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ELM 4.1 Application

ELM 4.1.1 G

The effect of ELM 1.1.1 R to ELM 1.1.3 R is that:

  1. (1)

    this chapter applies to ELMIs;

  2. (2)

    this chapter, except ELM 4.3, applies to a bank or building society that is an e-money firm;

  3. (3)

    no part of this chapter applies to:

    1. (a)

      an incoming EEA firm; or

    2. (b)

      an incoming Treaty firm.

ELM 4.1.2 R

In the case of an overseas firm, ELM 4.4 applies only in relation to e-money issued from an establishment maintained by the firm in the United Kingdom.

ELM 4.1.3 G

Except in the case set out in ELM 4.1.2 R, the rules in this chapter apply on a worldwide basis.

ELM 4.1.4 G

Thus for example an ELMI cannot carry on any activity prohibited by ELM 4.3.1 R anywhere in the world.

ELM 4.2 Purpose

ELM 4.2.1 G

One purpose of this chapter is to limit the activities of an ELMI to ones closely connected to issuing e-money. ELM simplifies, for ELMIs, the capital adequacy requirements that apply to banks and building societies but imposes controls that do not apply to them. Those controls include ones on the activities that an ELMI may carry on. The prudential requirements for ELMIs are not designed to support a wider range of activities. The limitation on activities provides further help in ensuring that an ELMI is able to redeem its e-money when it is required to.

ELM 4.2.2 G

This chapter implements article 1(5) of the E-Money Directive and the prohibition in that Directive on issuing e-money at a discount.

ELM 4.2.3 G

The prohibition on issuing e-money at a discount avoids the financial risk that might affect an e-money firm that issues e-money for less than the amount required to redeem it. The prohibition also helps to prevent e-money firms from creating monetary value in an uncontrolled way. In an extreme case, that could lead the monetary stock to expand without central banks being able to monitor it. That would hinder monetary analysis and affect the adequacy of monetary policy instruments. If the activities of e-money firms were to become a source of such instability, that could prejudice consumers who deal with them.

ELM 4.3 Restriction to issuing e-money and related activities

Restriction on activities

ELM 4.3.1 R

A firm must not undertake or carry on business activities other than issuing e-money, except for those in ELM 4.3.2 R.

ELM 4.3.2 R

The activities referred to in ELM 4.3.1 R are:

  1. (1)

    the provision of financial and non-financial services closely related to issuing e-money, such as:

    1. (a)

      the administering of e-money by the performance of operational and other ancillary functions related to its issuance; and

    2. (b)

      the issuing and administering of other means of payment; and

  2. (2)

    the storing (on behalf of other undertakings or public institutions) of data on e-money electronic devices on which e-money issued by the firm is stored or which can be used to use or spend e-money issued by the firm;

but excluding the granting of any form of credit.

ELM 4.3.3 G

The activities permitted by ELM 4.3.2 R include distributing e-money issued by another person.

Restriction on giving credit

ELM 4.3.4 R

A firm must not grant any credit in the course of or for the purpose of the business of issuing e-money.

ELM 4.3.5 G

ELM 4.3.2 R and ELM 4.3.4 R together prevent a firm from granting credit. Granting credit includes making loans.

ELM 4.3.6 G

If a person buys e-money from a firm and pays for it by cheque (so that the firm does not immediately receive value for it) that does not amount to granting credit under ELM 4.3.4 R.

Restriction on interest

ELM 4.3.7 R

A firm must not pay interest or any similar sum on e-money issued by it.

ELM 4.3.8 G

A firm may issue e-money in the way described in ELM 4.4.2 G without infringing ELM 4.3.7 R.

Restriction on holdings in other undertakings

ELM 4.3.9 R

A firm must:

  1. (1)

    not have an ownership share; and

  2. (2)

    ensure that no member of its sub group has any ownership share;

in another undertaking except in an undertaking that falls into ELM 4.3.11 R.

ELM 4.3.10 R

A firm must ensure that the only other members of its sub group are ones that fall into ELM 4.3.11 R.

ELM 4.3.11 R

An undertaking only falls into this rule if its only activity is the performance of operational or other ancillary functions related to e-money issued or distributed by the firm referred to in ELM 4.3.9 R or ELM 4.3.10 R.

ELM 4.4 Prohibition on issue of e-money at a discount

ELM 4.4.1 R

A firm must not issue e-money that has a monetary value greater than its e-money issue price.

ELM 4.4.2 G

A firm may want, for promotional reasons, to issue e-money to a client on terms that the client pays less than its monetary value. For instance, a firm may want to:

  1. (1)

    give away some e-money to new clients on their first load to encourage them to start using the product; or

  2. (2)

    give away ?X of e-money for each ?Y of e-money a client buys or for each ?Y of goods or services that the client buys using e-money issued by the firm.

ELM 4.4.3 G

A firm may be able to issue e-money in the way described in ELM 4.4.2 G without infringing ELM 4.4.1 R. A sum paid by a third party to the firm before the firmissues e-money can form part of the e-money issue price for that e-money if:

  1. (1)

    that sum is paid to the firm in payment of part or all of the e-money issue price for that e-money; and

  2. (2)

    at the time when the firm issues that e-money it applies that sum towards the payment of the e-money issue price of that e-money.

ELM 4.4.4 G

The fact that a firm incurs costs distributing e-money does not necessarily mean that that e-money is issued at a discount. But the payment by the firm of commission to distributors to whom the firm issues e-money may amount to issuing it at a discount.

ELM 4.4.5 G

Under Principle 11, a firm must deal with its regulators in an open and cooperative way, and must disclose to the FSA appropriately anything relating to the firm of which the FSA would reasonably expect notice. If a firm decides to launch a promotion of the type described in ELM 4.4.2 G, the firm should notify the FSA of its intention and details about the promotion. Those details should include the type of promotion, any other businesses taking part in it, the likely amount over the life of the promotion of the difference between the monetary value of the e-money and the amount to be paid by those to whom the firm issues it and the proposed length of the promotion. The information should also include details about the persons who are to make the payments in ELM 4.4.2 G, how much each is to pay and when the payments are to be made.

ELM 4.4.6 G

The firm should also keep the FSA informed of changes in its expectations during the promotion described in ELM 4.4.2 G and of any substantial difference between its expectations and the actual outcome.