Part

ELM Electronic Money

Chapter

Redemption, information requirements and purse limits

Printed on: 07/11/2024

Rulebook at: 14/01/2005

ELM 6

Redemption, information requirements
and purse limits

ELM 6.1

Application

  • 01/12/2004

ELM 6.1.1

handbook-guidance

The effect of ELM 1.1.1 R to ELM 1.1.3 R is that this chapter:

  1. (1) does not apply to an incoming EEA firm or incoming Treaty firm carrying on business in the United Kingdom on a cross-border services basis only;
  2. (2) applies to all other e-money firms.
  • 27/04/2002

ELM 6.1.2

handbook-rule
This chapter applies only in relation to e-money issued in the course of the regulated activity of issuing e-money carried on from an establishment maintained by the firm in the United Kingdom, unless ELM 6.10.1 R provides otherwise.
  • 27/04/2002

ELM 6.2

Purpose

  • 01/12/2004

ELM 6.2.1

handbook-guidance
One purpose of this chapter is to ensure that a firm redeems on demand any e-money issued by it. This will ensure that a consumer who finds that for the moment there is nothing he wishes to buy using e-money he has bought is not left with an asset that he cannot use and that he cannot turn back to cash to spend elsewhere. This will increase confidence among consumers in e-money as a product.
  • 27/04/2002

ELM 6.2.2

handbook-guidance
The purse limit in ELM 6.9.1 R protects holders of e-money by restricting the financial loss a holder of e-money may suffer if he loses his consumer e-money card or if the firm becomes insolvent. It takes into account the fact that the compensation scheme does not apply.
  • 27/04/2002

ELM 6.2.3

handbook-guidance
This chapter implements article 3 of the E-Money Directive and article 33a of the Banking Consolidation Directive.
  • 27/04/2002

ELM 6.2.4

handbook-guidance
The purpose of the rules about redemption in ELM is that holders of e-money issued by the firm should have the right to redeem that e-money at par in a simple and easy way. If any fee is charged for redemption, it should be limited. Holders should have the right for redemption proceeds to be paid in the currency in which the e-money is denominated and paid immediately in banknotes and coins or by transfer to a conventional bank account. Therefore a firm should not have a contract with a holder of e-money under which the holder is only entitled to redeem e-money on different terms.
  • 27/04/2002

ELM 6.2.5

handbook-guidance
However, ELM 6 does not require a firm to redeem e-money in a way that the holder does not want; it requires that the holder should be entitled to have the e-money redeemed in accordance with ELM 6. Thus if, at the time that a holder of e-money is exercising a redemption right, the holder asks the firm to pay the proceeds in a currency other than the one in which it is denominated, the firm may do so. Similarly, the holder may ask the firm to pay the proceeds of redemption in a way different from that in ELM 6.5.
  • 27/04/2002

ELM 6.2.6

handbook-guidance
This also means that a firm may allow a holder of e-money issued by the firm to use it to buy a currency other than the one in which the e-money is denominated through an automatic teller machine.
  • 27/04/2002

ELM 6.3

Duty to redeem

  • 01/12/2004

Person entitled to redemption

ELM 6.3.1

handbook-rule

A firm must, if requested to do so, redeem, at par, any e-money it has issued if the request is from a person who lawfully holds the e-money and who is:

  1. (1) the person to whom the firm issued the e-money; or
  2. (2) any other person, as long as his holding the e-money is not contrary to the e-money scheme rules.
  • 27/04/2002

Currency of redemption

ELM 6.3.2

handbook-rule
A firm must give a person who is exercising a redemption right against the firm the right to have the proceeds of redemption paid to him in the currency in which the e-money is denominated.
  • 27/04/2002

Time of redemption

ELM 6.3.3

handbook-rule

A firm must give a person who is exercising a redemption right against the firm in accordance with ELM 6.5.1 R:

