Chapter 2 sets out rules and guidance on the capital adequacy of ELMIs. Chapter 3 sets out rules and guidance on the investment of the e-money float in high quality liquid assets. It also restricts the use by ELMIs of derivatives and quasi-derivative contracts. Chapter 4 sets out rules and guidance that restrict the business of ELMIs to activities closely related to issuing e-money. It also prohibits issuing e-money at a discount. Chapter 5 has rules and guidance on systems and controls and rules relevant to making calculations under the ELM financial rules. Chapter 6 has rules and guidance on redemption of e-money, the supply of information and purse limits. Chapter 7 has rules and guidance about the measure of capital adequacy by reference to an ELMI's membership of a group. Chapter 8 contains provisions relevant to small e-money issuers and applications for a small e-money issuer certificate.
ELM implements the parts of the E-Money Directive and (for ELMIs) the Banking Consolidation Directive dealing with these topics. As from 1 January 2007 the version of the Banking Consolidation Directive in force when the E-Money Directive came into force (Directive 2000/12/EC) was replaced by the current version. The FSA's policy in implementing the parts of the Banking Consolidation Directive that apply to ELMIs is generally that the current version of the Banking Consolidation Directive applies except that generally:1
where the E-Money Directive applied a part of the previous version of the Banking Consolidation Directive that does not have a direct counterpart in the current version, ELM continues to implement the previous version.1
The rules and guidance in ELM will help the FSA to meet the regulatory objectives of protecting consumers,2 maintaining market confidence and protecting financial stability.2 They do so by setting standards about the backing of e-money issued by an ELMI with high quality liquid assets. They also do so by setting minimum capital and other risk management standards. This mitigates the risk that ELMIs will be unable to meet their liabilities and commitments to consumers. ELM also protects consumers by regulating the relationship between issuers of e-money and those who hold their e-money.
It is desirable to provide a regulatory framework that helps to ensure that e-money delivers its full potential benefits and that avoids hampering technological innovation. Therefore the regime provides a "technology neutral" regulatory framework.
In order to respond to the specific risks associated with e-money, the supervisory regime is targeted specifically at issues relating to issuing e-money. As a result, parts of the prudential supervisory regime applying to banks do not apply to ELMIs.
It is necessary to preserve a level playing field between ELMIs and banks and building societiesissuing e-money and, thus, to ensure fair competition among a wider range of institutions to the benefit of holders of e-money. To assist in achieving this, the removal of some features of the prudential supervisory regime applying to banks and building societies is balanced by rules that are stricter than those applying to banks and building societies. The main example of these stricter requirements is the limits on the business activities that ELMIs may carry on and the requirements about asset-liability management of the e-money float. As the main prudential measures that apply to ELMIs are targeted specifically at the issue of e-money, it is necessary to restrict the business of ELMIs to that activity.