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<TABLE height=3D1384 width=3D"95%" align=3Dcenter border=3D0>
  <TBODY>
  <TR>
    <TD vAlign=3Dtop width=3D"7%" height=3D1114><FONT face=3DTahoma=20
      size=3D2><B>[7&amp;5]</B></FONT></TD>
    <TD vAlign=3Dtop width=3D"93%" height=3D1114><FONT face=3DTahoma=20
      size=3D2><B></B></FONT>
      <P><FONT face=3DTahoma size=3D2><B>Why is the Electronic =
Money-Directive=20
      Significant?</B></FONT></P><B><I></I></B>
      <P><FONT face=3DTahoma size=3D1><I><B>Simon Lelieveldt =
(</B></I></FONT><A=20
      href=3D"mailto:simonl@wxs.nl"><B><I><FONT face=3DTahoma=20
      size=3D1>simonl@wxs.nl</FONT></I></B></A><B><I><FONT face=3DTahoma =
size=3D1>),=20
      Amsterdam, the Netherlands</FONT></I></B></P>
      <P><FONT face=3DTahoma size=3D2>/EMI Directive/electronic =
money/electronic=20
      vouchers/regulation/competition/</FONT></P>
      <P><FONT face=3DTahoma size=3D2><I>The development of the =
Directive on=20
      electronic money institutions is discussed with a view to =
understanding=20
      some of its ambiguities and its significance for the market. It is =
argued=20
      that the Directive is most important as a signal to both current =
players=20
      and new entrants in the banking market. Given this signalling =
function,=20
      its practical relevance and application will most probably remain =
limited=20
      to the smaller niche players only. </I></FONT></P>
      <P><FONT face=3DTahoma size=3D2>In the early 1990s a number of =
pre-paid=20
      electronic payment products were developed. Products such as =
Danm=C3=B8nt,=20
      Mondex, Proton and E-cash received considerable attention, not =
only=20
      because of their technical design, but also as a result of the =
fact that=20
      some of those products were developed by non-bank organisations. =
Both=20
      existing market players (banks) and regulators (central banks, =
ministries=20
      of finance) reacted. Depending on the actual market threat banks =
or groups=20
      of banks decided to either buy a license for those products and =
bring a=20
      local version on the market or to build similar concepts on their =
own.=20
      This resulted in the introduction of a multitude of local =
electronic money=20
      schemes in Europe. European central banks, the institutions that =
faced=20
      direct competition between their bank notes and the electronic =
purses,=20
      reacted in 1994 by publishing the policy position that =
organisations that=20
      issued e-money could be considered to take deposits, which meant =
that=20
      those organisations would require supervision under banking =
supervision=20
      law</FONT><FONT face=3DTahoma size=3D3>. </FONT></P>
      <P><FONT face=3DTahoma size=3D2>Since then a string of research =
and policy=20
      reports has been produced in the course of a complex discussion =
between=20
      banks, central banks, the European Commission and non-bank =
issuers. In=20
      this discussion, it became clear (for example in a speech by a=20
      representative of The European Financial Services Directorate at =
an=20
      IPTS-workshop in Amsterdam) that the European Commission felt that =

      limiting the issuance of e-money to banks only, would be too =
narrow and=20
      too restrictive for competition. It also became clear, through=20
      publications in the Financial Times, that the European Central =
Bank, while=20
      formally only an observer to the legislatory process, was very =
keen on=20
      modifying important elements of the Directive. These =
interventions,=20
      especially with respect to the need for redeemability of e-money, =
may have=20
      been the reason for what could be called ?design ambiguities? with =
respect=20
      to the definition of e-money and the applicability of =
redeemability in the=20
      EMI-Directive. </FONT></P>
      <P><FONT face=3DTahoma size=3D2>The ECB Opinion on electronic =
money stated=20
      that the meaning of electronic money must be clearly defined. =
Currently,=20
      two definitions are available. One definition can be found in the =
Council=20
      Regulation concerning the collection of statistical information by =
the=20
      European Central Bank. E-money is defined as: "an electronic store =
of=20
      monetary value on a technical device, including prepaid cards, =
that may be=20
      widely used for making payments to entities other than the issuer =
without=20
      necessarily involving bank accounts in the transaction, but acting =
as a=20
      prepaid bearer instrument." The second definition is found in the=20
      EMI-Directive and is essentially the same but it adds the =
condition that=20
      e-money should be issued on receipt of funds of an amount not less =