  1. (1) (in the case of redemption for cash) the right to receive the cash immediately following the completion of the procedures in ELM 6.3.4 R;
  2. (2) (in the case of redemption in accordance with ELM 6.5.1 R (2)) the right to be paid as follows:
    1. (a) the firm must give the necessary payment instructions immediately following the completion of the procedures in ELM 6.3.4 R; and
    2. (b) the firm must ensure that the funds reach the holder's account within five business days of the day on which it gave the instructions in (2)(a).
  • 27/04/2002

Money laundering and other checks

ELM 6.3.4

handbook-rule
  1. (1) The procedures referred to in ELM 6.3.3 R are the carrying out of any checks that are reasonably required to prevent money laundering or fraud or to check whether the holder of the e-money is a person who is entitled to redeem it.
  2. (2) A firm must complete any procedures referred to in (1) as soon as reasonably possible.
  • 27/04/2002

ELM 6.3.5

handbook-rule

Nothing in ELM 6.3 requires a firm to do anything:

  1. (1) prohibited by any of the rules in ML; or
  2. (2) prohibited by the Money Laundering Regulations; or
  3. (3) that would be a criminal offence under the law of any part of the United Kingdom; or
  4. (4) (in relation to e-money) that would be a criminal offence under the law of a country other than the United Kingdom in which the firm redeems or would redeem that e-money.
  • 27/04/2002

Redemption prevented by circumstances beyond the firm's control

ELM 6.3.6

handbook-rule
A firm does not breach ELM 6.3.3 R (2) if the failure of the funds to reach the holder's account in time is caused by a failure outside the firm's control on the part of any third party that is involved in the funds transfer.
  • 27/04/2002

Guidance

ELM 6.3.7

handbook-guidance
An example of a person coming within ELM 6.3.1 R (2) is a merchant who has accepted payment using that e-money.
  • 27/04/2002

ELM 6.3.8

handbook-guidance
ELM 6.3.3 R recognises that it may not be possible to make electronic payments to e-money holders at once owing to the timetable of the settlement cycle for retail payments.
  • 27/04/2002

ELM 6.3.9

handbook-guidance
The par value of e-money is its monetary value.
  • 27/04/2002

ELM 6.3.10

handbook-guidance
The redemption right applies against the issuer of e-money. Issuer means the same thing as it does for the purpose of article 74A of the Regulated Activities Order (Electronic money). There is guidance on the meaning of issuer under that article in AUTH App 3.2 (The regulated activity of issuing e-money).
  • 27/04/2002

ELM 6.4

Exceptions to the duty to redeem

  • 01/12/2004

Minimum redemption amount

ELM 6.4.1

handbook-rule

ELM 6.3.1 R does not apply if:

  1. (1) the e-money to be redeemed has a par value of less than:
    1. (a) (if the e-money is denominated in euro) 10 euro; or
    2. (b) (if it is denominated in another currency) the equivalent of 10 euro in that currency; and
  2. (2) this exception is expressly provided for by the e-money scheme rules.
  • 27/04/2002

Expiration of e-money

ELM 6.4.2

handbook-rule
If the e-money scheme rules provide that e-money ceases to be valid after a specified period, the redemption right does not apply after the end of that period.
  • 27/04/2002

ELM 6.4.3

handbook-rule
A firm must not issue e-money that is valid for less than a year. If a firm issues e-money to banks or other distributors who then distribute it to the public, the firm must use reasonable endeavours to ensure that it remains valid for at least a year after its distribution to the public.
  • 27/04/2002

Guidance

ELM 6.4.4

handbook-guidance
The duty to redeem assumes that the person asking for redemption is able to present or make available the e-money for redemption. Thus, for example, if the e-money scheme in question is card based, and the person in question loses his card, ELM 6.3.1 R does not require the firm to reimburse the holder or redeem that e-money for him.
  • 27/04/2002

ELM 6.4.5

handbook-guidance
A firm should consider whether it is under any duty to compensate a holder of e-money issued by it who loses his consumer e-money card or whose e-money is used fraudulently by another. For example, a firm should consider whether the duty of a card issuer under regulation 21 (Payment by card) of the Consumer Protection (Distance Selling) Regulations 2000 to recredit or to return sums in the event of fraudulent use of a payment card applies to it, particularly in the case of e-money stored on a plastic card.
  • 27/04/2002

