Annexes to COM(2018)41 - Implementation and impact of Directive 2009/110/EC in particular on the application of prudential requirements for electronic money institutions - Main contents
Please note
This page contains a limited version of this dossier in the EU Monitor.
| dossier | COM(2018)41 - Implementation and impact of Directive 2009/110/EC in particular on the application of prudential requirements for electronic ... |
|---|---|
| document | COM(2018)41  |
| date | January 25, 2018 |
Although there is a clear growth in the number of licensed e-money institutions since 2011, in view of the limited availability of comparable quantitative data, it is difficult on the basis of this empirical analysis to demonstrate the existence of a correlation between the modernisation of the legal framework with EMD2 and that positive trend.
The economic study nevertheless indicates that the fact that the Directive provides more clarity and lowers capital requirements compared to the first Electronic Money Directive is an important improvement to the legal framework governing e-money institutions. Furthermore, the fact that payment services and e-money services can be provided under one single licence is identified as positive, and many e-money institutions do provide payment services in addition to e-money services.
On the other hand, e-money institutions notice that there are differences in the national implementation and interpretation of the provisions on supervision which have an impact on the level playing field for E-money institutions in the EU. As a result, e-money institutions engage in "forum shopping", choosing to register in the Member States that provide the most beneficial legal frameworks from their viewpoint.
The compliance costs for e-money institutions differ depending on the size of the institution concerned, the country in which it is licenced and the nature of its business model. Overall, these compliance costs are estimated to represent between 1 and 5% of the overall costs (ranging from EUR 25,000 to EUR 0.5 million). In absolute terms these costs could thus be relatively high for some e-money institutions. However, in these and other cases they should be offset by the reduction in capital requirements brought about by EMD2 (from EUR 1 million to EUR 350,000).
Cross-border activity through the use of passporting has increased in Member States since 2011. Feedback from competent authorities in the economic study confirms that there is still room for improvement in the cooperation between Member States in the case of passporting.
The optional waiver regime for smaller e-money institutions proposed in Article 9 has been used by a number of Member States. The option is overall considered as positive by the e-money institutions that have benefited from it. Some industry stakeholders would prefer a more gradual approach with intermediate categories of e-money institutions, to avoid an "all or nothing" approach.
4.3 Issuance and redeemability of electronic money (Title III EMD2)
The economic study has not identified serious issues in relation to the provisions on issuance and redeem ability of electronic money. No evidence was found that EMD2 had an impact on the quality and prices of products and services provided by the issuers, nor on the confidence of consumers in such products and services. Consumer associations have not reported specific concerns or problems related to electronic money from the point of view of consumers.
As regards the costs associated with the obligation for issuers to redeem at any time e-money upon request by the e-money holder, the study did not report serious issues or significant costs associated to consumers invoking this right.
5. IMPACT OF PSD2 ON EMD2
There is significant crossover between the PSD and the EMD2. The latter follows the logical framework contained in the PSD. As laid out in Article 3 (1) of EMD2, Articles 5 and 10 to 15, Article 17(7) and Articles 18 to 25 of PSD apply to e-money institutions. These articles relate to applications for authorisations, granting of authorisations, communication of the decision, withdrawal of authorisation, registration, maintenance of authorisation, accounting and statutory audit, notification requirements when outsourcing operational functions of payment services, liability, record keeping, designation of competent authorities, supervision, professional secrecy, right to apply to courts, exchange of information and exercise of the right of establishment and freedom to provide services.
The PSD has recently been revised. In July 2013, the European Commission published its proposal. The final compromise text was voted by the Parliament on 8 October 2015 with adoption by Council on 25 November 2015. Among the major changes brought forward by PSD2 (regulation of the so-called third party payment service providers, increased security requirements for electronic payments, partial coverage of international transactions in or out of the EU), the one with the most impact on electronic money institutions relate to the strengthening of the prudential rules for payment institutions which foresee a stronger supervisory role and competences for the host Member State where a payment institution is passporting its services to another Member State.
Also the clarifications in PSD2 on the exemption on limited networks, combined with the obligation for all limited networks to notify their activities once the size of their business reaches a certain threshold, will provide better guidance to competent authorities to assess the applicability of the legal framework of PSD2 or EMD2 to these networks. As these limited networks shall also be registered in the national registers and the central register managed by EBA, there will also be more transparency on the way limited networks are assessed by the different authorities.
6. ANTI-MONEY LAUNDERING AND EMD2
E-money institutions are subject to anti-money laundering legislation. The fourth anti-Money Laundering Directive (AMLD4) which was adopted in 2015, will also apply to them. The date for transposition of the AMLD4 was June 2017.
