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					       HM TREASURY



  IMPLEMENTATION OF THE

ELECTRONIC MONEY DIRECTIVE



  A Response to Consultation



        MARCH 2002
IM PLEM ENTATION OF THE ELECTRONIC MONEY DIRECTIVE


INTRODUCTION


1.   The Treasury iss ued a cons ultation docum ent in October 2001, which
     sought views on its proposed legis lative measures for im plem enting the
     Electronic Money Directive into UK law – effectively by s pecifying the
     issuing of e-money as a regulated activity under the Financial Services
     and Markets Act 2000 (FSMA).


2.   The cons ultation period closed on 8 January and a total of 17 res pons es
     were received, m ainly from existing and prospective e-m oney iss uers .
     The Treasury wis hes to thank all those who took part in the cons ultation.
     A s ummary of the respons es received forms an annex to this document.


3.   The responses to consultation have confirmed the Treas ury in its view that
     the proposals in the October cons ultation docum ent generally repres ent
     the best way forward. However, s om e changes have been made to the
     detail of the proposed legis lation in the light of cons ultation res pons es
     received. The reasoning behind thes e changes – and a more general
     response to cons ultation – is given later on.


4.   The Treasury’s revised propos als are reflected in the two s tatutory
     ins truments laid before Parliam ent today – 14 March 2002. These are:
     The Financial Services and Markets Act 2000 (Regulated Activities )
     (Am endm ent) Order 2002; and The Electronic Money (Mis cellaneous
     Am endm ents ) Regulations 2002.  To accompany thes e s tatutory
     ins truments , an Explanatory Memorandum , a Trans position Note, and a
     Regulatory Impact Ass essm ent have als o today been provided to
     Parliament. All thes e documents can be found on the Treas ury website at
     http://hm-treasury.gov.uk/Docum ents /Financial_Services /Regulating_
     Financia l_Services /fin_rs f_em oney.




                                        1
THE TREAS URY’S REVIS ED P ROPOS ALS


5.     Today, the Treas ury has laid two s tatutory ins trum ents before Parliam ent
       to im plem ent the Electronic Money Directive into UK law. Set out below is
       a des cription of how these meas ures have been am ended following
       cons ultation.


Definition of “e-m oney”


6.     The draft Order contained in the October consultation docum ent
       effectively copied out the Directive’s definition of e-m oney. The exception
       was that the definitio n in the draft Order did not refer to criterion (ii) –
       which states that e-m oney m us t be “issued on receipt of funds of an
       amount not less in value than the m onetary value iss ued” – on the
       grounds that it presents a loophole in the Directive’s definition. The
       proposal was to bring e-money iss ued at a discount within the s cope of
       regulation, so that the FSA could then make rules relating to the issuing of
       e-money at a dis count.


7.     The Treas ury’s aim of clos ing this loophole was s upported by respondents
       to consultation. Concern was expressed, however, that om ission of
       criterion (ii) in its entirety from the definition of e-m oney would have the
       effect of rem oving the ‘pre-paid’ requirement of e-money products, and
       thus to widen the scope of the definition. This was not the Treasury’s
       intention, s o the phras e “issued on receipt of funds ” has been reinserted
       into the definition of e-m oney (article 2 of the Order). This has the des ired
       effect of providing a means of closing the loophole, whils t m aintaining the
       pre-paid elem ent of e-m oney.


8.     It has been deem ed necess ary to confer a s pecific power on the FSA to
       prohibit the issuing of e-money at a discount, s ubject to conditions etc.
       This is becaus e it is doubtful whether the rule-m aking powers under
       section 138 of FSMA would cover all cases in which the Directive requires
       a prohibition of iss uing e-money at a dis count. This power is included as
       the new article 9H.



                                          2
9.    As noted in the October cons ultation docum ent, the Directive's definition of
      e-money leaves a lot of room for interpretation. Several respondents to
      cons ultation were keen for the Treasury to clarify the definition as much as
      poss ible in the implementing legislation. However, given the emergent
      nature of the e-m oney industry, the Treasury remains of the view that it is
      not poss ible to elaborate on this definition in any m eaningful way.


