ELM 4.4 Prohibition on issue of e-money at a discount

A firm may want, for promotional reasons, to issue e-money to a client on terms that the client pays less than its monetary value. For instance, a firm may want to:

1. (1)

   give away some e-money to new clients on their first load to encourage them to start using the product; or

2. (2)

   give away ?X of e-money for each ?Y of e-money a client buys or for each ?Y of goods or services that the client buys using e-money issued by the firm.

A firm may be able to issue e-money in the way described in ELM 4.4.2 G without infringing ELM 4.4.1 R. A sum paid by a third party to the firm before the firmissues e-money can form part of the e-money issue price for that e-money if:

1. (1)

   that sum is paid to the firm in payment of part or all of the e-money issue price for that e-money; and

2. (2)

   at the time when the firm issues that e-money it applies that sum towards the payment of the e-money issue price of that e-money.

The fact that a firm incurs costs distributing e-money does not necessarily mean that that e-money is issued at a discount. But the payment by the firm of commission to distributors to whom the firm issues e-money may amount to issuing it at a discount.

Under Principle 11, a firm must deal with its regulators in an open and cooperative way, and must disclose to the FSA appropriately anything relating to the firm of which the FSA would reasonably expect notice. If a firm decides to launch a promotion of the type described in ELM 4.4.2 G, the firm should notify the FSA of its intention and details about the promotion. Those details should include the type of promotion, any other businesses taking part in it, the likely amount over the life of the promotion of the difference between the monetary value of the e-money and the amount to be paid by those to whom the firm issues it and the proposed length of the promotion. The information should also include details about the persons who are to make the payments in ELM 4.4.2 G, how much each is to pay and when the payments are to be made.

The firm should also keep the FSA informed of changes in its expectations during the promotion described in ELM 4.4.2 G and of any substantial difference between its expectations and the actual outcome.