Financial Institution: Electronic Money Institutions
Electronic Money Institutions
Entities that issue payment cards that can be pre-loaded with funds to be spent at a later date, may not be Depository Institutions provided certain conditions are met.
Electronic Money Institutions authorised under the Electronic Money Regulations 2011 (EMR), which implements the European Union Electronic Money Directive (2009/110/EC) (EMD) in the UK, are not deposit takers for the purposes of the EU Capital Requirements Directive (2013/36/EU) (CRD). Issuing electronic money (e-money) in exchange for funds, i.e. providing an e-money account in which to hold funds, does not constitute deposit taking. Consequently, Electronic Money Institutions will not fall within the definition of Depository Institution, which requires deposits to be accepted in the ordinary course of a banking or similar business.
Similarly, Payment Institutions authorised under the Payment Services Regulations 2009 (PSR), which implements the European Union Payment Services Directive (2007/64/EC) (PSD) in the UK, are not deposit takers for the purposes of the CRD. Any funds received by Payment Institutions from payment service users with a view to the provision of payment services does not constitute deposit taking. Consequently, Payment Institutions will not fall within the definition of Depository Institution, which requires deposits to be accepted in the ordinary course of a banking or similar business.
The EMD applies to ‘payment service providers that issue electronic money.’ It specifically excludes providers of ‘specific pre-paid instruments, designed to address precise needs that can be used only in a limited way, because they allow the electronic money holder to purchase goods or services only in the premises of the electronic money issuer or within a limited network of service providers under direct commercial agreement with a professional issuer, or because they can be used only to acquire a limited range of goods or services.’ This exclusion includes prepaid store cards, membership cards, public transport cards, and meal vouchers.
The definition of electronic money within the EMD covers ‘all situations where the payment service provider issues a pre-paid stored value in exchange for funds, which can be used for payment purposes because it is accepted by third persons as a payment.’
The EMD, at recital 13, specifically excludes the issuing of electronic money from constituting a deposit taking activity for the purposes of the Banking Consolidation Directive (which has now been consolidated into the Capital Requirements Directive):
‘The issuance of electronic money does not constitute a deposit-taking activity pursuant to Directive 2006/48/EC of the European Parliament and of the Council of 14 June 2006 relating to the taking up and pursuit of the business of credit institutions, in view of its specific character as an electronic surrogate for coins and banknotes, which is to be used for making payments, usually of limited amount and not as means of saving.’
The recital goes on to confirm conditions applying to electronic money institutions:
‘Electronic money institutions should not be allowed to grant credit from the funds received or held for the purpose of issuing electronic money. Electronic money issuers should not, moreover, be allowed to grant interest or any other benefit unless those benefits are not related to the length of time during which the electronic money holder holds electronic money. The conditions for granting and maintaining authorisation as electronic money institutions should include prudential requirements that are proportionate to the operational and financial risks faced by such bodies in the course of their business related to the issuance of electronic money, independently of any other commercial activities carried out by the electronic money institution.’
Credit card issuers may meet the conditions to be a Qualified Credit Card Issuer which will make them a Non-reporting Financial Institution (see IEIM400970).