Electronic Money Directive 2009

Consultation Paper – 16 December 2010

Purpose of this document

The purpose of this document is to provide a basis for consultation in relation to the terms of
Directive 2009/110/EC of 16th September 2009 commonly known as the “E-Money Directive”
(“EMD”)1. The EMD has now been formally adopted and published in the Official Journal of the
European Union2 and requires to be transposed into the national law of EU Member States from
30 April 2011.

This consultation will chiefly serve to inform the Department’s proposals with regard to the
national discretions contained in the EMD – i.e. where the EMD allows Member States discretion
as to whether to apply or, as the case may be, disapply a particular rule or provision of the EMD.

Comments are welcome on any aspects of the Directive’s transposition, and not just on the
national discretions permitted under the EMD.

What is the E-Money Directive?

The EMD updates EU rules on electronic money (e-money) and in particular brings the prudential
regime for e-money institutions into line with the requirements for payment institutions in the
Payment Services Directive (PSD)3. In Ireland, the PSD was transposed into national law on 29
September 2009, through the European Communities (Payment Services) Regulations 2009 (S.I.
383 of 2009)4.

The first E-Money Directive was adopted in May 2000 in order to harmonise the supervisory and
regulatory framework for e-money in Europe and contribute to the creation of a single market.
However, there is widespread agreement among stakeholders that the e-money market has
developed more slowly than expected, and is far from reaching its full potential. Certain
restrictions and requirements imposed by the original Directive may have hindered the
development of the market.

The new EMD essentially aims to:

• enable new, innovative and secure electronic money services to be designed;

• provide market access to new companies;

• foster real and effective competition between all market participants.

1
http://eurlex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2009:267:0007:0017:EN:PDF
2
OJ L 267, 10.10.2009, p. 7–17
3
OJ L 319, 5.12.2007, p. 1–36
4
http://www.attorneygeneral.ie/esi/2009/B27159.pdf

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 Brief overview of the Directive

The EMD itself is divided into the following sections:

• Recitals – numbered (1) to (28) setting out the background rationale for the EMD and a
commentary relating to some (but not all) of the Articles as they appear in the EMD;

• Title I – encompassing Articles 1 to 2, setting out the subject matter and scope of the
EMD as well as definition of certain terms used in the EMD;

• Title II – encompassing Articles 3 to 9 inclusive, relating to the requirements for the

taking up, pursuit and prudential supervision of the business of electronic money
institutions who will be authorised to issue electronic money; provisions in relation to the
funding of electronic money institutions; and provisions in relation to the exemptions
available to Member States;

• Title III – encompassing Articles 10 to 14 inclusive, setting out a prohibition on the

issuing of electronic money by persons who are not “electronic money issuers”; detailed
rules on the issuance and redeemability of electronic money; and rules as to redress
procedures;

• Title IV – encompassing Articles 14 to 24 inclusive, relating to EMD transitional

provisions, Member State harmonisation and the consequential repeal or amendment of
existing EU regulations or directives.

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 Timetable for Consultation

Responses are welcome, preferably by email to the email addresses below, up to 5p.m., Friday,
28 January 2011. Observations are welcome on any aspect of the Directive’s transposition, and
not just the permitted national discretions. Submissions received may be subject to publication
under the Freedom of Information Acts.

Replies should be sent to:

Michael Taggart
Administrative Officer
Financial Services Division
Department of Finance
Merrion Street
Dublin 2

Any queries in relation to this material should be made to:

Michael Taggart Frank Maughan

michael.taggart@finance.gov.ie frank.maughan@finance.gov.ie
Phone: 353 1 631 8040

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 EMD Derogations – National Discretions

It is stated in the EMD [Article 16.1] that, insofar as its terms contain harmonised provisions,
Member States shall not maintain or introduce provisions other than those laid down in the
Directive. However, there are a number of provisions in the EMD in relation to which Member
States are given discretion as to whether to apply or, as the case may be, disapply a particular rule
or provision of the EMD.

A brief summary of the Member State derogations as they arise under the EMD are set out below:

Derogation 1 – Waiver of Title II for Credit Unions and Friendly Societies

Title I, Article 1(3): Member States may waive the application of all or part of the provisions of
Title II of this Directive to the institutions referred to in Article 2 of Directive 2006/48/EC, with
the exception of those referred to in the first and second indents of that Article.

Description
This discretion allows the State to waive the requirement for credit unions and friendly societies
to comply with all, or part, of the provisions of Title II of the EMD. Title II refers to the
requirements relating to applications for authorisation, initial capital, own funds, safeguarding,
relations with third countries, liability, supervision (of Title II) and record keeping.

