AUTH App 3
Guidance on the scope of the regulated
activity of issuing e-money
AUTH App 3.1
Application and purpose
- 01/12/2004
Application
AUTH App 3.1.1
See Notes
- 27/04/2002
AUTH App 3.1.2
See Notes
- 27/04/2002
Purpose
AUTH App 3.1.3
See Notes
There are two main purposes of this guidance on the definition
of e-money.
These are:
(2) to explain the application of the restriction
on financial promotion under
section 21 of the Act so
far as it concerns issuing
e-money.
- 27/04/2002
AUTH App 3.1.4
See Notes
This guidance is issued under section 157 of the Act. It represents the FSA's views and does not
bind the courts. For example, it would not bind the courts in an action for
damages brought by a private
person for breach of a rule (see
section 150 of the Act (Action
for damages)), or in relation to the enforceability of a contract where there
has been a breach of section 19 (The general prohibition) or 21 (Restriction
on financial promotion) of the Act (see sections 26 to 30 of the Act (Enforceability of
agreements)).
- 27/04/2002
AUTH App 3.1.5
See Notes
Although the guidance does not bind the courts, it may
be of persuasive effect for a court considering whether it would be just and
equitable to allow a contract to be enforced (see sections 28(3) and 30(4)
of the Act).
Anyone reading this guidance should
refer to the Financial Services and Markets Act 2000 (Regulated Activities)
Order 2001 (SI 2001/544) (as amended) (the Regulated Activities Order), the Financial
Services and Markets Act 2000 (Regulated Activities) (Amendment) Order 2002
(SI 2002/682) and to the Financial Services and Markets Act 2000 (Financial
Promotion) Order 2001 (SI 2001/1335) (as amended) (the Financial Promotion Order). These should
be used to find out the precise scope and effect of any particular provision
referred to in this guidance,
and any reader should consider seeking legal advice if doubt remains. If a person acts in line with
the guidance in
the circumstances mentioned by it, then the FSA will proceed on the footing that the person has complied with
the aspects of the requirement to which the guidance relates.
- 27/04/2002
AUTH App 3.2
The regulated activity of issuing e-money
- 01/12/2004
The Regulated Activities Order
AUTH App 3.2.1
See Notes
Under section 19 of the Act (The general prohibition),
no person may carry on a regulated
activity in the United
Kingdom, or purport to do so, unless he is authorised or exempt under the Act.
- 27/04/2002
AUTH App 3.2.2
See Notes
A regulated
activity means an activity of a kind specified in the Regulated Activities Order which
is carried on by way of business and which (generally) relates to an investment of a kind specified
in the Regulated Activities
Order.
- 27/04/2002
AUTH App 3.2.3
See Notes
- 27/04/2002
AUTH App 3.2.4
See Notes
Article 9B of the Regulated Activities Order says that issuing e-money is a specified
activity of the kind described in AUTH
App 3.2.2 G.
Article 74A of the Regulated
Activities Order says that e-money is
a specified investment for
that purpose.
- 27/04/2002
AUTH App 3.2.5
See Notes
E-money is
defined in Article 3(1) of the Regulated
Activities Order. It says that e-money means monetary value, as represented
by a claim on the issuer, which is:
(1) stored on an electronic device;
(2) issued on receipt of funds; and
(3) accepted as a means of payment by persons other than the
issuer.
- 27/04/2002
The E-Money Directive
AUTH App 3.2.6
See Notes
The E-Money
Directive introduces a framework for the regulation of e-money at a European
level.
- 27/04/2002
AUTH App 3.2.7
See Notes
The Regulated
Activities Order copies out the definition of electronic money in the E-Money Directive, with one exception.
- 27/04/2002
AUTH App 3.2.8
See Notes
The exception is that the words - of
an amount not less in value than the monetary value issued? in article 1(3)(b)(ii)
of the E-Money Directive are
not reproduced in the Regulated
Activities Order.
- 27/04/2002
AUTH App 3.2.9
See Notes
The words in article 1(3)(b)(ii) omitted
from the definition in the Regulated
Activities Order are aimed at stopping e-money issuers from issuing e-money at a discount. They were
omitted from the Regulated
Activities Order to make it clear that issuing electronic monetary
value at a discount is not an unregulated
activity. Instead, the prohibition on issuing e-money at a discount is left to FSArules. The FSA rules on
this are in ELM 4 (Limitations on activities).
- 27/04/2002
AUTH App 3.2.10
See Notes
On this basis, the FSA believes that the definition of e-money in the Regulated Activities Order should
be interpreted consistently with the E-Money
Directive.
