Proposal for a European Parliament and Council Directive on the taking up, the pursuit and the prudential supervision of the business of electronic money institutions
15. 10. 98 EN Official Journal of the European Communities C 317/7 II (Preparatory Acts) COMMISSION Proposal for a European Parliament and Council Directive on the taking up, the pursuit and the prudential supervision of the business of electronic money institutions (98/C 317/06) COM(1998) 461 final - 98/0252(COD) (Submitted by the Commission on 21 September 1998) THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION, throughout recognised the application of the principle of home Member State prudential supervision; the Community and Having regard to the Treaty establishing the European Community, and third in particular sentences of Article 57(2) thereof, first and the Having regard to the proposal from the Commission, Having regard to the opinion of the Economic and Social Committee, Acting in accordance with the procedure referred to in Article 189b of the Treaty, Whereas credit institutions within the meaning of Article 1(1)(b) of Council Directive 77/780/EECØ(˛), as last amended by European Parliament and Council Directive 98/. Ø. Ø. /EC are limited in the scope of their activities; Whereas, it is necessary to take account of the specific characteristics of these institutions and to provide the appropriate measures necessary to coordinate and harmonise Member States’ laws, regulations and adminÜ istrative provisions relating to the taking up, the pursuit and the prudential supervision of the business of elecÜ tronic money institutions; Whereas the approach adopted is appropriate to achieve only the essential harmonisation necessary and sufficient to secure the mutual recognition of authorisation and prudential supervision of electronic money institutions, license making possible the granting of a single framework technological that assists electronic money Whereas within the wider context of rapidly evolving electronic commerce it is desirable to provide a reguÜ latory in its full potential benefits and that avoids delivering particular; hampering innovation whereas, therefore, this Directive introduces a techÜ the nology neutral prudential supervision of electronic money institutions to their sound and the extent necessary prudent operation and in integrity particular; for ensuring their legal framework that harmonises financial in Whereas credit institutions, by virtue of point 5 of the last Annex to Council Directive 89/646/EECØ(ˇ) as amended by Directive 92/30/EECØ(—), are already issue and administer means of payment allowed to including electronic money and to carry on such activities CommunityÜwide subject to mutual recognition and to the comprehensive prudential supervisory system applying to them in accordance with the European banking Directives; Whereas the introduction of a separate prudential superÜ visory regime for electronic money institutions, which although calibrated on the prudential supervisory regime and Directives applying 77/780/EEC and 89/646/EEC in particular, differs from that regime, is justified and desirable because the issuance of electronic money cannot, its surrogate specific in view of institutions electronic character credit an to as (˛) OJ L 322, 17. 12. 1977, p. 30. (ˇ) OJ L 386, 30. 12. 1989, p. 1. (—) OJ L 110, 28. 4. 1992, p. 52. C 317/8 EN Official Journal of the European Communities 15. 10. 98 for coins and banknotes, be regarded as a deposit taking activity prohibited pursuant to Article 3 of Directive 89/646/EEC to undertakings other than credit instiÜ tutions; Whereas the Banking Advisory Committee has been consulted on the adoption of this Directive, Whereas in order to respond to the specific risks associated with the issuance of electronic money this prudential supervisory regime must be more targeted and, accordingly, is less cumbersome than the prudential supervisory institutions, notably as regards reduced initial capital requirements and the non application of Directives 89/647/EECØ(˛), 92/121/EECØ(ˇ) and 93/6/EECØ(—); regime applying to credit Whereas, however, it is necessary to preserve a level playing field between credit institutions issuing electronic money and electronic money institutions and, thus, to ensure fair competition among a wider range of instiÜ tutions to the benefit of users; whereas this is achieved since the abovementioned less cumbersome features of the prudential supervisory regime applying to electronic money institutions are balanced by provisions that are more stringent than those applying to credit institutions, notably as regards restrictions of the business activities institutions may carry on and, electronic money particularly, prudent investments aimed