A similar discretion waiving the requirement of credit unions from all or part of the directive is
provided in the Payment Services Directive (PSD). This waiver has been applied in part with the
waiver of prudential rules in the Payment Services Regulations (PSR); however conduct of
business rules apply in full.

Q.1 The Department is consulting separately with the Central Bank as regards the extent to
which these requirements will apply to credit unions but is interested in the views of other
stakeholders including the credit union and friendly society sectors. What are the arguments for
and against the application of the EMD to credit unions and friendly societies?

Derogation 2 – Waiver of qualifying shareholder notification

Title II, Article 3 (3): The Member States may waive or allow their competent authorities to
waive the application of all or part of the obligations pursuant to this paragraph in respect of
electronic money institutions that carry out one or more of the activities listed in Article 6(1)
(e).

Description
This discretion waives the requirement for firms that engage in activities other than e-money and
non e-money payment services from providing advance details of qualifying shareholders (10%)
and shareholders whose holdings reach, exceed or fall below 20%, 30% and 50%. [This does not
affect the requirement in Article 3(1) of the EMD (Article 5(h) of the PSD), requiring the
notification of indirect and direct qualifying holdings at the authorisation stage.]

Q.2 Could the application of this discretion allow significant shareholders to have an undue
influence?

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Derogation 3 – Increase/Reduction of Own Funds
Title II, Article 5(5): On the basis of an evaluation of the risk-management processes, of the
risk loss databases and internal control mechanisms of the electronic money institution, the
competent authorities may require the electronic money institution to hold an amount of own
funds which is up to 20 % higher than the amount which would result from the application of
the relevant method in accordance with paragraph 2, or permit the electronic money institution
to hold an amount of own funds which is up to 20 % lower than the amount which would
result from the application of the relevant method in accordance with paragraph 2.

Description
This discretion allows the Central Bank to determine, based on an assessment of the entity’s risk
management and internal control mechanisms, whether to increase or decrease by 20%, the
calculated own funds requirement on payment services. An identical discretion is found in the
PSD and has been transposed in the PSR in Regulation 12(4).

Q.3 Should a similar wording to that used in the PSR be used in order to allow the Central Bank
to apply higher own funds requirements on a risk-oriented basis following assessment of
proposed risk and control policies and procedures?

Derogation 4 – Waiver of Own Funds under Consolidated Supervision

Title II, Article 5 (7): Where the conditions laid down in Article 69 of Directive 2006/48/EC are
met, Member States or their competent authorities may choose not to apply paragraphs 2 and 3
of this Article to electronic money institutions which are included in the consolidated
supervision of the parent credit institutions pursuant to Directive 2006/48/EC.

Description
An identical discretion is found in the PSD and has been transposed in the PSR [Regulation
12(3)]. This discretion provides for the waiver of Articles 5(2) and 5(3) of the EMD related to an
EMI meeting its own funds requirement where a parent credit institution meets the criteria set out
below:

• the parent credit institution has unrestricted ability to provide funds to the e-money
institution;
• the parent credit institution guarantees the actions of the e-money institution;
• the parent credit institution’s risk evaluation, measurement and control procedures
include an assessment of the risk and control elements of the e-money institution; and
• the parent credit institution holds more than 50#% of the voting rights in the e-money
institution or has the right to appoint or remove a majority of management.

Q.4 It is intended that the Central Bank will be delegated the function of exercising this waiver
on a case by case basis where the above conditions are met. Do you agree?

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Derogation 5 – Investment Options for Safeguarding Funds
Title II, Article 7 (2): In exceptional circumstances and with adequate justification, the
competent authorities may, based on an evaluation of security, maturity, value or other risk
element of the assets as specified in the first and second subparagraphs, determine which of
those assets do not constitute secure, low-risk assets for the purposes of paragraph 1.

Description
The Central Bank may determine that the assets selected by an Electronic Money Institution
(EMI) for safeguarding purposes are not appropriately classified as low risk assets. This
discretion could be availed of in a situation where the risk weighting of an asset class does not
accurately reflect the risk of that asset.

Q.5 It is intended that the Central Bank will be delegated the function of determining the
appropriateness of the assets selected for safeguarding purposes? Do you agree?

Derogation 6 – Safeguarding Method

Title II, Article 7 (4): For the purposes of paragraphs 1 and 3, Member States or their
competent authorities may determine, in accordance with national legislation, which method
shall be used by the electronic money institutions to safeguard funds.

