ELM 8.4 The conditions for giving a small e-money issuer certificate

Only a body corporate, or a partnership, which has its head office in the United Kingdom may make an application for a small e-money issuer certificate. A sole trader may not apply.

A full credit institution may not apply for a small e-money issuer certificate. If a bank or building society wishes to carry on the regulated activity of issuing e-money within the territorial scope of the Act, it will have to apply for permission to do so.

The FSA must give a small e-money issuer certificate to a person eligible to apply (see ELM 8.4.1 G and ELM 8.4.2 G) if it appears to it that any one or more of three paragraphs, set out in article 9C of the Regulated Activities Order (Persons certified as small issuers etc.), apply. This section gives guidance on those paragraphs but refers to them as 'conditions'. Similarly, where the Regulated Activities Order refers to a person to which a small e-money issuer certificate is given as a 'certified person', ELM refers to 'small e-money issuer'.

The three conditions in article 9C of the Regulated Activities Order (Persons certified as small issuers etc.) are designed to restrict the certificate to small or local schemes. The first and second conditions follow, almost exactly, the corresponding provisions of the E-Money Directive. The third condition follows the E-Money Directive, but also adds some guidelines.

In each of the conditions, references to amounts in euro include references to equivalent amounts in sterling.

The first condition applies if:

1. (1)

   the applicant does not issue e-money except on terms that the electronic device on which the monetary value is stored is subject to a maximum storage amount of not more than 150 euro; and

2. (2)

   the applicant's total liabilities with respect to issuing e-money do not (or will not) usually exceed 5 million euro and do not (or will not) ever exceed 6 million euro.

As 'usually' is not defined, the application of this condition will depend on the exact facts of each case. In the FSA's view, the total liabilities should be measured over several different periods. Thus, where the total liabilities exceed 5 million euro on several occasions over a short period, the scheme is more likely to fail to meet this condition than where those occasions are spread evenly over a longer period.

While rigid guidelines on what 'usually' means are not possible, in the FSA's view, a scheme that exceeds the limit no more than 5 days a month and 20 days a year will not necessarily breach this condition. But if the scheme exceeds either or both of those frequencies, that would call into question whether the scheme meets this condition. For this reason, the FSA will require a 'change report' if the total liabilities with respect to issuing e-money exceed 5 million euro (see ELM 8.7.3 R).

The second condition applies if:

1. (1)

   the condition in ELM 8.4.6 G (1) is met;

2. (2)

   the applicant's total liabilities with respect to the issuing of e-money do not (or will not) exceed 10 million euro; and

3. (3)

   e-money issued by the applicant is accepted as a means of payment only by:

   1. (a)

      subsidiaries of the applicant which perform operational or other ancillary functions related to e-money issued or distributed by the applicant; or

   2. (b)

      other members of the same group as the applicant (other than its subsidiaries).

The third condition applies if:

1. (1)

   the conditions referred to in ELM 8.4.6 G (1) and ELM 8.4.9 G (2) are met; and

2. (2)

   e-money issued by the applicant is accepted as a means of payment, in the course of business, by not more than one hundred persons where:

   1. (a)

      those persons accept such e-money only at locations within the same premises or limited local area; or

   2. (b)

      those persons have a close financial or business relationship with the applicant, such as a common marketing or distribution scheme.

For the purposes of ELM 8.4.10 G (2)(a), locations are situated within the same premises or limited local area if they are situated within:

1. (1)

   a shopping centre, airport, railway station, bus station or campus of a university, polytechnic, college, school or similar educational establishment; or

2. (2)

   an area which does not exceed four square kilometres.

ELM 8.4.11 G (1) and (2) are illustrative only and are not to be treated as limiting the scope of ELM 8.4.10 G (2)(a).

If the e-money issued under a scheme is only accepted by businesses within the same four square kilometre area, the third condition will be met. However, if the scheme operates in two areas, each of one square kilometre, but the two areas are 100 kilometres apart, the scheme will not come within the illustrative provision referred to in ELM 8.4.11 G (2).

If a scheme operates in an area that exceeds four square kilometres, the scheme can still meet ELM 8.4.10 G (2)(a). However, it will only do so if the area can be described as a limited local area for some reason in addition to the size of the area.

The fact that a scheme is confined within the boundaries of a local authority is not, in the FSA's view, enough to bring it within ELM 8.4.10 G (2)(a) by itself. However, if the area covered by the scheme is defined by a local authority's boundaries, and the area's size is close to, but exceeds, four square kilometres, the combination of the size of the area and the fact that it only covers a particular local authority area may still be enough to meet ELM 8.4.10 G (2)(a).

'Premises' includes a single building. It also includes a number of buildings on the same campus or site. It does not include premises of one institution split over several sites.

If a scheme does not meet ELM 8.4.10 G (2)(a), it will still meet the third condition if the e-money issuer and the merchants who accept the e-money have a close financial or business relationship.

Persons are not to be treated as having a close financial or business relationship with the applicant merely because they participate in arrangements for the acceptance of e-money issued by the applicant.

If an e-money scheme that allows citizens to pay for bus or metro tickets together with a range of other things meets the third condition, it is likely to be because of the provisions referred to in ELM 8.4.10 G (2)(b) rather than ELM 8.4.10 G (2)(a).