FSA introduces new regime to facilitate e-money innovation
FSA/PN/043/2002
26/04/2002
Following consultation, the FSA today set out a new regime for the regulation of e-money issuers that will both protect consumers and facilitate innovation in the developing world of e-commerce. The new regime, which has been welcomed by the e-money industry, will take effect from 27 April 2002.
Commenting on the new regime, David Strachan, Director of Deposit Takers, said:
"We have enjoyed an excellent dialogue with industry and other interested parties throughout this consultation. That has resulted in a regime that will help build consumer confidence in e-money while at the same time giving this dynamic industry scope to innovate and develop.
Because the feedback we received on the proposed regime was generally positive, we have not made any major changes to the framework on which we consulted. Our ongoing dialogue with industry and consumers will make sure that, as the industry and the market develop, our regulation remains up-to-date."
The FSA has not made any major change to the regime proposed in its Consultation Paper, issued in December 2001. However, taking into account industry feedback, there have been some modifications to the regime in a number of areas, including the amount of money individual users can load in their electronic purses and the issuing of e-money at a discount.
Purse size: We believe that the risks associated with the use of e-money warrant a limit on purse size. Responding to points raised by the industry we have increased the limit of 250 per purse initially proposed to 1000. A higher purse limit may be permitted where certain safeguards are met.
Issuing e-money at a discount: E money issuers will be allowed to issue e-money at a discount for marketing purposes in certain tightly controlled circumstances.
What consumers need to know
E-money can offer consumers a flexible, secure and convenient way of making low value transactions, for example on public transport or in car parks. Consumers should be aware that, like physical cash, if they lose their e-money card, they may lose their money.
The new regime does provide basic protections for consumers, consistent with the FSAs objective of appropriate protection for consumers, whilst allowing firms to introduce innovative new products.
The protections for consumers include the limit on purse size and the requirement to fully disclose all the risks associated with the product.
HM Government has decided 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. E-money issuers will, however, be included within the scope of the Financial Ombudsman Service and must also have their own procedures for dealing with customer complaints.
The FSA is also adding an e-money section to its Consumer Website to help consumers understand e-money and the regulatory framework.
The Regime for Firms
The key characteristics of the proposed framework for e-money issuers relate to their financial soundness:
Issuers must 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.
There will be a minimum capital requirement for issuers at least 2% of outstanding e-money liabilities or Euros 1 Million, whichever is the higher.
E-money issuers must have sound and prudent systems and adequate internal control mechanisms and must comply with the FSAs money laundering requirements.
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.
Notes for editors
The FSAs consultation paper on the regulatory regime for E- Money issuers was published on 19 December 2001.
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; securing the appropriate degree of protection of consumers; and fighting financial crime.
The FSA aims to maintain efficient, orderly and clean financial markets and help retail consumers achieve a fair deal.