10.   An im portant issue that res pondents requested clarification on was
      whether the Directive’s definition s hould catch account-based s chem es
      (i.e. e-money held rem ote from the owner and s pent at the owner’s
      direction) as well as, for exam ple, card-bas ed s chemes (i.e. e-money in
      the poss ession of the owner, whether s tored on a personal com puter or a
      sm art card, and directly spent by them ). The Treas ury believes that the
      Directive’s definition does allow for the possibility of account-based
      schem es being e-m oney. Not allowing account-based e-money s chem es
      would effectively create a regulatory gap between the e-m oney and
      deposit-taking regimes – and a difference of treatm ent between s chem es
      that pos e s imilar regulatory ris ks . Rather than attempting to am end the
      definition in the Order (which is already express ed suitably widely), the
      Treasury has clarified in the accompanying Explanatory Memorandum that
      the definition of e-money is to be interpreted as covering account-based
      schem es (s o long as they rem ain dis tinct from depos it-taking).


Waivers


11.   The Directive s tipulates that waiver of s ome or all of its provis ions is
      poss ible when the am ount that can be stored on the electronic device in
      ques tion is limited to a m aximum of €150 (and one of three other criteria
      are met). This lim it is replicated in the Order. Several respondents to
      cons ultation sought clarification that this m aximum s torage lim it may be
      less than €150. The Order has therefore been am ended to read
      “…s ubject to a m aximum s torage amount of not more than €150.” This is
      contained in the new article 9C(4)(a).


12.   Res pondents also s ought clarification that the €150 limit does not apply to
      the electronic device us ed by m erchants to accept e-money. The


                                        3
      Treasury believes that this was not the intention of the Directive. It s imply
      does not m ake s ense for the “maxim um storage am ount” of €150 to apply
      to the device us ed by m erchants to accept e-m oney payments and to
      pres ent that e-m oney for redem ption by the iss uer.


13.   The draft Order s ought to clarify the meaning of the Directive’s phras e
      “accepted by a limited num ber of undertakings ” by propos ing that an
      abs olute limit of one hundred “persons” was im posed. Respondents
      generally thought this figure reasonable. However, s om e respondents
      were concerned that this condition would m ean that s chemes allowing
      purs e-to-purs e transfers between consumers would automatically not
      qualify for a waiver – becaus e cons umers may accept paym ent of e-
      money in s atis faction of private debts . To clarify that the phrase “one
      hundred pers ons ” excludes purely private transfers , the Order has been
      amended to say that the e-money in ques tion needs to be “accepted as a
      means of paym ent, in the course of business, by not m ore than one
      hundred persons …” This is contain ed in the new article 9C(6)(b).


14.   With regard to the “limited local area” condition, s everal res pondents were
      concerned that no allowance was being m ade for ‘virtual’ (e.g. Internet-
      bas ed) e-m oney s chem es . The Treas ury believes , however, that Article
      8(1)(c)(i) of the Directive was intended to apply only to the ‘phys ical’ world.
      ‘Virtual’ s chemes are, of course, capable of satis fying the other waiver
      conditions .


15.   Several res pondents argued that this geographical waiver condition did
      not recognise the needs of local authorities ’ e-m oney s chem es . The
      Directive does not, however, m ake provis ion for special treatment of
      particula r kinds of e-money s chemes . Local authority s chem es may be
      able to qualify under the geographical condition in the new article
      9C(6)(b)(i) and will als o be eligible to m eet the other waiver conditions .


16.   In the cons ultation document, the Treas ury ass erted that a “close financial
      or business relationship” – of the kind envisaged in Article 8(1)(c)(ii) of the
      Directive – would not exis t merely by virtue of a group of undertakings all
      accepting the e-m oney of a particular scheme. Respondents generally


                                          4
         supported this view. The Order has therefore been amended, to clarify
         that for waiver purpos es , pers ons are not to be treated as having a “clos e
         financial or bus iness relations hip” m erely because they take part in the
         same e-m oney s cheme. This is contained in the new article 9C(8).


