AUTH App 3.2 The regulated activity of issuing e-money

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.

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.

Further guidance on section 19 and regulated activities can be found in AUTH 2.

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.

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. (1)

   stored on an electronic device;

2. (2)

   issued on receipt of funds; and

3. (3)

   accepted as a means of payment by persons other than the issuer.

The E-Money Directive introduces a framework for the regulation of e-money at a European level.

The Regulated Activities Order copies out the definition of electronic money in the E-Money Directive, with one exception.

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.

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).

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.

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the FSA has given a certificate under that article is not a regulated activity provided that the certificate has not been revoked.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).

As explained in AUTH App 3.2.4 G, the regulated activity relating to e-money is issuing e-money.

In some e-money schemes an originator creates e-money and then sells it to banks and other distributors. The latter then sell the e-money to the public. In the FSA's view, references to the issuer of e-money in the Regulated Activities Order are to the originator and not the distributors.

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.

Article 9A of the Regulated Activities Order says that a sum is not a deposit if it is immediately exchanged for e-money.

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.

AUTH 2.6.2 G to AUTH 2.6.4 G has guidance on the meaning of deposit.

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.

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.

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.

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.

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.

The transitional provisions also apply to a body corporate or partnership which, immediately before 27 April 2002:

1. (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. (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.

AUTH App 3.2.23 G does not include a person within AUTH App 3.2.21 G or AUTH App 3.2.22 G.

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.

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.

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.

For these purposes an application is to be treated as finally determined:

1. (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. (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).

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.