MEETING OF THE PAYMENT SYSTEMS MARKET EXPERT GROUP (PSMEG)

Study on the impact of Directive 2009/110/EC on the taking up, pursuit and prudential supervision of the business of electronic money institutions 28 April 2015

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Agenda

Introduction to the study Overall findings Specific findings

Market analysis Definitions and scope Consistency Market access and prudential rules

Recommendations

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Agenda

Introduction to the study Overall findings Specific findings

Market analysis Definitions and scope Consistency Market access and prudential rules

Recommendations

This material is an intellectual property of VVA-Valdani Vicari & Associati S.r.l. It cannot be used and/or reproduced without specific authorization

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Study introduction

Study backgroundStudy on the impact of Directive 2009/110/EC on the taking up, pursuit and prudential supervision of the business of electronic money institutionsCommissioned by European Commission’s DG FISMA (previously DG MARKT)Carried out by VVA in collaboration with PaySysTimeline: January 2014 – October 2014

Overall purposeFeed into the report assessing the economic and legal implementation and impact of the DirectiveContribute to the potential revisions of the EMD2

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Study introductionScopeEU27 (excludes Croatia)Covers time period since the introduction of the Directive in September 2009 Particular focus on time period since the transposition deadline on 30th April 2011

ObjectivesGather data on whether the revised Directive has helped to increase the take up of new, innovative and secure electronic money services in Europe Examine to what extent the Directive has helped to provide market access to new companies and foster real and effective competition on the marketAssess to what extent the Directive has promoted lower prices for consumers, improved service performance and consumer protectionGather data on practical and financial costs and benefits subsequent to implementation and application of the EMD

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Evaluation criteria

Effectiveness of the Directive, namely its impact on market structure, market entry and innovation, cross-border e-money activities, soundness of e-money institutions, prices and services provided, and user confidence

Efficiency of the Directive, concerning in particular the costs to e-money institutions

Relevance of the Directive’s scope and exemptions Consistency with the latest Payment Services Directive and anti-money

laundering provisions

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Study approach

Research approachCollect data on the e-money marketAssess implementation through interviews with competent authoritiesAssess impact on consumers by consulting consumer associationsAssess impact on industry through interviews with e-money issuersExamine specific markets in more detail using case studies(DK, FR, DE, IT, LU, MT, NL, UK)Final validation workshop

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Agenda

Introduction to the study

Overall findings Specific findings

Market analysis Definitions and scope Consistency Market access and prudential rules

Recommendations

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Overall findings

Overall stakeholder assessment is positive: Lower capital requirementsImproved clarity compared to EMD1Evidence of increased market activityHowever, it is unclear to what extent the market activity can be directly attributed to the Directive

Current challenges:Inconsistencies in national transposition and implementation of the Directive. Particularly in regard the national application of the anti-money Laundering provisions and limited network exemptionLack of clarity with regard to services falling within the scope of the Directive

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Agenda

Introduction to the study Overall findings

Specific findings Market analysis Definitions and scope Consistency Market access and prudential rules

Recommendations

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Specific findings – Market Analysis

177 EMIs with more licenses under way Most concentrated in the UK, with some countries in the EU having little

experience with e-money licenses

Source: Own analysis based on national registers. Status as of July 2014.

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Specific findings – Market Analysis

Majority of EMIs on the market obtained their licenses since 2011

While the overall e-money use is limited, the total value and volume of e-money transactions has been on the increase, although the existing data is incomplete.

While prepaid cards and e-wallets are the dominant e-money products, EMIs provide a range of services and represent a variety of business models.

Source: Own analysis based on national registers and previous ‘snapshots’. Status as of July 2014.

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Specific findings - Definitions and scope

Concepts such as agents and distributors appear to not be well understood among key stakeholders in the context of e-money.

Both businesses and regulators need additional clarity with regard to the application of the limited network exemption.

There are different interpretations of what constitutes a limited network, which poses challenges to competent authorities, but also to e-money issuers who face different outcomes across the EU.

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Specific findings - Consistency

The relationship between the EMDII and the Payment Services Directive (PSD) and the distinction between e-money and payment accounts is not always clear to the stakeholders, especially as new business models emerge.

Another challenge is the national application of Anti-Money Laundering (AML) provisions, including the thresholds for due diligence requirements and the approach to defining and regulating agents and distributors in cross-border situations.

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Specific findings - Market access and prudential rules

While the overall assessment of the Directive’s impact on the e-money market is positive, additional efforts are needed to create a level playing field for EMIs in the EU in particular with regard to differences in national transposition and implementation of the Directive.

The differences in application of the optional exemption in Article 9 (waiving some requirements for smaller EMIs) can be a potential barrier to market growth.

EMIs tend to seek authorisation in Member States where competent authorities are familiar with e-money and apply relevant provisions consistently.

Therefore, in order to encourage the development of e-money products across the EU, it is also important to further support the national competent authorities in applying the EMDII.

This material is an intellectual property of VVA-Valdani Vicari & Associati S.r.l. It cannot be used and/or reproduced without specific authorization

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Agenda

Introduction to the study Overall findings Specific findings

Market analysis Definitions and scope Consistency Market access and prudential rules

Recommendations

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Recommendations – Short- to medium- term

Key tool for addressing current challenges in the short- to medium-term is the development of additional guidance:

Guidance on classifying products as e-money, specifying the types of products and services to be classified as e-money, in particular highlighting the differences between payment accounts and e-money accounts.

Guidance on the limited network provision targeted at competent authorities and concerning ‘closed loop’, ‘open loop’ and ‘semi-open loop’ schemes to ensure more consistent national application of the provision.

Guidance on distinction between the concept of an agent and a distributor in the context of e-money.

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Recommendations – Longer-term

Longer-term recommendations could include: Improving the passporting notification system by providing

information to host authorities on the activities of EMIs passported into their jurisdiction.

The development of an intermediate category of a ‘large limited network’ ’that would be subject to some, but not all EMDII requirements, account for specificities of gift card business models (that are not strictly closed-loop), while providing additional level of consumer protection compared to such schemes being exempt.

Maximum harmonisation of specific provisions, such as thresholds for due diligence under AML provisions and allowing EMIs across all EU Member States to register as Small EMIs under Article 9.

Finally, merging the PSD and the EMD in the long-term would contribute to simplifying EU legislation in this field.

This material is an intellectual property of VVA-Valdani Vicari & Associati S.r.l. It cannot be used and/or reproduced without specific authorization

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Contact

Pawel JanowskiPrincipal ConsultantVVA-Europe Ltdwww.vvaeurope.euTel. + 49 (0) 151 267 29334Email p.janowski@vva.it

VVA