in=20
      value than the monetary value issued: "electronic money" shall =
mean=20
      monetary value as represented by a claim on the issuer which is: =
(i)=20
      stored on an electronic device; (ii) issued on receipt of funds of =
an=20
      amount not less in value than the monetary value issued; (iii) =
accepted as=20
      means of payment by undertakings other than the =
issuer."</FONT></P>
      <P><FONT face=3DTahoma size=3D2>The consequence of the definition =
in the=20
      EMI-Directive is that if an organisation would issue 100 Euro of=20
      electronic pre-paid value against a payment (or a load) of 99,9999 =
Euro,=20
      this would in a literal sense not fall under the definition of =
e-money.=20
      Although the reasoning would be that it would economically not =
viable to=20
      operate such an inflated e-money scheme given a redeemability =
requirement,=20
      it should be noted that the redeemability requirement as specified =
in the=20
      Directive is not applicable, as it uses the same definition of =
e-money. As=20
      a result e-money schemes in which the value loaded is higher than =
the=20
      value paid for (schemes in which the digital Euro is cheaper than =
the=20
      physical Euro) do not fall under the Directive. This consequence =
is quite=20
      interesting as it appeared that the ECB-interventions were mostly =
driven=20
      by the fear for the introduction of inflated digital Euros. =
</FONT></P>
      <P><FONT face=3DTahoma size=3D2>The significance of the above =
error in the=20
      construction of the Directive is that apparently the regulators =
involved=20
      felt it wiser to stop discussing the issue in order to finish the=20
      cumbersome political discussion and avoid the risk of disagreement =
and=20
      further delay. Yet, this implies that the national regulators, as =
a part=20
      of their implementation process, will have to decide on the best =
way to=20
      overcome the mentioned ambiguities of the Directive. The result =
may be=20
      that the definitions of e-money in the different national laws are =
not all=20
      the same and perhaps broader than the definition in the Directive. =
Still,=20
      the theoretic possibility remains that local regulators stick to =
the=20
      literal text and thus exempt all inflationary e-money schemes. =
Whether or=20
      not this Directive actually achieves minimum harmonisation is =
therefore=20
      determined by the quality of additional co-ordination between =
local=20
      implementers of the Directive. </FONT></P>
      <P><FONT face=3DTahoma size=3D2>Interestingly enough, the =
EMI-Directive will=20
      serve its function regardless of the definitions applied. Its main =

      significance is that it ends a long debate on the question of =
supervision=20
      of e-money. The Directive sends out the clear message that every =
issuer of=20
      electronic money will for prudential reasons be supervised (either =
as a=20
      credit institution or as an electronic money institution). So any=20
      organisation that wants to enter the business somehow has to do =
its=20
      prudential homework. Meanwhile the Directive also sends out the =
signal=20
      that an organisation does not have to be a fully fledged credit=20
      institution to be active in this market. Credit institutions may =
take this=20
      as a warning and may assume similar regulatory approaches in the =
future.=20
      They can no longer assume that the supervisory entry barrier will =
remain=20
      as high as it has been in the past.</FONT></P>
      <P><FONT face=3DTahoma size=3D2>Given the Directive, non-bank =
issuers will=20
      hardly be able to escape a supervisory regime in Europe and turn =
to=20
      establishing the most rational way to comply with regulation.=20
      Investigating the options, non-bank market parties who want to =
issue=20
      electronic money on a global scale might choose to co-operate with =
a=20
      global bank or with a European bank if they intend to operate on a =

      European scale. By doing so, they outsource the regulatory =
compliance=20
      issues. Non-bank operators might also choose between becoming a =
credit=20
      institution, an electronic money institution or acting as an =
intermediary=20
      for credit institutions (resulting in a very mild supervision =
regime). My=20
      guess would be that of these options, the supervisory regime =
originating=20
      from the e-money Directive is the least attractive due to the =
limitations=20
      it imposes on the supervised organisation. I therefore expect =
larger=20
      organisations to choose for different regimes, and that, if any, =
only some=20
      smaller and local schemes will fall under the (waivers of the) =