ELM 6.5

Methods of redemption

  • 01/12/2004

ELM 6.5.1

handbook-rule

A firm must give a person who is exercising a redemption right against the firm the right to have the proceeds of redemption paid to him:

  1. (1) in cash; or
  2. (2) by electronic transfer to an account with a bank or other financial undertaking nominated by that person.
  • 27/04/2002

ELM 6.5.2

handbook-rule
A firm must ensure that the exercise of the redemption right will not be unreasonably difficult for anyone entitled to exercise it.
  • 27/04/2002

ELM 6.5.3

handbook-rule
Subject to ELM 6.5.2 R, the firm may choose which of the methods of redemption in ELM 6.5.1 R to offer.
  • 27/04/2002

ELM 6.5.4

handbook-guidance
ELM 6.5.1 R reflects article 3(1) of the E-Money Directive and article 33a of the Banking Consolidation Directive. Neither ELM 6.5.1 R nor ELM 6.5.2 R takes precedence over the other. A firm must therefore organise its affairs so that it can comply with both rules.
  • 27/04/2002

ELM 6.5.5

handbook-guidance
If the methods by which the firm offers to redeem e-money are the same as those by which it is made available to the public, those methods of redemption are likely to be reasonable for the purposes of ELM 6.5.2 R. If a firm distributes e-money it issues through its branches, restricting the places where it can be redeemed to those branches is likely to be reasonable for the purpose of ELM 6.5.2 R.
  • 27/04/2002

ELM 6.5.6

handbook-guidance
A firm does not necessarily breach ELM 6.5.2 R if it does not offer the redemption right at each automated teller machine at which persons may withdraw cash by using e-money issued by the firm. For instance, a firm may issue e-money in the United Kingdom that can be used to withdraw cash from automated teller machines abroad. It may be reasonable for the firm not to offer the redemption right at the automated teller machines abroad.
  • 27/04/2002

ELM 6.6

Charges for redemption

  • 01/12/2004

ELM 6.6.1

handbook-rule

A firm may not charge a person any fee, expenses or other charge for or in connection with the exercise of a redemption right, except that a firm may charge a fee for the redemption of e-money if the following conditions are satisfied:

  1. (1) the e-money scheme rules give the firm the right to charge that fee;
  2. (2) the person exercising the redemption right is informed of the amount of the fee after the person makes the request for redemption and before completion of the redemption;
  3. (3) that person is given the opportunity, after he has received the information as described in (2), of withdrawing the request before the e-money is redeemed;
  4. (4) the fee is in accordance with the firm's usual tariff of fees for such redemptions; and
  5. (5) the fee is no greater than necessary to recover the costs to the firm of carrying out that redemption.
  • 27/04/2002

ELM 6.6.2

handbook-rule
Any fee permitted by ELM 6.6.1 R must never exceed the amount of e-money offered for redemption.
  • 27/04/2002

ELM 6.7

Terms of redemption

  • 01/12/2004

Contents of e-money scheme contracts

ELM 6.7.1

handbook-rule
A firm must ensure that (for each e-money scheme under which it issues e-money) the e-money scheme rules (so far as the firm is a party to the relevant contracts or can control their contents) are consistent with the rules in this chapter.
  • 27/04/2002

Obligation to enter into contracts with those entitled to redeem e-money

ELM 6.7.2

handbook-rule

A firm must (for any e-money scheme under which the firm issues e-money) ensure that there is a contract between it and:

  1. (1) any person to whom it issues e-money; and
  2. (2) any other person with a redemption right against the firm.
  • 27/04/2002

ELM 6.7.3

handbook-rule
The contract referred to in ELM 6.7.2 R (1) must be in force at the time the firm issues the e-money.
  • 27/04/2002