17.      Several res pondents were concerned by the potential for s chem es
         meeting the more s ubjective waiver conditions – and hence being
         effectively unregulated – becoming quite large and having an unfair
         competitive advantage over sim ilarly sized s chemes that are subject to full
         regulation. The Treasury believes that the Directive does not envis age
         these criteria allowing for schemes of unlimited s ize. For exam ple, the
         Comm iss ion has made clear that the waiver s hould “only be applied to e-
                                                                      1
         money ins titutions underpinning relatively sm all s chemes ” . This sugges ts
         that there s hould be s ome kind of limit on the size e-money schem es can
         grow to before needing to becom e fully regulated. To deal with this point,
         an additional waiver condition has been included in the Order for issuers
         seeking waiver under the s econd and third criteria – a limit to total e-
         money liabilities of €10 million. This is contained in the new article
         9C(5)(b). Although this additional condition was not som ething that was
         originally consulted on, inform al cons ultation has revealed widespread
         support from mem bers of the industry.


18.      Waived e-m oney schem es could potentially be fairly large and
         sophis ticated, with tens of thous ands of users and total liabil ities of up to
         €10 m illion. Obtaining and verifying inform ation about whether a s chem e
         complies with the waiver conditions could be quite difficult and m ay
         require technical IT skills that the FSA does not have available to it. The
         Treasury believes it would be help ful for the FSA to have the powers in
         section 166 of FSMA (Reports by s killed persons ) though, in practice,
         these powers are likely to be us ed only in exceptional circumstances. The
         Order has therefore been amended to make provis ion for the application
         of s ection 166. This is contained in the new article 9G(7).




1
    COM(1998) 461 final – Explanatory Memorandum


                                            5
19.   The inform ation requirem ent rules for waived firms will inevitably be fairly
      detailed. The Treasury believes it is appropriate for the FSA to have the
      power to waive or modify thes e requirements in suitable cas es – s o as to
      reduce the burden on certain small s chem es . The Order has therefore
      been amended to allow waiver of rules made under article 9G(1). This is
      contained in the new article 9G(2).


Rule-mak ing powers


20.   Section 150 of FSMA (Actions for damages ) provides that a contravention
      by an authorised firm of an FSA rule is actionable at the s uit of a private
      pers on who suffers loss as a result of the contravention. The Treas ury
      believes that this right should also apply to a contravention by a waived
      firm of rules made under article 9G(1) of the Order. Article 9G(3) has
      therefore been included, which applies section 150 to rules m ade under
      article 9G(1).


Transitional arrangements


21.   As propos ed in the cons ultation document, all UK and EEA e-money
      issuers operating imm ediately before 27 April 2002 are to be granted a
      tim e-limited exclus ion, whereby they are treated as not carrying on a
      regulated activity under FSMA until 27 October 2002. The aim is for thes e
      exis ting iss uers to us e the six-month grandfathering period to apply for
      either authorisation or a waiver. There are many reasons why a firm with
      the benefit of the grandfathering exclus ion m ight want to becom e
      authorised and get the permiss ion before the end of that exclus ion. The
      mos t obvious reas on is that it would enable them to pass port their
      activities into other EEA Mem ber States. The Order has therefore been
      amended to make clear that it is poss ible for an exis ting iss uer to apply for
      (and get) an e-m oney permiss ion before 27 October. This is contain ed in
      the new article 9(6).


22.   Several respondents to cons ultation were concerned with the poss ibility
      that an exis ting issuer’s applicatio n for perm iss ion may not have been
      finally determined by the end of the six-month grandfathering period,


                                         6
      particula rly if it is us ing the appeal rights available to it under FSMA. The
      Treasury believes that s uch an outcom e would be unfortunate. In order to
      make allowance for exis ting issuers whose applications are outs tanding at
      27 October to continue issuing e-money until such time as the m atter is
      resolved, the Order has been amended to allow unauthorised issuers to
      operate after the grandfathering period, so long as they have s ubmitted a
      completed application to the FSA by 27 June – i.e. within two m onths of
      the regime com ing into force. This is contained in the new articles 9(7)
      and (8). Existing issuers are s till encouraged to s ubmit their applications
      at the earlies t possible opportunity.