EMI-regime.=20
      </FONT></P></TD></TR>
  <TR>
    <TD vAlign=3Dtop width=3D"7%" height=3D15>&nbsp;</TD>
    <TD vAlign=3Dtop width=3D"93%" height=3D15>&nbsp;</TD></TR>
  <TR>
    <TD vAlign=3Dcenter width=3D"7%" height=3D30><FONT face=3DTahoma =
size=3D2>
      <P></P></FONT>
      <P></P>
      <P><FONT face=3DTahoma size=3D2><B>[</B></FONT><A=20
      href=3D"mailto:epso-forum@jrc.es?subject=3DWhy is the Electronic =
Money-Directive Significant"><B><FONT=20
      face=3DTahoma size=3D2>reply</FONT></B></A><B><FONT face=3DTahoma=20
      size=3D2></FONT></B><FONT face=3DTahoma =
size=3D2><B>]</B></FONT></P></TD>
    <TD vAlign=3Dcenter width=3D"93%" height=3D30>
      <P><FONT face=3DTahoma size=3D2>To start discussion on this =
article in the=20
      ePSO-Forum just click the reply-button.</FONT></P></TD></TR>
  <TR>
    <TD vAlign=3Dtop width=3D"7%" height=3D367><FONT face=3DTahoma =
size=3D2>
      <P></P></FONT>
      <P></P>
      <P><FONT face=3DTahoma size=3D2><B>[info]</B></FONT></P><FONT =
face=3DTahoma=20
      size=3D2></FONT></TD>
    <TD vAlign=3Dtop width=3D"93%" height=3D367>
      <P><FONT face=3DTahoma size=3D2><B><FONT =
face=3DSymbol>=C2=B7</FONT> </B></FONT><FONT=20
      face=3DTahoma size=3D2></FONT><FONT face=3DTahoma size=3D2>Report =
to the Council=20
      of The European Monetary Institute on prepaid cards by the Working =
Group=20
      on EU Payment Systems. May 1994. </FONT><A=20
      href=3D"http://www.iang.org/money/EU_prepaid_cards.html"><FONT =
face=3DTahoma=20
      =
size=3D2>http://www.iang.org/money/EU_prepaid_cards.html</FONT></A></P>
      <P><FONT face=3DTahoma size=3D2><B><FONT =
face=3DSymbol>=C2=B7</FONT></B></FONT><FONT=20
      face=3DTahoma size=3D2>Extract of Chapter III.2 (Opinion on =
electronic money)=20
      from 1997 Annual Report of the EMI. <A=20
      =
href=3D"http://www.systemics.com/docs/papers//EMI_1998_opinion.html">http=
://www.systemics.com/docs/papers//EMI_1998_opinion.html</A></FONT></P>
      <P><FONT face=3DTahoma size=3D2><B><FONT =
face=3DSymbol>=C2=B7</FONT></B></FONT><FONT=20
      face=3DTahoma size=3D2>Council Regulation (EC) No 2533/98 of 23 =
November 1998=20
      concerning the collection of statistical information by the =
European=20
      Central Bank </FONT><A=20
      =
href=3D"http://europa.eu.int/eur-lex/en/lif/dat/1998/en_398R2533.html"><F=
ONT=20
      face=3DTahoma=20
      =
size=3D2>http://europa.eu.int/eur-lex/en/lif/dat/1998/en_398R2533.html</F=
ONT></A></P>
      <P><FONT face=3DTahoma size=3D2><B><FONT =
face=3DSymbol>=C2=B7</FONT> </B></FONT><FONT=20
      face=3DTahoma size=3D2>Informal notes of the IPTS-Round Table =
Workshop on=20
      e-money (31st March, 1999) in Amsterdam with explanation of =
position of=20
      European Commission </FONT><A=20
      href=3D"http://www.iang.org/money/EQ_roundtable.html"><FONT =
face=3DTahoma=20
      =
size=3D2>http://www.iang.org/money/EQ_roundtable.html</FONT></A></P>
      <P><FONT face=3DTahoma size=3D2><B><FONT =
face=3DSymbol>=C2=B7</FONT> </B></FONT><FONT=20
      face=3DTahoma size=3D2>Commission proposal for European Parliament =
and Council=20
      Directives on the taking up, the pursuit and the prudential =
supervision of=20
      the business of electronic money institutions </FONT><A=20
      href=3D"http://www.iang.org/money/1085en.html"><FONT face=3DTahoma =

      size=3D2>http://www.iang.org/money/1085en.html</FONT></A></P>
      <P><FONT face=3DTahoma size=3D2><B><FONT =
face=3DSymbol>=C2=B7</FONT> </B></FONT><FONT=20
      face=3DTahoma size=3D2>Financial Times reports of postponed =
decision making on=20
      the EMI-Directive (November 1999)</FONT><FONT face=3DTahoma =
size=3D2> <A=20
      =
href=3D"http://globalarchive.ft.com/globalarchive/articles.html?print=3Dt=
rue&amp;id=3D991108015374">http://globalarchive.ft.com/globalarchive/arti=
cles.html?print=3Dtrue&amp;id=3D991108015374</A>=20
      <A=20
      =
href=3D"http://globalarchive.ft.com/globalarchive/articles.html?print=3Dt=
rue&amp;id=3D991109015358">http://globalarchive.ft.com/globalarchive/arti=
cles.html?print=3Dtrue&amp;id=3D991109015358</A>=20
      </FONT></P>
      <P><FONT face=3DTahoma size=3D2><B><FONT =
face=3DSymbol>=C2=B7</FONT></B></FONT> <FONT=20
      face=3DTahoma size=3D2>Financial Times comment on the =
ECB-position<BR><A=20
      =
href=3D"http://globalarchive.ft.com/globalarchive/articles.html?print=3Dt=
rue&amp;id=3D991110015458">http://globalarchive.ft.com/globalarchive/arti=
cles.html?print=3Dtrue&amp;id=3D991110015458</A>=20
      </FONT></P></TD></TR></TBODY></TABLE>
<P align=3Dcenter><FONT face=3D"Verdana, Arial, Helvetica, sans-serif" =
size=3D2>[<A=20
href=3D"http://epso.jrc.es/newsletter/vol07/welcome.html">Back to Table =
of=20
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