at ensuring that their financial liabilities related to outstanding electronic money are backed at all times by highly liquid low risk assets; limitations of their Whereas with a view to the possibility of operational and other ancillary functions related to the issuance of elecÜ tronic money being performed by undertakings which are not subject to prudential supervision it is appropriate to afford competent authorities certain powers with respect to these undertakings; Whereas it is appropriate to afford competent authorities the possibility to waive certain requirements imposed by this Directive for electronic money institutions which operate only within the territories of the respective Member State and whose business activities do not exceed certain thresholds; HAVE ADOPTED THIS DIRECTIVE: Article 1 Scope, definitions and restriction of activities 1. Ú This Directive shall apply to electronic money instiÜ tutions. 2. Ú It shall not apply to the institutions referred to in Article 2(2) of Directive 77/780/EEC. 3. Ú For the purposes of this Directive: (a) "electronic money institution’ shall mean an underÜ taking, other than a credit institution as defined in Article 1(1)(a) of Council Directive 77/780/EEC which issues means of payment in the form, of elecÜ tronic money or which invests the proceeds from such activities without being subject to Council Directive 93/22/EECØ(Ñ); (b) "electronic money’ shall mean monetary value which is (i) stored electronically on an electronic device such as a chip card or a computer memory; (ii) accepted as means of payment by undertakings other than the issuing institution; (iii) generated in order to be put at the disposal of users to serve as an electronic surrogate for coins and banknotes; and (iv) generated for the purpose of effecting electronic transfers of limited value payments. 4. Ú The business activities of electronic money instiÜ tutions other than the issuing of electronic money shall be restricted to: Whereas adoption of this Directive constitutes the most appropriate means of attaining the desired objectives; whereas the minimum is necessary to attain these objectives and does not go beyond what is needed for this purpose; this Directive limited to (a) the provision of closely related financial and non financial services such as the administering of electronic money by the performance of operational and other ancillary functions related to its issuance and the issuing and administering of other means of payment within the meaning of point 5 of the Annex to Directive 89/646/EEC; and (˛) OJ L 386, 30. 12. 1989, p. 14. (ˇ) OJ L 29, 5. 2. 1993, p. 1. (—) OJ L 141, 11. 6. 1993, p. 1. (Ñ) OJ L 141, 11. 6. 1993, p. 27. 15. 10. 98 EN Official Journal of the European Communities C 317/9 (b) the provision of non financial services delivered through the electronic device. that are and the user shall define if the stored electronic money is redeemable or not, and, if appropriate, the conditions, the formalities and the time period of redeemability. Electronic money institutions shall not have any holdings in other undertakings except where these undertakings perform operational or other ancillary functions related to electronic money issued or distributed by the instiÜ tution concerned. Article 2 Application of banking Directives Article 3 Initial capital and ongoing own funds requirements 1. Ú Electronic money institutions shall have an initial capital of no less than ECU 500Ø000. Notwithstanding paragraphs 2 and 3 their own funds shall not fall below that amount. 1. Ú Save where otherwise expressly provided for, references to credit institutions in Community ReguÜ lations, Directives other than Directives 77/780/EEC and 89/646/EEC, recommendations and opinions shall not apply to electronic money institutions. 2. Ú Electronic money institutions shall have at all times own funds equal to or above 2Ø% of the higher of the current amount or the average of the preceding sixÜ months total amount of their financial liabilities related to outstanding electronic money. 2. Ú Article 2(5) and (6), Article 3(3)(b), (c) and (d) and (7), Article 4, Article 6, Article 7(2) and (3), Article 8(2), (3) and (4), Article 10 and Article 14 of Directive 77/780/EEC and Article 4, Article 6, Article 10, Article 12, Article 18(2), Article 23 and Article 24 of Directive 89/646/EEC shall not apply. The freedom of estabÜ lishment and the freedom to provide services according to Articles 18 to 21 of Directive 89/646/EEC shall not apply to electronic money institutions’ business activities other than the issuance of electronic money. the higher of the current amount or institution has not 3. Ú Where an electronic money completed a six month period of business, including the day it starts up, it shall have own funds equal to or above 2Ø% of the six months target total amount of its financial liabilities related to outstanding electronic money. The six months target total amount of the institution’s financial liabilities related shall be to outstanding electronic money evidenced by its business plan subject to any adjustment to that plan having been required by the competent authÜ orities. 