23.   Several res pondents ques tio ned whether the trans itional exclusion should
      be extended to cover non-EEA e-m oney issuers operating in the UK
      immedia tely before 27 April 2002. The Directive, however, m akes no
      provis ion for such issuers . The Treas ury though does not fores ee this as
      a problem as cons ultation did not reveal any s uch s chemes as operating
      in the UK at pres ent.


24.   It m ay be observed that services provided from outs ide the UK which m ay
      be access ed by electronic means from the UK may not, in any event, be
      regarded as cons tituting the carrying on of activities in the UK, if the
      provider has no es tablis hment or any other physical presence in the UK
      (though this will depend on the precis e circums tances ). In s uch cases the
      services will not be regulated under FSMA at all.




                                         7
ANNEX: RESPONSES TO CONSULTATION

Introduction


A1.   The Treasury’s consultation document “Im plementation of the Electronic
      Money Directive”, issued in October 2001, s ought views on its proposed
      legislative m eas ures for implementing the Electronic Money Directive into
      UK law. This annex summ arises the 17 responses to cons ultation
      received by the Treas ury. A lis t of thes e respondents is contained in the
      appendix.


The definition of electronic money


A2.   The majority of res pondents were s upportive of the Treasury’s general
      approach of effectively copying out the Directive’s definition of e-m oney –
      on the grounds that it allows for a flexible approach to regulation. Only
      one respondent objected to our suggested approach, on the basis that
      there a num ber of ambiguities within the Directive’s drafting and that a
      more pres criptive definition that rem oves as many of the uncertainties as
      poss ible would be preferable. Several other res pondents also noted this
      lack of clarity in the Directive’s definition and the potential drag this could
      have on the market.


A3.   The majority of res pondents s upported the propos al to bring e-money
      issued at a dis count within the definition of e-money. Concern was
      expressed, however, that omiss ion of criterion (ii) in its entirety from the
      definition of e-m oney has the effect of removing the ‘pre-paid’ requirem ent
      of e-m oney products, and thus to widen the scope of the definition and
      create uncertainty as to whether ‘pos t-paid’ s chem es would fall under it.
      Num erous respondents therefore proposed omitting only the s econd part
      of criterion (ii) and retaining the phras e “iss ued on receipt of funds ” –
      which would have the des ired effect of providing a means of closing the
      loophole whilst m aintaining the pre-paid elem ent of e-money.


A4.   Several respondents argued s pecifically that the practice of iss uing e-
      money at a dis count s hould not be prohibited outright, on the basis that


                                         8
      the ability to is s ue dis counted e-money s hould remain a commercial
      decis ion. However, mos t res pondents s upported the propos al for the FSA
      to prohibit the iss uing of e-money at a discount, s ubject to clarification that
      certain m eas ures (e.g. m arketing prom otions ) were not to be regarded as
      issuing e-money at a dis count so long as the float was topped up to the
      full value of e-money issued.


A5.   Res pondents argued that som e iss uing of e-money at a discount should
      be allowed. This was becaus e of (a) the commercial need to prom ote the
      use of e-m oney and (b) the fact that such promotions avoid the financial
      ris k that m ight affect a firm that issues e-m oney for less than the amount
      required to redeem it – by ens uring that the float held by the iss uer m us t
      immedia tely and always equate to the full value of the e-m oney in issue.


A6.   Res pondents als o raised several other issues in relation to the definition of
      e-money. Thes e are outlined below:


      • Several res pondents sought assurance that the term “electronic
         device” used in the defin ition of e-money included network- or server-
         based account sys tems as well as e-m oney paym ent cards with
         electronic chips . This would, it was argued, be in line with the
         Directive’s aim of providing a technology-neutral framework.