- 27/04/2002
Exclusions
AUTH App 3.2.11
See Notes
Article 9C of the Regulated Activities Order says that the
issuing of e-money by
a person to whom the FSA has
given a certificate under that article is not a regulated activity provided that the certificate
has not been revoked. The FSA may
only issue such certificates to small or local e-money schemes. Further guidance on this topic can be found in ELM 8 (Small e-money issuers).
- 27/04/2002
The issuer of e-money
AUTH App 3.2.12
See Notes
- 27/04/2002
AUTH App 3.2.13
See Notes
- 27/04/2002
AUTH App 3.2.14
See Notes
The issuer is the issuer of the e-money rather than the
issuer of the electronic device on which it is stored, if they are different.
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Exclusion from the definition of deposit
AUTH App 3.2.15
See Notes
Article 9A of the Regulated Activities Order says that a sum
is not a deposit if
it is immediately exchanged for e-money.
- 27/04/2002
AUTH App 3.2.16
See Notes
Thus if a customer pays for e-money but the e-money is not issued
until later, that initial payment will be a deposit, as long as the payment comes within
the definition of deposit in
the Regulated Activities
Order.
- 27/04/2002
AUTH App 3.2.17
See Notes
- 27/04/2002
AUTH App 3.2.18
See Notes
Some e-money products may be charged up by means
of scratch cards that can be purchased from shops. The price paid for the
card is the monetary value of the e-money.
The card contains a number. The purchaser then enters the number on a web
site to activate the e-money account.
There is thus a delay between the payment for the e-money and its use by the holder. Such a
delay does not make the payment for the e-money a deposit. This is because
the means of spending the e-money is
put into the hands of the purchaser when he purchases the card.
- 27/04/2002
AUTH App 3.2.19
See Notes
A person may also pay for e-money by cheque. The e-money issuer will not
receive the value until the cheque has cleared. This delay does not make the
payment for the e-money into
a deposit.
The purchaser has paid for the e-money,
even though his payment obligation has only been satisfied conditionally.
- 27/04/2002
Transitionals
AUTH App 3.2.20
See Notes
Article 9 of The Financial Services and
Markets Act 2000 (Regulated Activities) (Amendment) Order 2002 has transitional
provisions relating to those who were issuing e-money on 27 April 2002.
- 27/04/2002
AUTH App 3.2.21
See Notes
Where, immediately before 27 April 2002,
a full credit institution with Part IV permission to accept deposits was carrying
on by way of business in the United
Kingdom the activity of issuing
e-money, its permission is
to be treated as including, for a period of six months beginning at 27 April
2002, permission to
carry on the activity of issuing
e-money.
- 27/04/2002
AUTH App 3.2.22
See Notes
Where, immediately before 27 April 2002:
a) an EEA firm of the kind mentioned in paragraph 5(b) or (c) of Schedule 3 to the Act qualified for authorisation under that Schedule; and
b) the activities which were treated as permitted activities for the purposes of paragraph 13 or 14 of that Schedule as it applied to that person included issuing e-money; the firm'spermission under paragraph 15 of that Schedule is to be treated as including permission to carry on that activity.
a) an EEA firm of the kind mentioned in paragraph 5(b) or (c) of Schedule 3 to the Act qualified for authorisation under that Schedule; and
b) the activities which were treated as permitted activities for the purposes of paragraph 13 or 14 of that Schedule as it applied to that person included issuing e-money; the firm'spermission under paragraph 15 of that Schedule is to be treated as including permission to carry on that activity.
- 27/04/2002
AUTH App 3.2.23
See Notes
The transitional provisions also apply
to a body corporate or partnership which, immediately
before 27 April 2002:
(1) has its head office in the United Kingdom, and is
carrying on by way of business in the United
Kingdom the activity of issuing
e-money; or
(2) has its head office in an EEA State other than the United Kingdom, and is
carrying on such an activity by way of business in the United Kingdom without contravening the
law of that other EEA State.
- 27/04/2002
AUTH App 3.2.24
See Notes
- 27/04/2002
AUTH App 3.2.25
See Notes
A person described
in AUTH
App 3.2.23 G is not to be treated
as carrying on the regulated
activity of issuing
e-money until the beginning of 27 October 2002, unless it receives permission to carry on
that activity before then.
- 27/04/2002
AUTH App 3.2.26
See Notes
On and after 27 October 2002, an e-money issuer with its
head office in the United
Kingdom will not be able to continue issuing e-money in the UK (or other EEA States) unless it has been granted permission under Part
IV of the Act (or
its existing permission has
been varied to include the activity of issuing
e-money). Similarly, an e-money
issuer whose head office is in another EEA State will not have permission to carry on that activity on or
after 27 October unless it has been duly authorised in its Home State.