ELM 6.7.4

handbook-rule
The contract referred to in ELM 6.7.2 R (2) must be in force either before the person with the redemption right referred to in ELM 6.7.2 R (2) obtains the e-money in question or as soon as reasonably possible afterwards, having regard to the laws of the jurisdiction in question and the nature of the scheme. It must however be in force no later than the time of redemption.
  • 27/04/2002

Obligation to offer redemption as a contractual right

ELM 6.7.5

handbook-rule
Any contract referred to in ELM 6.7.2 R must incorporate the duty of the firm under the rules in this chapter to redeem e-money issued by it as a term of that contract. That term must be enforceable against the firm by the person who holds the e-money. That term must include all the rights that the rules in ELM 6.3 to ELM 6.6 say that the firm must give to a person exercising a redemption right against the firm.
  • 27/04/2002

ELM 6.8

Information

  • 01/12/2004

ELM 6.8.1

handbook-rule
A firm must not issue e-money to any person unless that person has been supplied with the information in ELM 6.8.2 R and, where appropriate, ELM 6.8.2A R.
  • 09/10/2004

ELM 6.8.2

handbook-rule

A firm must make available to actual and prospective holders of e-money issued by the firm or that may be issued by it in the future:

  1. (1) information about the redemption right, including the information specified in ELM 6.8.4 R; and
  2. (2) the information specified in ELM 6.8.5 R.
  • 27/04/2002

ELM 6.8.2A

handbook-rule
COB 2.6 (General provisions related to distance contracts) and COB 6.4.25R (Entering into a distance contract for accepting deposits) applies to a firm as if references to 'accepting deposits' and 'deposits' were references to 'issuing e-money' and 'e-money' respectively.
  • 09/10/2004

ELM 6.8.3

handbook-rule
The information in ELM 6.8.2 R must be in a durable medium and in a readily comprehensible form.
  • 09/10/2004

ELM 6.8.4

handbook-rule

The information referred to in ELM 6.8.2 R (1) is:

  1. (1) the amount of any fee of the type referred to in ELM 6.6.1 R, or, if there is no such fee, that fact;
  2. (2) details of how the redemption right is to be exercised;
  3. (3) the amount of any limit of the type set out in ELM 6.4.1 R, or, if there is no such limit, that fact; and
  4. (4) the length of any period of validity of the type set out in ELM 6.4.2 R, or, if there is no such period of validity, that fact.
  • 27/04/2002

ELM 6.8.5

handbook-rule

The information referred to in ELM 6.8.2 R (2) is:

  1. (1) an explanation of the liability of a holder of e-money issued by the firm, and of the liability of the firm, for loss arising from, and the risks to such a holder arising from:
    1. (a) the use, by a person other than such a holder, of the e-money electronic device used by the holder;
    2. (b) fraud by another in relation to such a holder's e-money;
    3. (c) access to or use of such a holder's e-money by another;
    4. (d) loss, malfunction, theft or damage to or of any e-money electronic device used by such a holder;
  2. (2) any other significant risks arising from the acquisition, use or holding of the e-money;
  3. (3) the fact that the compensation scheme does not cover claims made in connection with issuing e-money;
  4. (4) details about any scheme that compensates holders of e-money issued by the firm in cases where the firm is unable to satisfy claims against it in relation to e-money or the fact that there is no such scheme;
  5. (5) details about:
    1. (a) the Financial Ombudsman Service and its application to the e-money scheme in question;
    2. (b) any other complaints and redress procedures available to the holder; and
    3. (c) how the holder may initiate those procedures; and
  6. (6) a geographical address at which the firm may be contacted.
  • 27/04/2002

ELM 6.8.6

handbook-guidance
In the case of e-money schemes that use consume e-money cards and under which the risk of theft or loss is on the holder of the e-money, the information in ELM 6.8.2 R should warn a holder of e-money that he should treat his consumer e-money card like cash in a wallet. The warning should say that if he loses his consumer e-money card or it is stolen, he will lose any money in it, in just the same way as if he lost his wallet.
  • 27/04/2002