3. Ú Council and 92/30/EEC Ø(ˇ) shall apply to electronic money instiÜ tutions. 91/308/EECØ(˛) Directives Article 4 Limitations of investments 4. Ú For the purpose of applying Article 3 of Directive 89/646/EEC funds received in exchange for electronic money shall not be regarded as deposits within the meaning of that Article if the underlying contractual arrangements: 1. Ú Electronic money institutions shall have investments of an amount of no less than their financial liabilities related to outstanding electronic money in the following assets only: (a) clearly establish the specific character of electronic money as an electronic surrogate for coins and banknotes; and (a) asset items which according to Article 6(1)(a) points 1, 2, 3, 4 and Article 7(1) of Directive 89/647/EEC attract a zero credit risk weighting and which are highly liquid; (b) do not provide for the possibility of advancing funds with a view to and in exchange for the receipt of electronic money at a later stage. (b) sight deposits held with Zone A credit institutions and debt instruments, which are Redeemability of electronic money is, in itself, not a sufficient reason for considering the funds advanced by the user to be deposits within the meaning of Article 3 of Directive 89/646/EEC. The contract between the issuer (˛) OJ L 166, 28. 6. 1991, p. 77. (ˇ) OJ L 110, 28. 4. 1992, p. 52. (i) highly liquid; (ii) not covered by paragraph 1(a); (iii) recognised by competent authorities as qualÜ ifying items within the meaning of Article 2(12) of Directive 93/6/EEC; and C 317/10 EN Official Journal of the European Communities 15. 10. 98 (iv) issued by undertakings other than undertakings which have a direct or indirect holding in the electronic money institution concerned or which must be these undertakings’ in consolidated accounts or in which the electronic money institution concerned has a direct or indirect holding. included 2. Ú Investments referred to in paragraph 1(b) may not exceed 20 times the own funds of the electronic money institution concerned and shall be subject to limitations which are at least as stringent as those applying to credit institutions in accordance with Directive 92/121/EEC. 3. Ú For the purpose of hedging market risks arising from the issuance of electronic money and from the investments referred to in paragraph 1, electronic money institutions may use highly interest rate and foreign exchange related off balance sheet items in the form of exchange traded derivative instruments to which Annex II to Directive 89/647/EEC does not apply. The use of derivative instruments according to the first sentence is permissible only if the full elimination of market risks is intended and, to the extent possible, achieved. liquid 4. Ú Member States shall impose appropriate limitations on the market risks electronic money institutions may incur from the investments referred to in paragraph 1. 5. Ú For the purpose of applying paragraph 1 assets shall be valued at the lower of cost or market value. 6. Ú If the value of the assets referred to in paragraph 1 falls below the amount of financial liabilities related to outstanding electronic money the competent authorities shall ensure that the electronic money in question takes appropriate measures to remedy that situation promptly. To this end, and for a temporary period only, the competent authorities may allow the institution’s financial liabilities related to outstanding electronic money to be backed by assets other than those referred to in paragraph 1 up to an amount not exceeding the lower of 5Ø% of these liabilities and the institution’s total amount of own funds. institution Article 5 Verification by competent authorities shall verify compliance with Competent authorities Articles 3 and 4 not less than twice each year on the basis of data supplied by the electronic money instiÜ tutions. Article 6 Sound and prudent operation institutions shall have sound 1. Ú Electronic money and prudent management, sound administrative and accounting procedures and adequate internal control mechanisms. These should respond to the financial and non financial risks to which the institution is exposed. to these supervision, institution undertakes 2. Ú If an electronic money business activities of the type referred to in Article 1(3)(a) in cooperation with another undertaking which performs operational or other