The economic study does not make any short to medium term recommendation in this respect. The study found that industry stakeholders see most e-money transactions as low risk partly due to the small size of the e-money market. However, a recommendation for the longer term would be to ensure that specific provisions are harmonised to the maximum, in particular the thresholds for due diligence under the anti-money laundering provisions and the possibility to register as small e-money institutions. This would help secure a more level playing field. The thresholds for due diligence could be examined after the transposition of AMLD4.
The review should also take into account the further changes that will be made to AMLD4, which were proposed by the Commission in its legislative proposal of 5 July 2016 (COM (2016), 450 (final)), and which are currently under negotiation by Council and European Parliament.
7. REVIEW OF EMD2 AND EMERGING ISSUES
One of the key challenges identified by the economic study is the classification of products and services as e-money or as payment services, as e-money accounts or payment accounts, and thus the application of the appropriate legal framework. Also the different approaches by national authorities to agents and distributors is identified as an issue of concern.
The issue of divergent interpretations with regard to limited networks is of particular concern for e-money services and the so-called closed loop schemes (such as gift cards, store cards, petrol cards), semi-closed loop (a variant of the close loop category, determined by the scope of the network in which the card can be used) and open loop schemes (such as general purpose prepaid debit cards). The improvements made within the context of the review of PSD2 will also have a positive effect on the application of this exemption in EMD2.
Another key challenge raised by the economic study is the cooperation between Member States in the context of cross-border supervision. With the adoption of PSD2 and its detailed provisions in this area, the information exchange and cooperation will be further strengthened with a stronger role for the host Member State to oversee the activities of the passporting EMI in its territory.
The study notice that E-money institutions face problems in relying on the commercial banks for deposits. The solutions envisaged by e-money institutions to address these difficulties would consist in improving their access to the interbank system or to central banks for deposit holding. PSD2 will improve the situation for e-money institutions on this point, with its new provisions on access to bank accounts and on non-discriminatory access to payment systems.
Although the study shows that there was support from some stakeholders for merging the PSD and the EMD2, this support was not unanimous. Such a merger would also not provide a solution to issues faced by stakeholders in relation to the classification of products as electronic money. This is particularly evident from the Member States that have a single regulation governing both the Payment Services Directive and the Electronic Money Directive and are still faced with that challenge.
8. CONCLUSIONS
The overall assessment of the EMD2 is positive. The objective of the EMD2 was to remove barriers to market entry and to facilitate the take up and pursuit of the business of electronic money issuance, by creating a level playing field for all players in the market. It seems that EMD2, to a large extent, has fulfilled this objective. There is evidence of an increased interest in electronic money licenses and cross-border activity through the use of passporting has increased since 2011. The offer of electronic prepaid cards in particular is growing, including through their distribution by institutional actors such as national Post Offices. E-money remains a niche market, which paradoxically seems to have been hardly affected by the recent technological changes, be it the emergence of virtual currencies – little used as means of payments – or of the Fintechs, which are leading digital change in the more traditional segments of the payments market.
further improvements could be made to enhance the current regulatory framework. Concrete improvements could thus be delivered in the short or medium term by providing guidance in three areas, namely the classification of products as e-money, the application of the limited network provision and the distinction between the concept of an agent and a distributor in the context of e-money. The challenges encountered in the cross-border supervision of E-money institutions seem to be addressed adequately in the context of the PSD2, which, through the relevant cross-references, will also apply to e-money institutions.
Further consideration could be given, in the longer term, to promoting maximum harmonisation for specific provisions, in particular with regard to the currently optional waiver regime foreseen for small electronic money institutions under Article 9 of the EMD. Likewise, a further analysis could be conducted on the development of an intermediate category of a ‘large limited network’ that would be subject to some but not all EMD2 requirements. At the same time, on that latter aspect, the improved clarity provided in PSD2 on limited networks already brings about increased legal certainty for entities operating a limited network and may already provide a satisfactory response to market's expectations.
A future revision of the Directive and its merger with the revised Payment Services Directive would require further analysis. It seems appropriate to consider such steps only after Member States and stakeholders will have been able to gather experience with the adapted framework following the adoption of PSD2, which will also have an impact on e-money institutions.
(1) Directive 2007/64/EC on payment services in the internal market.
(2) Directive 2015/849/EU.
(3) Article 22 EMD2.
(4) Tipik study, published on the Commission's website: http://ec.europa.eu/finance/payments/emoney/transposition/by-country_en.htm