ELM 6.9

Purse limits and warnings on cards

  • 01/12/2004

Purse limits

ELM 6.9.1

handbook-rule
  1. (1) A firm must ensure that:
    1. (a) e-money issued by it cannot be stored on a consumer e-money device with a capacity that exceeds the sum in (2); and
    2. (b) a consumer e-money holder is not able to hold, as part of the same balance or otherwise under the same arrangements, e-money issued by the firm of an amount that exceeds, at any time, the sum in (2).
  2. (2) The sum referred to in (1) is:
    1. (a) (in a case in which the e-money is denominated in sterling) ?1000;
    2. (b) (in a case in which the e-money is denominated in another currency) the equivalent of ?1000 in that currency.
  • 27/04/2002

Exception to the purse limit

ELM 6.9.2

handbook-rule

ELM 6.9.1 R does not apply in a particular case if:

  1. (1) the firm has (in accordance with ELM 6.9.4 R) first given a warning of the matters in ELM 6.9.3 R to the consumer e-money holder referred to in ELM 6.9.1 R (1)(b) and the owner for the time being of the e-money stored on the consumer e-money device referred to in ELM 6.9.1 R (1)(a)(that consumer e-money holder being referred to as the "holder" in ELM 6.9);
  2. (2) the firm has received an acknowledgement from the holder in accordance with ELM 6.9.5 R; and
  3. (3) the requirements of ELM 6.9.7 R are met as respects the consumer e-money device referred to in ELM 6.9.1 R (1)(a) or which the holder uses to spend or otherwise use his e-money and as respects the scheme under which the firm issues the e-money.
  • 27/04/2002

ELM 6.9.3

handbook-rule

The warning referred to in ELM 6.9.2 R (1) is a warning that:

  1. (1) the compensation scheme does not apply to e-money issued by the firm;
  2. (2) if the firm becomes insolvent the e-money in question may become valueless and unusable; and
  3. (3) accordingly if the firm becomes insolvent the holder may lose his e-money.
  • 27/04/2002

ELM 6.9.4

handbook-rule

The warning referred to in ELM 6.9.2 R (1) must:

  1. (1) be in writing;
  2. (2) be presented in a way that can be easily understood; and
  3. (3) be presented in such manner as, depending on the means by which the warning is given, is best calculated to bring it to the attention of the holder and to allow him to consider it.
  • 27/04/2002

ELM 6.9.5

handbook-rule
The acknowledgement referred to in ELM 6.9.2 R (2) is an acknowledgement from the holder to the firm that the holder has read and understood the warning given to him under ELM 6.9.2 R (1) and that he accepts those risks.
  • 27/04/2002

ELM 6.9.6

handbook-rule

The acknowledgement referred to in ELM 6.9.2 R (2) must:

  1. (1) be in writing; and
  2. (2) relate to the warning referred to in ELM 6.9.2 R (1) only.
  • 27/04/2002

ELM 6.9.7

handbook-rule

The requirements of this rule are only met in a particular case if:

  1. (1) the scheme under which the e-money is issued is organised in such a way that the loss, malfunction, theft or damage to or of the consumer e-money device referred to in ELM 6.9.2 R (3) will not result in the holder losing any e-money or in any substantial prejudice to his redemption right or his ability to exercise it;
  2. (2) (in the case of any scheme under which a firm issues e-money) the firm is able to prevent the use or spending of any e-money it issues under that scheme; and
  3. (3) the identity of the person who is entitled to e-money issued by the firm under the scheme in question, the amount of such e-money to which he is entitled, the identity of the person who at any time has a redemption right against the firm under that scheme and the amount that he is entitled to have redeemed are determined by records maintained by or on behalf of the firm and are not affected by the matters in (1).
  • 27/04/2002

ELM 6.9.8

handbook-rule
The requirements of ELM 6.9.7 R may still be met if the holder is responsible for any unauthorised use of his consumer e-money device that occurs between its loss or theft and the consumer e-money holder notifying the firm of its loss or theft.
  • 27/04/2002