      • The Directive s tates clearly that s ums received [in exchange for e-
         m oney] do not cons titute depos its if they are “immediately exchanged
         for e-money”. Respondents welcom ed the Treas ury’s propos al to us e
         this wording in the im plem enting legis lation – on the grounds that it
         provides a clear dis tinction between e-money and depos it taking.
         However, s everal respondents noted that s cenarios could be
         envis aged where there is a tim e period between when a consum er
         purchases the e-money and when he activates his e-m oney account or
         card. Durin g this tim e period the e-money iss uer has in effect received
         the funds for the e-m oney but the funds are only exchanged for e-
         m oney when the cons umer activates his e-m oney card or account.
         These respondents felt that s uch a delay in issuance can be jus tified
         on operational grounds and s hould not rem ove s uch s chemes from the


                                         9
          definition of e-m oney. However, they did als o s ugges t that the tim e
          period for activation s hould be clearly lim ited in order to m aintain the
          clear dis tinction between e-m oney and deposit taking.


      • If the definition of e-m oney requires value to be iss ued on receipt of
        funds then, in practical terms , s uch paym ent is likely to be m ade by
          cheque, credit card, debit card or bank trans fers . All s uch paym ents
          involve a period of s ettlement ranging from one to several days .
          Several respondents proposed that ELMIs should have the option of
          issuing e-money imm ediately upon receipt of s uch payment (i.e. ahead
          of receipt of funds ), m aking the necess ary trans fer to the float from
          working capital. The iss uer would then accept the ris k of paym ent
          default pending settlem ent as part of normal comm ercial ris k.


Waivers


A7.   In general, respondents favoured the Treas ury’s propos ed approach of
      implementing Article 8 (Waiver) as widely as perm itted by the Directive
      and also the objective of introducing greater clarity into waiver criterion (c).
      Three res pondents were, however, uneas y about waivers in general.
      They noted the potential risks to cons umers from unregulated issuers and
      rais ed concerns about the potential advers e effects on com petition of not
      having a level playing field.


A8.   Res pons es to consultation revealed a wide range of views about the
      appropriate form of the waiver conditions . There was no consensus on
      whether to elaborate on the conditions and, if s o, how. However, many
      respondents felt that the Treasury’s propos als were as appropriate as
      poss ible at pres ent. Comm ents focused on criterion (c) – notably
      regarding the interpretation of the conditions on locality, clos e
      relations hips and number of accepting undertakings .


A9.   Several respondents felt that the Treasury’s interpretation of the waiver
      conditions was too res trictive and s ugges ted that no fixed figures should
      be s et in legislation, but rather that the FSA should use s uch figures as
      guidance only, in the context of other relevant parameters (e.g. float s ize,


                                        10
       num ber of consum ers ). Other respondents , however, argued that our
       interpretation was in fact wider in scope than envisaged by the Directive –
       in particular regarding the “lim ited local area” and “lim ited number of
       undertakings ” conditions . Som e respondents were concerned by the
       potential for schem es m eeting these conditions becoming quite large and
       having an unfair competitive advantage over s imilarly s ized schem es that
       were s ubject to all the provisions of the Directive.


A10.   Several res pondents argued that if clarification was to be given to the
       phras e “lim ited number of undertakings”, then a figure of around 25
       undertakings would be acceptable – reflecting their view on schem es that
       could acquire critical mass and success but at the same time would be
       lim ited in s ize and ris k. However, other respondents noted that the
       appropriate number of undertakings was highly dependent on the s ize and
       turnover of each s chem e involved. Concern was also expressed that the
       use of the word “persons ” in this condition rather than “undertakings” (the
       word us ed in the Directive) would res ult in the inclusion of person-to-
       pers on trans fers within this definition and that this could prevent innovative
       products in this area being developed.


