E-money rules take effect in the UK

The new regime was adopted after a draft version was favourably received during a period of public consultation, launched in December 2001.

David Strachan, Director of Deposit Takers, said:

"Because the feedback we received on the proposed regime was generally positive, we have not made any major changes to the framework on which we consulted. Our ongoing dialogue with industry and consumers will make sure that, as the industry and the market develop, our regulation remains up-to-date."

There have been modifications to the draft regime in some areas, including the amount of money that individual users can load in their electronic purses.

The FSA said that it believes that the risks associated with the use of e-money warrant a limit on purse size. Responding to points raised by the industry it has increased the limit of £250 per purse initially proposed to £1,000. A higher purse limit may be permitted where certain safeguards are met. Another change allows businesses to issue e-money at a discount for marketing purposes in certain tightly controlled circumstances.

The Government has decided that the Financial Services Compensation Scheme will not apply to e-money issuers. Consequently, customers will have no access to compensation should an e- money issuer become insolvent. E-money issuers will, however, be included within the scope of the Financial Ombudsman Service and must also have their own procedures for dealing with customer complaints.

The key characteristics of the proposed framework for e-money issuers relate to their financial soundness:

• Issuers must "ring fence" their e-money activities from other areas of business risk.
• Funds held in exchange for the issue of e-money must be invested in high quality liquid assets.
• There will be a minimum capital requirement for issuers - at least 2% of outstanding e-money liabilities or €1 million, whichever is the higher.
• E-money issuers must have sound and prudent systems and adequate internal control mechanisms and must comply with the FSA's money laundering requirements.
• The FSA will be empowered to grant waivers from regulation to small or locally based firms, although these will still have to submit periodic information about their businesses.