- 27/04/2002
AUTH App 3.2.27
See Notes
However, if an e-money issuer falling under AUTH App 3.2.23 G (1) that was issuing e-money as at 27 April 2002 continues to
issue e-money after
the beginning of 27th October 2002, its carrying on that activity after that
date will continue to be excluded from the regulated activity of issuing e-money, provided that he has made
an application before 27th June 2002 under section 40 of the Act (Application
for permission) for permission to
carry on that activity, and has not withdrawn it. That exclusion ends when
the application has been finally determined.
- 27/04/2002
AUTH App 3.2.28
See Notes
For these purposes an application is
to be treated as finally determined:
(1) In a case where the FSA gives permission to carry on the activity and does
not exercise its power under section 42(7)(a) or (b) (Permission) or section
43(1) (Imposition of requirements) of the Act, on the date on which the permission takes effect;
(2) In a case where the FSA refuses permission, or gives permission but exercises its power under
section 42(7)(a) or (b) or section 43 of the Act, at the time when the matter ceases to
be open to review (within the meaning of section 391(8) of the Act) (Publication).
- 27/04/2002
AUTH App 3.2.29
See Notes
The transitional exclusions described
in AUTH
App 3.2.23 G to AUTH
App 3.2.28 G do not cover an e-money issuer whose head office is outside
the EEA.
- 27/04/2002
AUTH App 3.3
Elements of the definition of e-money
- 01/12/2004
Monetary value
AUTH App 3.3.1
See Notes
The definition of e-money says that for a product to be e-money, it must be monetary
value as represented by a claim on the issuer. Guidance on the meaning of
issuer can be found at AUTH
App 3.2.12 G to AUTH
App 3.2.14 G
- 27/04/2002
Storage on an electronic device
AUTH App 3.3.2
See Notes
- 27/04/2002
AUTH App 3.3.3
See Notes
E-money is
an electronic payment product. The value is held electronically and payments
using the value are made electronically.
- 27/04/2002
AUTH App 3.3.4
See Notes
The fact that the device may be magnetic
does not stop it being an electronic device for the purpose of the definition
of e-money.
Thus for example value stored on a personal computer does not fall outside
the definition merely because it is stored on the computer's magnetic hard
disk. Similarly, value stored on a plastic
card that uses magnetic stripe technology may also fall within
the definition if the value is transferred for spending using electronic technology.
- 27/04/2002
Prepayment
AUTH App 3.3.5
See Notes
- 27/04/2002
AUTH App 3.3.6
See Notes
- 27/04/2002
AUTH App 3.3.7
See Notes
This does not mean that e-money paid for with
a credit card falls outside the definition. The purchase of the e-money represents the
purchase of monetary value. The fact that the purchaser is lent the funds
to buy the e-money does
not affect this. There are two contracts, one for the sale of e-money and one for credit.
- 27/04/2002
AUTH App 3.3.8
See Notes
Value on a debit card may be e-money or a deposit. Guidance on this is given
in AUTH
App 3.3.14 G to AUTH
App 3.3.20 G.
- 27/04/2002
AUTH App 3.3.9
See Notes
The fact that the device on which monetary
value is stored is made available on a plastic
card that also functions as a debit or credit card does not
stop that monetary value from being e-money.
- 27/04/2002
Multipurpose
AUTH App 3.3.10
See Notes
- 27/04/2002
AUTH App 3.3.11
See Notes
AUTH
App 3.3.10 G means
that the e-money holder
must be able to use it to buy goods and services from persons other than the issuer.
- 27/04/2002
AUTH App 3.3.12
See Notes
Thus, for example, electronic value issued
by an employer to its employees that can only be used to buy food and drink
from the employer in its canteen is not e-money.
- 27/04/2002
AUTH App 3.3.13
See Notes
- 27/04/2002
Accounted e-money schemes
AUTH App 3.3.14
See Notes
- 27/04/2002
AUTH App 3.3.15
See Notes
The document published by HM Treasury
in March 2002 called "Implementation of the Electronic Money
Directive: A Response to Consultation" says:"An important issue that respondents
[to HM Treasury's consultation on the implementation of the E-Money Directive] requested clarification
on was whether the Directive's definition should catch account-based schemes
(i.e. e-money held remote from the owner and spent at the owner's direction)
as well as, for example, card-based schemes (i.e. e-money in the possession
of the owner, whether stored on a personal computer or a smart card, and directly
spent by them). The Treasury believes that the Directive's definition does
allow for the possibility of account-based schemes being e-money. Not allowing
account-based e-money schemes would effectively create a regulatory gap between
the e-money and deposit-taking regimes - and a difference of treatment between
schemes that pose similar regulatory risks. Rather than attempting to amend
the definition in the Order (which is already expressed suitably widely),
the Treasury has clarified in the accompanying Explanatory Memorandum that
the definition of e-money is to be interpreted as covering account-based schemes
(so long as they remain distinct from deposit-taking)."
