EU Rules

pelle edited this page Sep 13, 2010 · 6 revisions

What is electronic money?

The EU defines it as follows:

“electronic money” means electronically, including magnetically, stored monetary value as represented by a claim on the issuer which is issued on receipt of funds for the purpose of making payment transactions as defined in point 5 of Article 4 of Directive 2007/64/EC, and which is accepted by a natural or legal person other than the electronic money issuer; (Article 2 of Directive 2009/110/EC )

The payment transaction mentioned is:

‘payment transaction’ means an act, initiated by the payer or by the payee, of placing, transferring or withdrawing funds, irrespective of any underlying obligations between the payer and the payee; (point 5 of Article 4 of Directive 2007/64/EC )

I read this as any kind of system designed for payment that maintains a balance. As it doesn’t specify how it is stored I read this to include both bearer and book entry based stored value systems. The main purpose of the value stored should be for payments and not for investing/saving etc.

Major exclusions

Article 1

This Directive does not apply to monetary value stored on instruments exempted as specified in Article 3(k) of Directive 2007/64/EC. (Article 1(4) of Directive 2009/110/EC)

which says:

(k) services based on instruments that can be used to acquire goods or services only in the premises used by the issuer or under a commercial agreement with the issuer either within a limited network of service providers or for a limited range of goods or services; (Article 3(k) of Directive 2007/64/EC )

So basically in store currencies. As far as I can see this means you are not part of these rules if you as the issuer of the currency are also the main company accepting the currency. So I take this to mean that virtual game currencies or stored service credits are excluded.

Article 1

This Directive does not apply to monetary value that is used to make payment transactions exempted as specified in Article 3(l) of Directive 2007/64/EC. (Article 1(5) of Directive 2009/110/EC)

which says:

(l) payment transactions executed by means of any telecom- munication, digital or IT device, where the goods or services purchased are delivered to and are to be used through a telecommunication, digital or IT device, provided that the telecommunication, digital or IT operator does not act only as an intermediary between the payment service user and the supplier of the goods and services; (Article 3(l) of Directive 2007/64/EC )

This to me is extremely confusing, it is an extremely broad out clause most likely lobbied into it by the mobile phone operators. I take this to mean any kind of payment service where this is not the main service of the payment service. So for example a mobile operator could offer payments as it’s main connection with the user is providing phone services. This clause is interesting, but someone should definitely consult with a lawyer on it.

Finally while not mentioned specifically in the emoney directive. There are a full list of other exclusions listed in Article 3 Negative Scope of Directive 2007/64/EC that should be read. Specifically for those of us interested in being technical service providers we are excluded just like in the US:

(j) services provided by technical service providers, which support the provision of payment services, without them entering at any time into possession of the funds to be transferred, including processing and storage of data, trust and privacy protection services, data and entity authentica- tion, information technology (IT) and communication network provision, provision and maintenance of terminals and devices used for payment services; (point j of Article 3 of Directive 2007/64/EC )

Capital Requirements

The initial capital requirements are probably the most important information needed for startups in the electronic money space. This is also the most conflicting part of the rules. Hopefully we can figure out what they actually mean.

The actual E money Directive 2009/110/EC says the following in Article 4:

Member States shall require electronic money institutions to hold, at the time of authorisation, initial capital, comprised of the items set out in Article 57(a) and (b) of Directive 2006/48/EC, of not less than EUR 350000.

What Article 57(a) and (b) say is that this has to be in either fully paid up share capital adjusted by profit or loss. So basically the cash your startup has available.

Now I have heard the amount of EUR 125,000 mentioned as being the minimum capital requirement for e-money issuers. This number seems to come from Article 6© of Directive 2007/64/EC

© where the payment institution provides any of the payment services listed in points 1 to 5 of the Annex, its capital shall at no time be less than EUR 125 000.

These points in the annex are as follows:

  1. Services enabling cash to be placed on a payment account as well as all the operations required for operating a payment account.
  2. Services enabling cash withdrawals from a payment account as well as all the operations required for operating a payment account.
  3. Execution of payment transactions, including transfers of funds on a payment account with the user’s payment service provider or with another payment service provider:
    • execution of direct debits, including one-off direct debits,
    • execution of payment transactions through a payment card or a similar device,
    • execution of credit transfers, including standing orders.
  4. Execution of payment transactions where the funds are covered by a credit line for a payment service user:
    • execution of direct debits, including one-off direct debits,
    • execution of payment transactions through a payment card or a similar device,
    • execution of credit transfers, including standing orders.
  5. Issuing and/or acquiring of payment instruments.

However if you are a money transmitter you only need EUR 20,000:

(a) where the payment institution provides only the payment service listed in point 6 of the Annex, its capital shall at no time be less than EUR 20 000;

From Annex:

6. Money remittance

So what is Money remittance? “Article 4(13)” defines money remittance as:

‘money remittance’ means a payment service where funds are received from a payer, without any payment accounts being created in the name of the payer or the payee, for the sole purpose of transferring a corresponding amount to a payee or to another payment service provider acting on behalf of the payee, and/or where such funds are received on behalf of and made available to the payee;

So basically a Western Union like system. However it does say a system without payment accounts, so in theory (but probably not in practice) it could be read as including with bearer currencies that don’t operate on the concept of accounts.

Finally Article 6© lists:

(b) where the payment institution provides the payment service listed in point 7 of the Annex, its capital shall at no time be less than EUR 50 000;

From Annex:

7. Execution of payment transactions where the consent of the payer to execute a payment transaction is given by means of any telecommunication, digital or IT device and the payment is made to the telecommunication, IT system or network operator, acting only as an intermediary between the payment service user and the supplier of the goods and services.

Again this is ridiculously broad and could be read to include any mobile device based system. It is interesting though as EUR 50,000 is considerably less than EUR 350,000 or EUR 125,000 and could conceivably be managed by a startup through a small seed round.

What does this mean? Please add your own comments.

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