Description
This discretion allows Member States to select the method of safeguarding to be used by EMIs.

Q.6 It is intended that the Central Bank will be delegated the function of determining the method
of safeguarding to be used when it has concerns regarding the implementation of the method
selected? Do you agree?

Derogation 7 – Small EMI Waiver

Title II, Article 9(1): Member States may waive or allow their competent authorities to waive
the application of all or part of the procedures and conditions set out in Articles 3, 4, 5 and 7 of
this Directive, with the exception of Articles 20, 22, 23 and 24 of Directive 2007/64/EC, and
allow legal persons to be entered in the register for electronic money institutions if both of the
following requirements are complied with:

(a) the total business activities generate an average outstanding electronic money that does not
exceed a limit set by the Member State but that, in any event, amounts to no more than
EUR 5,000,000; and
(b) none of the natural persons responsible for the management or operation of the business
has been convicted of offences relating to money laundering or terrorist financing or other
financial crimes.

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Description
This discretion allows the Central Bank to register an applicant as a small EMI and waive or
reduce the requirements of the application process, general prudential requirements, and
requirements relating to initial capital, own funds and safeguarding. The waiver is granted where
the entity does not have a monthly average outstanding electronic money in excess of €5 million
and where the management of the entity has not been convicted of offences related to money
laundering, terrorist financing or other crime.

Q.7 Is a threshold of €5 million monthly average outstanding electronic money appropriate for
small EMIs?

Q.8 Following on from question 7, is the initial capital requirement of €350,000 appropriate for
small EMIs?

Q.9 What would be the impact on the industry if no requirements are waived?

Derogation 8 – Maximum Storage Amount of E-Money Instruments

(Small EMIs)
Title II, Article 9 (1): Member States may also provide for the granting of the optional
exemptions under this Article to be subject to an additional requirement of a maximum storage
amount on the payment instrument or payment account of the consumer where the electronic
money is stored.

Description
This discretion allows a maximum storage amount to be placed on the value of e-money that can
be issued to individual consumers by small EMIs. The limiting of the amount of e-money a
consumer can receive would bring about additional protection for the consumer in the event of
failure of a small EMI.

Q.10 At this stage, the Department does not intend to place a maximum storage amount on the
value of e-money that can be issued to individual consumers by small EMIs. Would the
implementation of this discretion provide additional protection to consumers and is there merit in
it?

Derogation 9 – Activities Limitation for Small EMIs

Title II, Article 9 (4): Member States may provide for a legal person registered in accordance
with paragraph 1 to engage only in some of the activities listed in Article 6(1).

Description
In conjunction with derogation 8, this discretion also provides the ability to specify which of
those activities from the list provided a small EMI may engage in.

Q.10 Should such activities be limited?

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Derogation 10 – Authorisation Waiver for Transitional entities
Title IV, Article 18 (2): Member States may provide for an electronic money institution to be
automatically granted authorisation and entered in the register provided for in Article 3 if the
competent authorities already have evidence that the electronic money institution concerned
complies with the requirements laid down in Articles 3, 4 and 5. The competent authorities
shall inform the electronic money institutions concerned before the authorisation is granted.

Description
This derogation facilitates the automatic authorisation of an EMI where the Central Bank has
evidence that the institution complies with Articles 3, 4 and 5 which provide for application
details, general prudential rules, initial capital and own funds.

Q.12 Would you agree that this derogation should be implemented?

Derogation 11 – National E-Money Instrument Limit

Title IV, Article 19 (2)(d): electronic money, as defined in point 2 of Article 2 of Directive
2009/110/EC of the European Parliament and of the Council of 16 September 2009 on the
taking up, pursuit and prudential supervision of the business of electronic money institutions
(*) where, if it is not possible to recharge, the maximum amount stored electronically in the
device is no more than EUR 250, or where, if it is possible to recharge, a limit of EUR 2 500 is
imposed on the total amount transacted in a calendar year, except when an amount of EUR 1
000 or more is redeemed in that same calendar year upon the electronic money holder’s
request in accordance with Article 11 of Directive 2009/110/EC. As regards national payment
transactions, Member States or their competent authorities may increase the amount of EUR
250 referred to in this point to a ceiling of EUR 500.

Description
This derogation allows for the limit of €250 to be increased to €500 where a non-rechargeable e-
money instrument is used solely for national payments, those being those payments within the
State.

Note
This derogation has already been implemented through section 34(7)(d) of the Criminal Justice
(Money Laundering and Terrorist Financing) Act 2010 (Number 6 of 2010).