A11.   With regard to the “lim ited local area” condition, it was argued by som e
       respondents that the proposed figure of 4 s quare kilometres was arbitrary.
       The m ain concern revolved around the fact that there would be different
       implications depending on whether the area in ques tion was , for example,
       urban or rural. Some respondents felt that whils t greater certainty was
       des irable, no fixed figure should be set in legislation, leaving the FSA to
       address applications on a cas e-by-case basis . Several respondents
       argued that the current waiver propos als did not recognis e the needs of
       local authorities ’ e-money s chemes – and reques ted a revision to the
       geographical condition to include specific reference to them .


A12.   Several respondents were concerned that no allowance was being m ade
       in the waiver propos als for ‘virtual’ equivalence. They s ubmitted that
       undertakings which have their principal places of presence on common
       webs ites (portals ) or which are part of a comm on television s hopping



                                          11
       offering s hould quali fy for the “location on the sam e premises or other
       lim ited local area” criterion.


A13.   With regard to the “clos e financial or bus iness relations hip” condition,
       respondents mos tly sought guidance on how it would be interpreted by the
       FSA. Se veral respondents agreed with the assertion that this condition
       would not be s atis fied if the clos e relationship were merely one related to
       the e-money schem e in ques tion.


A14.   With regard to the €150 limit for waived s chem es , respondents argued
       that it s hould not apply to the device us ed by m erchants to accept e-
       money; and that it s hould be clarified that the maxim um s torage limit m ay
       be less than €150.


A15.   The majority of respondents agreed with the Treas ury’s propos al to
       dis apply as many of the provisions of the Directive as poss ible for waived
       firms . The general cons ens us was that – provided that waivers were
       granted only to genuinely “limited” s chemes – this approach would reduce
       the burden on sm all s chemes and s tart-ups, and would provide the
       opportunity for them to grow. Only one respondent argued that this
       general approach was inappropriate, noting the ris ks to cons um ers .
       Concern was also expressed about the need to maintain a level playing
       field between ELMIs and credit institutions .


A16.   The only provision that anyone argued should be m aintained for waived
       firms was the redeem ability requirem ent. Several respondents thought
       that this would provide certainty for cons um ers and would avoid confus ion
       by es tablis hing a common bas ic attribute for all e-m oney s chem es. On
       the other hand, s ome res pondents argued that placing a requirement to
       provide redeem ability m ay res trict the development of new products due
       to the cos ts involved and that it also s eem ed inappropriate when looking
       at the type of s chem es to which the waivers would apply, s uch as
       university campus s chemes.




                                         12
A17.   There was broad s upport for the Treas ury’s proposals for the FSA to grant
       and revoke waivers. The general feeling was that thes e procedures
       appeared logical and fitted with exis ting FSA practices .


Transitional arrangements


A18.   The consultation exercis e revealed mixed feeli ngs about the Treasury’s
       proposed trans itional arrangem ents . Several res pondents thought the
       proposals s ounded reasonable and were not aware of any problems they
       might caus e for exis ting e-money iss uers. Others , however, had concerns
       – m os tly about the practical im plementation of the arrangem ents .


A19.   The m ain concern appeared to be the time it would take s chem es to make
       their applicatio ns and for the FSA to process them – and that delays
       beyond 27 October 2002 would force som e schemes to ceas e their e-
       money activities through no fault of their own. It was thought that there
       might be a degree of flexibility in the time that may be allowed to achieve
       full compliance. Several res pondents proposed an extens ion to the
       deadline – preferably by around 12 to 18 months.


A20.   A further iss ue raised by s everal respondents was whether, although
       outside the scope of the Directive, the trans itional exclusion s hould be
       extended to cover non-EEA ELMIs operating in the UK imm ediately before
       27 April 2002.


Financial Services Compensation Scheme


A21.   The majority of respondents – particularly those in the indus try – felt
       strongly that introducing a compensation s chem e for e-money s chem e
       would be inappropriate at this time. The most common argum ent used
       was that the cos ts of m aintaining a com pens ation s cheme would be
       prohibitive and that such a scheme would be of limited application.


