit periodic information about their businesses.

Key issues for consumers

E-money can offer consumers a flexible, secure and convenient way of making low value transactions, for example on public transport or in carparks. E-money may complement credit card use, for example by providing an attractive alternative means of conducting small scale transactions over the Internet. It could also be an attractive payments alternative for consumers who do not possess credit cards or bank accounts.

HM Government has indicated that the Financial Services Compensation Scheme will not apply to e-money issuers. Consequently, customers will have no access to compensation should an e-money issuer become insolvent.

The proposed regime includes a number of features to help protect consumers, consistent with the FSAs objective of appropriate protection for consumers:

• E-money issuers must set a limit on the amounts of money that may be held in individual e-money purses. The purpose of this limit is to protect holders of e-money by restricting their individual loss should they lose their purses or should the issuer fail.
  
• Customers must have access to relevant and comprehensible information and guidance on information about redemption rights including any fees payable on redemption.
  
• Full disclosure of the risks associated with the product must also be made including the liability of holders for any loss arising from misuse, loss, malfunction, theft of, or damage to, their e-money purses or any electronic device on which e-money may be held.
  
• E-money issuers will be included within the scope of the Financial Ombudsman Service and must also have their own procedures for dealing with customer complaints.
  

Notes for editors

1. The FSA regulates the financial services industry and has four objectives under the Financial Services and Markets Act 2000: maintaining market confidence; promoting public understanding of the financial system; the appropriate protection of consumers; and fighting financial crime.

2. The FSA aims to maintain efficient, orderly and clean financial markets and help retail consumers achieve a fair deal.

3. Contact for EMA - Thaer Sabri, Chief Executive, (020) 8399 2066