ancillary functions related to these business activities and which, with a view to the functions, risks related to no prudential the contractual arrangements underlying this cooperation shall provide for contractual rights which enable the electronic money institution these risks and to monitor and contain properly immediately the cancel to unconditionally contractual arrangements underlying the cooperation if the effective exercise of these rights in practice or upon request of the competent authorities in accordance with paragraph 3, last indent. impaired subject and is is 3. Ú In order to ensure the effective supervision of an institution which cooperates with electronic money another undertaking in paragraph 2, Member States shall provide that their competent authorities may: the manner described in (a) require that other undertaking supply any information which would be relevant for the purpose of supervising the electronic money institution; to (b) carry out, or have carried out by external inspectors, on the spot inspections of that other undertaking to verify such information; and (c) require as appropriate the electronic money instiÜ tution promptly to remedy any shortcomings and if the contractual necessary arrangements underlying the cooperation with that other undertaking. immediately to cancel Article 7 Waiver 1. Ú Member States may waive the application of Article 1(4), Article 3(1) and Article 8 of this Directive and the application of Directives 77/780/EEC and 89/646/EEC to an electronic money institution if the totality of the in Article business activities of the type referred to 1(3)(a) it undertakes alone or in cooperation with other electronic money following conditions: institutions fulfil the 15. 10. 98 EN Official Journal of the European Communities C 317/11 (a) it generates a total amount of financial liabilities related that normally does not exceed ECU 10 million and never exceeds ECU 12 million; and electronic money to outstanding (b) is related to electronic money the underlying contractual arrangements of which provide that the electronic storage device at the disposal of users for the purpose of making payments is subject to a maximum storage amount of no more than ECU 150. An electronic money institution for which the application of one of the above Articles has been waived shall not benefit from the freedom of establishment and the freedom to provide services as conveyed by Directive 89/647/EEC. 2. Ú For the purpose of applying this Directive to underÜ takings which seek for a waiver according to paraÜ graph 1 to be approved or for which the waiver has been approved: (a) "competent authorities’ shall mean those national authorities which are responsible for the supervision of electronic money institutions; and (b) "own funds’ shall mean own funds as defined in Council Directive 89/299/EECØ(˛). Article 8 Grandfathering subject their activity this institutions 1. Ú Electronic money Directive which have commenced in accordance with the provisions in force in the Member States in which they have their head offices before the entry into force of the provisions adopted in implemenÜ tation of this Directive shall be presumed to be authÜ orised. The Member States shall oblige such electronic to money institutions to submit, within a reasonable period, all relevant information in order to allow the competent authorities to assess whether the institutions comply with this Directive, which the requirements pursuant to ensure in order measures need compliance, or whether a withdrawal of authorisation is appropriate. to taken to be 2. Ú The presumption according to paragraph 1, first sentence shall not apply to electronic money institutions which benefit from a waiver in accordance with Article 7. If such a waiver is subject to prior approval by competent authorities, the presumption shall become void by the time of that approval. Article 9 laws, 1. Ú Member States shall bring regulations and administrative provisions necessary to comply with this Directive by 31 December 1999 at the latest. They shall immediately inform the Commission thereof. into force the When Member States adopt these measures, these shall contain a reference to this Directive or shall be accomÜ panied by such reference at the time of their official publication. The procedure for such reference shall be adopted by Member States. States 2. Ú Member the shall Commission the text of the main provisions of national law which they adopt in the field covered by this Directive. communicate to Article 10 This Directive shall enter into force on the 20th day following its publication in the Official Journal of the European Communities. Article 11 (˛) OJ L 124, 5. 5. 1989, p. 16. This Directive is addressed to the Member States