- 27/04/2002
AUTH App 3.3.16
See Notes
That explanatory memorandum says:"The Treasury
believes the Directive's definition includes both e-money schemes in which
value is stored on a card that is used by the bearer to make purchases, and
account-based e-money schemes where value is stored in an electronic account
that the user can access remotely."
- 27/04/2002
AUTH App 3.3.17
See Notes
Thus monetary value issued under an account-based
scheme can be e-money.
On the other hand, not all monetary value recorded electronically on an account
will be e-money.
If all such monetary value were e-money,
any deposit recorded
in records maintained electronically could be e-money, thereby turning most conventional
bank accounts into e-money.
Thus it is necessary to distinguish between an account-based e-money scheme and a conventional
bank deposit.
- 27/04/2002
AUTH App 3.3.18
See Notes
Recital (3) to the E-Money Directive says that "electronic money
can be considered an electronic surrogate for coins and banknotes, which is
stored on an electronic device such as a chip card or computer memory and
which is generally intended for the purpose of effecting electronic payments
of limited amounts."
- 27/04/2002
AUTH App 3.3.19
See Notes
The European Commission published an
explanatory memorandum along with its proposal for a Directive about e-money. It said that
it is appropriate to emphasise that e-money does
not represent a deposit.
Unlike a depositor, a user does not advance funds to an issuer in order to
ensure their safe keeping and handling. Neither the issuer nor the customer
pursues this objective. The Commission said that the underlying contract between
the customer and the issuer is that the user will get value for the e-money from those merchants
that accept it and that the issuer will honour his commitment to give value.
- 27/04/2002
AUTH App 3.3.20
See Notes
In distinguishing e-money and deposits, relevant factors include the following.
(1) As explained in AUTH
App 3.3.3 G, e-money is
a purely electronic product. If the monetary value is kept on an account that
can be used by non-electronic means, that points towards it being a deposit. For example,
an account on which cheques can be drawn is unlikely to be e-money.
(2) If a product is designed in such a way
that it is only likely to be used for making payments of limited amounts and
not as a means of saving, that feature points towards it being e-money. Relevant features
might include how long value is allowed to remain on the account, disincentives
to keeping value on the account and the payment of interest on it.
(3) If an account has features on it in addition
to those necessary for a pure payment facility, such as an overdraft or direct
debit facility, that points towards it not being e-money.
- 27/04/2002
AUTH App 3.3.21
See Notes
- 27/04/2002
AUTH App 3.4
Financial promotion
- 01/12/2004
AUTH App 3.4.1
See Notes
Guidance on
the restrictions on financial promotion under section 21 of the Act (Restrictions on financial
promotion) can be found in AUTH App [to be added to the Handbook at a later
date]. AUTH App 3.4 gives further guidance on its application
to e-money.
- 27/04/2002
AUTH App 3.4.2
See Notes
As explained in AUTH App [ ], section
21 of the Act applies
to the communication of
an invitation or inducement to engage
in investment activity. Section 21(8) defines engaging
in investment activity as:
(1) entering or offering to enter into an
agreement the making or performance of which by either party constitutes a controlled activity; or
(2) exercising any rights conferred by a controlled investment to
acquire, dispose of, underwrite or convert a controlled investment.
- 27/04/2002
AUTH App 3.4.3
See Notes
Controlled
activity and controlled
investment are both defined by reference to Schedule 1 to the Financial Promotion Order. Issuing e-money is not
included as a controlled
activity and e-money is
not included as a controlled
investment.
- 27/04/2002
AUTH App 3.4.4
See Notes
Accepting
deposits is however a controlled
activity and a deposit is
a controlled investment.
As explained in AUTH
App 3.2.15 G,
the definition of deposit under
the Regulated Activities
Order says that a sum is not a deposit for the purposes of the Regulated Activities Order if
it is immediately exchanged for e-money.
- 27/04/2002
AUTH App 3.4.5
See Notes
The definition of deposit in the Financial Promotion Order follows the definition
of deposit in
the Regulated Activities
Order. Therefore the purchase price paid for e-money is not a deposit for the purposes of the Financial Promotion Order.
- 27/04/2002
AUTH App 3.4.6
See Notes
Hence the provisions in the Act and the Handbook about financial promotions do
not apply to e-money.
- 27/04/2002
AUTH App 3.4.7
See Notes
However, if the purchase price for e-money is not immediately
exchanged for e-money,
the purchase price may be a deposit if
the payment comes within the definition of deposit in the Regulated Activities Order. AUTH
2.6.2 G to AUTH
2.6.4 G has guidance on the meaning
of deposit.
In such a case, the provisions in the Act and
the Handbook about financial promotions relating
to deposits apply.
- 27/04/2002