A22.   Only three respondents argued that a com pens ation s cheme s hould be
       introduced s traight away – in the interes ts of cons umer protection and
       maintain ing public confidence in e-m oney. For exam ple, it was noted that


                                         13
       sm all bus iness es might be less willing to accept e-money trans actions
       without a com pensation s cheme, which could be a barrier to the
       successful development of e-m oney.


Ombudsman Scheme


A23.   The cons ultation exercis e revealed m ixed feelings about whether the
       Om budsm an schem e would be appropriate for e-m oney. As in the cas e of
       the compensation s cheme, the majority of the indus try felt s trongly that
       applying the Om budsm an schem e for e-money would be inappropriate at
       this s tage of the indus try’s developm ent. It was argued that the es timated
       levels of contribution necess ary for participation s ugges t that the cos t to a
       fledging industry would be highly onerous and out of proportion with the
       typical values of m oney that m ay becom e s ubject to consum er com plaints .
       Some res pondents als o argued that the s cheme its elf would be of limited
       application. For exam ple, m any of the exis ting e-m oney s chem es in the
       UK already have an Ombudsman in place (e.g. banks , train operators ,
       telecoms operators ).


A24.   Only four res pondents felt that e-money schemes s hould be subject to the
       Om budsm an scheme s traight away – for cons umer protection and public
       confidence reasons .


A25.   Opinion was divided about whether the FSA s hould be left to decide upon
       the application of the Om budsm an s cheme in relation to e-money. Som e
       respondents thought that the FSA s hould m ake the decision – bas ed on a
       full cost-benefit analysis ; others thought that the Treas ury s hould do so.


Financial Promotion Regime


A26.   The vast m ajority of res pondents agreed with the Treas ury’s proposal that
       e-money s hould not be s ubject to the financial prom otion regime of FS MA.
       The main arguments us ed were that (a) whils t it was difficult to quantify
       cos ts , they were likely to be s ignificant as a proportion of an ELMI’s cos t
       bas e and (b) the provision and offer of a m eans of paym ent is not the type
       of activity which poses a risk to cons umers by way of prom otion; ins tead,


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       this as pect of cons umer protection is norm ally applied to inves tment and
       other financial activity where the cons um er is at risk from inadequate
       advice and can s uffer s ignificant financial loss .


A27.   Only three res pondents believed that the activity of iss uing e-money
       should be m ade s ubject to the financial promotion regime. The m ain
       argum ents used revolved around the need for consum er protection.


Draft Regulatory Impact Assessment


A28.   Only three res pondents comm ented on the draft Regulatory Im pact
       As s essment included in the cons ultation docum ent. One respondent
       accepted the difficulty of meaningfully quantifying the cos ts and benefits of
       regulating e-money issuance by way of FS MA. They als o noted that a
       light touch approach to implem entation would be m ore likely to reduce
       cos ts whils t maintaining the benefits of the regulatory provis ions that were
       applied.


A29.   The other two res pondents express ed concern at the im pact and cos t of
       these propos als – and a des ire that innovation in the e-money indus try
       should not be s tifled by cos ts (e.g. authorisation fees ) that would be
       prohibitive, especially for s maller ELMIs . However, thes e concerns
       appeared to relate to the provisions of the Directive, rather than the
       Treasury’s propos ed method of implem entation.




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APPENDIX: LIST OF RESPONDENTS

Abbey National Plc
As s ociation for Payment Clearing Services
Barclays Plc
Bracknell Fores t Borough Council
Creative Star Ltd
Financia l Services Consumer Panel
Legal & General Assurance Society Ltd
Mike Hendry
Mondex UK Ltd
Rail Settlement Plan (Ass ociation of Train Operating Com panies )
Sm artex Ltd
Southam pton City Council
The Electronic Money As s ociation
Transport Card Forum
Vis a International EU
Vodafone Ltd
Vodafone Ltd (on behalf of BT Cellnet, BT Plc, One2One and Orange)




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