A new regime for the regulation of e-money issuers by the Financial Services Authority (FSA) came into effect on April 27 2002. The key elements of the regime are:
  • issuers must ‘ring-fence’ their e-money activities from other business risk areas;
  • funds held in exchange for e-money must be held in high quality liquid assets;
  • a minimum capital requirement of 2% of outstanding e-money liabilities or 1 million Euros, whichever is the higher;
  • sound and prudent systems and adequate internal mechanisms including compliance with anti-money laundering requirements must be in place;
  • the FSA may grant waivers to small or local firms; and
  • 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 regime largely reflects the FSA’s previous consultation paper on the subject. Two changes which have been made are the increase in permitted purse size from £250 to £1000 and e-money may now be issued at a discount in certain circumstances.

© Herbert Smith 2002

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