E-Money Regulation that is Enabling: News from the UK

Exciting changes are underway in the European Union. European governments are developing laws and regulations to promote the use of non-bank accounts (i.e. e-money). This is good news for mobile money. The UK, for example, is now consulting the public on its planned changes to regulations in that country. We believe they are positive and could set the standard elsewhere for mobile money including developing countries in Africa and Asia that have modelled some of their regulation after the European Directives

Why do we like the planned changes in the UK? They are proportional. For example, because of earlier concerns (including concentration risk – see our upcoming guide on E-Money) the UK currently has a balance limit of €150 for e-money accounts. Under the new regulations, this limit will be eliminated. Risk mitigation can be carried out through other, less burdensome measures.

Another point we like is it reaffirms the EU’s stance on customer identification procedures, called KYC or know your customer rules, for low-value transactions. Accounts that have a maximum annual turnover of €2,500 or less are exempt from KYC given that not more than €1000 is withdrawn in a single calendar year. The purpose of KYC is to reduce the risk that criminals would use the payment service to move and store money. But KYC is costly. Given that criminals often deal with large amounts of money (from drug sales, prostitution rings and so on) it seems unlikely that their use of e-money would be anything but incidental.

Thirdly, a point not discussed enough in our view, is the capital requirements for e-money issuers. In many countries these requirements are disproportionately high, making e-money a domain for banks only. The UK is considering setting the initial and ongoing capital requirement for e-money issuers as €75,000. As “small” means having total outstanding liabilities of under €5 million, the capital requirement seems very friendly to market development.

Lastly, we like that the UK is planning to ensure that all e-money issuers are to ensure customers’ funds are safeguarded. It is critical for overall market confidence that all e-money instruments are seen as safe. Safeguarding funds of one e-money service (e.g. mobile money) and not the other (e.g. prepaid cards) is uncompetitive and dangerous. Customers would be unlikely to be familiar with differences between the two products. A problem they have with one e-money product could make them lose faith in all.

The UK’s upcoming regulations of e-money are major improvements in the country and follow the recently finished E-Money Directive from the European Union. Countries around the world are already looking to Europe for regulatory solutions that they can transplant for mobile money. Keep an eye on the UK and let us know your thoughts!

If you wish to comment directly to the UK Government check out their consultation website at – http://www.hm-treasury.gov.uk/8439.htm

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