Compliance Toolkit

New regime for e-money unveiled

Andy Moseby, Graeme Levy and Clive Gringras Olswang

Published: 26 Apr 2002 16:10 BST

Would-be new entrants such as mobile players and ISPs wishing to compete with banks in launching e-money schemes had until 13th February 2002 to comment on the proposals. Definitive rules and guidance will be published by the FSA in April.

The new rules in context
Electronic cash for the purposes of the new legislation is cash value stored on a PC, mobile phone or other electronic device such as a smart card and which is accepted as payment by entities other than the issuer. Such e-wallets or e-purses offer an alternative means of making micropayments where there is no billing relationship between the customer and the service provider - in the pre-pay mobile phone market for example (where the typical customer is a teenager who may not have access to credit cards or debit cards). The new rules therefore offer new opportunities to tap into the spending power of these hitherto "cash consumers". Loyalty points schemes are not caught by the new rules as these have no cash value.

In our November Alert we reported on the Treasury's proposals for a "light touch" regime to encourage new entrants to issue electronic money in the UK. That consultation has ended earlier this month. As the issue of e-money will a "regulated activity" under the Financial Services and Markets Act 2000 ("FSMA") businesses will need (except in limited circumstances) to be authorised by the FSA. The FSA's consultation sets out in detail the rules that e-money issuers will need to observe.

Key compliance issues
One of the aims of the E-Money Directive is to level the playing field between financial institutions and new entrants such as mobile players and ISPs wishing to offer new methods of online payment. Although an Electronic Money Institution ("ELMI") will not be subject to the full rigours of the regime which applies to credit institutions, it will nevertheless be subject to some strict safeguards in order to protect customers' funds. These include the following: