PERG 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 PERG 2.

Article 9B of the Regulated Activities Order says that issuing e-money is a specified activity of the kind described in PERG 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 FSA rules. 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the FSA has given a certificate under that article is not a regulated activity provided that the certificate has not been revoked.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 PERG 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.

PERG 2.6.2 G to PERG 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.