Implementation of the Electronic Money Directive: a Regulatory Impact Assessment
1. This regulatory impact assessment accompanies the Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) Order 2002 that implements the Electronic Money Directive¹ into UK law.
Purpose and intended effect
2. To date, the activity of issuing electronic money ("e-money") has not been subject to a formal system of regulation and supervision. The Electronic Money Directive mandates the establishment of a new prudential supervisory regime for issuers of e-money. The main objectives of the Directive are: (a) to create a regulatory framework to ensure the stability and soundness of e-money issuers, so as to increase business and consumer confidence in this new and developing means of payment; (b) to eliminate legal uncertainty created by the lack of harmonisation in this field; and (c) to facilitate access by e-money institutions from one EEA Member State into another.
3. The European Commission carried out its own impact assessment before the Directive was formally adopted, in which it concluded that the balance of costs and benefits was overwhelmingly on the benefit side². The Government is obliged by European Community law to implement the Electronic Money Directive into UK law, so a further assessment of its overall regulatory impact has not been carried out.
4. The Government is, however, only obliged to implement the new regime in the minimum way consistent with the Directive, so it is worthwhile to conduct an assessment of the measures that are being introduced over and above the minimum requirements of the Directive. In this respect, the only area in which the proposed regime for e-money issuers goes further than the requirements of the Directive is in specifying e-money issuance as a regulated activity under the Financial Services and Markets Act 2000 ("FSMA").
Benefits
5. There are benefits in implementing the Directive by regulating the issuing of e-money under FSMA. It achieves a basic consistency of treatment between the activity of issuing e-money and with other regulated activities under FSMA, which has the advantage of being a process that the financial services sector is already familiar with. It is, however, hard to quantify these benefits.
Costs
6. E-money issuers will not only be subject to the specific rules made by the FSA to implement the requirements of the Directive, but will be subject to certain general requirements of persons authorised under FSMA. However, the costs of such requirements are not likely to be excessive. For example, the FSA propose to charge a fee of around £5,000 for applications for authorisation but not to charge any fee for waiver applications.
Compliance and enforcement
7. The FSA will be responsible for enforcing the regulation of the activity of issuing e-money. People against whom the FSA decides to take action have the right to refer the matter to the Financial Services and Markets Tribunal if they so wish.
Business sectors affected
8. The regulations will apply to UK-based e-money issuers. However, the regulations will not impact directly or specifically on small businesses and so no small business litmus test has been carried out.
Consultation
9. The Treasury's proposals for implementing the Directive were put out for consultation to parties with an interest in the regulation of e-money issuers. Very few comments were received on the draft Regulatory Impact Assessment included in the consultation document. The main Industry body noted that a light touch approach to implementation would be more likely to reduce costs whilst maintaining the benefits of the regulatory provisions that were applied. A couple of other respondents expressed concern at the impact and cost of these proposals. However, these concerns appeared to relate to the provisions of the Directive, rather than the Treasury's proposed method of implementation.
Declaration
I have read the Regulatory Impact Assessment and I am satisfied that the benefits justify the costs.
Signed by the responsible Minister:
Ruth Kelly
Economic Secretary to the Treasury
13 March 2002
