According to the FSA, the regime aims to establish a level playing field between prospective issuers of e-money, whether banks or other firms.
The key characteristics of the proposed framework for e-money issuers relate to their financial soundness:
- E-money issuers must only undertake e-money issuance or closely related activities. Issuers will need to "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.
- E-money issuers must have sound and prudent systems and adequate internal control mechanisms.
- E-money issuers must comply with the FSA's money laundering requirements.
- There will be a minimum capital requirement for issuers – at least 2% of outstanding e-money liabilities.
- 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.
- For consumers, e-money can offer a flexible, secure and convenient way of making low value transactions, for example on public transport or in car parks. It may complement credit card use, for example by providing an attractive alternative means of conducting small scale transactions over the internet. It could also be a useful payments alternative for consumers who do not possess credit cards or bank accounts.
The Government has indicated 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. The proposed regime includes a number of features to help protect consumers:
- E-money issuers must set a limit on the amounts of money that may be held in individual e-money 'purses'. The purpose of this limit is to protect holders of e-money by restricting their individual loss should they lose their purses or should the issuer fail.
- Customers must have access to relevant and comprehensible information and guidance on information about redemption rights including any fees payable on redemption.
- Full disclosure of the risks associated with the product must also be made including the liability of holders for any loss arising from misuse, loss, malfunction, theft of, or damage to, their e-money purses or any electronic device on which e-money may be held.
- E-money issuers will be included within the scope of the Financial Ombudsman Service and must also have their own procedures for dealing with customer complaints.