Brussels, 29 July 1998
Electronic money: Commission proposes clear regulatory framework
Proposals for a clear regulatory framework for electronic money within the Single Market have been put forward by the European Commission. By harmonising minimum rules for ensuring that institutions issuing electronic money are stable and sound, the proposals would promote confidence amongst business and consumers. The proposals would therefore facilitate the development of electronic commerce within the EU and make it easier for consumers to use electronic money to make small payments in euros in other Member States without having to convert national currencies, notably during the period before euro notes and coins are introduced. The proposals would also ensure a level playing field between traditional credit institutions and other firms issuing electronic money and allow electronic money institutions to offer their services throughout the EU on the basis of supervision by their home Member State. Electronic money is defined in the proposals as monetary value stored on a chip card (pre-paid card or 'electronic purse') or on a computer memory (network or software money) and which is accepted as a means of payment by undertakings other than the issuer.
"Electronic money is not only the lifeblood of electronic commerce, but also has the potential to replace a sizeable share of cash payments, notably during the period before euro notes and coins are available" stated Financial Services Commissioner Mario Monti. "By creating legal certainty for electronic money, these proposals will safeguard the interests of consumers and businesses, and so help to build confidence in the use of electronic money, while encouraging new market entrants and so greater competition. The widespread use of electronic money will in turn add a major new dimension to the Single Market for financial services, electronic commerce and the single currency, of benefit to consumers, business and the EU's competitiveness".
One proposal for a Directive would amend the definition of "credit institution" within the meaning of the First Banking Co-ordination Directive so as to bring electronic money institutions within the general regulatory regime of the First and Second Banking Directives (77/780/EEC and 89/646/EEC). This would allow enterprises issuing electronic money but which do not wish to undertake the full range of banking operations to nevertheless enjoy the benefits of being able to operate throughout the Single Market on the basis of authorisation in one Member State (i.e. the 'single passport' based on home country control) and so be on an equal footing with credit institutions.
At the same time, an effect of this proposal is that all issuers of electronic money, rather than just credit institutions, could be subject to reserve requirements imposed by the European Central Bank as part of monetary policy measures. However, issuers of electronic money which do not carry out the full range of banking operations would be exempt from certain other prudential supervision rules established in the First and Second Banking Directives and would instead be subject to specific rules established in the proposal on issuing electronic money.
A second proposal for a Directive would define electronic money in a technology-neutral manner and the type of business activities that could be undertaken by electronic money institutions. It would also lay down rules concerning:
- prior authorisation by competent authorities
- initial capital (minimum ECU 500,000) and ongoing own funds requirements including a requirement that investments are limited to highly liquid, low risk assets
- minimum standards of fit and proper management
- sound and prudent operation requirements
- ongoing supervision
- application of the Directives concerning Consolidated Supervision (92/30/EEC) and Money Laundering (91/308/EEC).
The draft Directives fulfil the Commission's commitment, in its April 1997 Communication on "A European Initiative in Electronic Commerce" (see IP/97/313) to come forward with proposals for an appropriate supervisory framework for electronic money. The Communication highlighted the link between the development of electronic commerce and new payment instruments. The proposal also forms part of the follow-up to the Commission's June 1997 Communication on "Financial Services: Enhancing Consumer Confidence" (see IP/97/566) and the mandate from the Cardiff European Council to table a "framework for action" to improve EU financial services legislation.
Both proposals for Directives will be submitted to the EU's Council of Ministers and the European Parliament for adoption under the co-decision procedure.