ELM 6.9.9

handbook-guidance
The acknowledgement in ELM 6.9.2 R (2) may be contained in a written contract in physical form between the firm and the consumer e-money holder. If it is, the firm should ensure that the signature of the consumer e-money holder acknowledging the matters in ELM 6.9.5 R is in addition to the signature by which the consumer e-money holder consents to the terms of the contract. If the firm contracts electronically with the consumer e-money holder, the firm should ensure that the consumer e-money holder's electronic acknowledgement of the matters in ELM 6.9.5 R is separate from his electronic agreement to the terms of the contract.
  • 27/04/2002

ELM 6.9.10

handbook-guidance
The requirements in ELM 6.9.7 R cover a scheme in which the firm maintains the record of who owns e-money it issues. A holder of e-money issued by the firm should not be at risk from the theft, malfunction, loss or damage to his consumer e-money device as the firm has a record of how much he owns. This is in contrast to a scheme in which the e-money is stored on a consumer e-money card where the loss of the device means that the holder loses the e-money on it.
  • 27/04/2002

ELM 6.9.11

handbook-guidance
ELM 6.9.4 R (2) means that, in a card-based e-money scheme, the firm should be able to freeze a stolen consumer e-money card once the owner tells the firm that it has been stolen. If an e-money scheme does not have the records referred to in ELM 6.9.7 R (3) or is unable to freeze the use of consumer e-money devices in accordance with ELM 6.9.7 R (2), but the firm accepts the risk of loss of the device, the purse limits in ELM 6.9.1 R still apply.
  • 27/04/2002

Warnings on cards

ELM 6.9.12

handbook-rule

A firm must ensure that any consumer e-money card on which e-money issued by it can be stored or which can be used to spend or use e-money issued by it has the following information physically printed on it or on the packaging in which it is made available to the public:

  1. (1) a geographical address at which the firm may be contacted; and
  2. (2) a brief summary of the risks if the consumer e-money card is lost or stolen.
  • 27/04/2002

ELM 6.10

Establishing to what e-money ELM 6 applies

  • 01/12/2004

ELM 6.10.1

handbook-rule
If (with respect to any obligation of a firm about e-money in ELM 6 and a scheme under which that firm issues that e-money) that scheme falls into ELM 6.10.3 R, that obligation extends to all e-money issued under that scheme, unless ELM 6.10.2 R provides otherwise.
  • 27/04/2002

ELM 6.10.2

handbook-rule

ELM 6.10.1 R does not:

  1. (1) cover a case in which the design referred to in ELM 6.10.3 R does not materially contribute to the firm's inability to make the distinction referred to in ELM 6.10.3 R; or
  2. (2) cover e-money in respect of which the firm can establish it is not subject to that obligation; or
  3. (3) require a firm to extend any rights to a person whose holding the e-money in question is contrary to the e-money scheme rules.
  • 27/04/2002

ELM 6.10.3

handbook-rule
An e-money scheme falls into this rule if it is designed in such a way that generally the firm is unable to distinguish between e-money that comes within the scope of the obligation referred to in ELM 6.10.1 R and e-money that would otherwise not.
  • 27/04/2002

ELM 6.10.4

handbook-guidance
The rules in this chapter make various distinctions about e-money. For example, they distinguish between e-money issued by the firm and e-money issued by other e-money issuers. With some e-money schemes it may not be possible for a firm to make those distinctions. If this is the case, ELM 6.10.1 R ensures that the rules in this chapter still apply.
  • 27/04/2002

ELM 6.10.5

handbook-guidance

Thus, for example, if a firm is unable to distinguish between:

  1. (1) e-money issued by the firm and e-money issued by other issuers under the e-money scheme in question, it should offer the redemption right to holders of all e-money issued under that scheme;
  2. (2) e-money issued by the firm within the territorial scope of this chapter and other e-money issued by the firm, it should offer the redemption right to holders of all e-money issued by it.
  • 27/04/2002