In the second in his series of
articles looking at aspects of the Electronic Money Regulations
2010, which come into force in April, Robert Courtneidge (pictured
below) looks at the potential for the conversion of paper voucher
programmes to electronic money. Is the guidance clear, he asks, and
does it even matter?
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When the Electronic Money
Regulations 2010 come into force on 30 April the gift voucher
industry will breathe a collective sigh of relief as, at last, they
will be able to move simply from paper to cards and not have to
worry about the unintended consequence of being caught as
e-money… Or will they?
Let’s start with the exclusion
wording in the definition of electronic money in the regulations:
“Electronic money… does not include… monetary value stored on
instruments that can be used to acquire goods or services only…
under a commercial agreement with the electronic money issuer,
either within a limited network of service providers or for a
limited range of goods or services.”
This definition stems from the
lengthy preamble to the e-money Directive 2009/110/EC which states:
“An instrument should be considered to be used within such a
limited network if it can be used only either for the purchase of
goods and services in a specific store or chain of stores, or for a
limited range of goods or services, regardless of the geographical
location of the point of sale.
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By GlobalData“Such instruments could include
store cards, petrol cards, membership cards, public transport
cards, meal vouchers or vouchers for services [such as for
childcare or schemes which subsidise the employment of staff to
carry out household tasks such as cleaning], which are sometimes
subject to a specific tax or labour legal framework designed to
promote the use of such instruments to meet the objectives laid
down in social legislation.
“Where such a specific-purpose
instrument develops into a general-purpose instrument, the
exemption from the scope of this directive should no longer
apply.
“Instruments which can be used for
purchases in stores of listed merchants should not be exempted from
the scope of this directive as such instruments are typically
designed for a network of service providers which is continuously
growing.”
In their recent consultation of
October 2010, HM Treasury asked whether Financial Services
Authority guidance, and case-by-case consideration, was the right
approach to determining what constitutes a limited network.
After the consultation process HM
Treasury concluded that: “The Government will adopt a pragmatic
approach. It will require the FSA to publish guidance.
“The Treasury has asked the FSA to
develop the guidance in consultation with the industry and the
Treasury, based on general principles (such as the distinction
between open loop and closed loop prepaid cards), supported by case
studies and practical experience of different business models.
“This will narrow the scope for
uncertainty from the outset, and in this way it is expected that a
more responsive and growing body of knowledge will gradually
develop to inform decision making on a case-by-case basis.
“The government believes this is a
more sensitive and responsive way to resolving uncertainty than
hard-wiring criteria in legislation that may not be able to address
ongoing developments in the market.
“It will ensure that UK industry is
not put at a disadvantage compared to other [EU] member
states.”
FSA guidance
So there we have it. It is now down
to the FSA to give us guidance. But what have the FSA offered?
In its consultation paper issued in
October 2010 it gave us its draft perimeter guidance and asked if
the industry had any comments. The majority of responses were
around the proposed guidance on the topic of limited networks.
In the FSA’s policy statement
(PS11/2) it says: “There were a number of comments about the
clarity of the guidance on what is a limited network and the
transitional arrangement for businesses that will no longer fall
within the scope of our regulation. 
“One respondent said that our
guidance was less clear than that provided in Recital 5 of the 2EMD
as our lists do not include common criteria. They suggested
defining a limited network as a small closed loop… Respondents
provided examples of business models that they believe fall into a
‘grey area’ in which it is uncertain whether the monetary value is
e-money because of the limited network exemption.”
The FSA’s response was: “We note
the various comments on limited networks. Our interpretation of the
‘limited networks’ exemption is, in our view, as definitive as
possible within the limitations of the text of the Payment Services
Directive [PSD], 2EMD and the European Commission’s guidance in its
‘Frequently Asked Questions’.
“The Commission does not allow [EU]
member states to set fixed numerical or geographical limits for
‘limited networks’. This means that the status of any particular
product or scheme depends on the specific facts of the case, rather
than there being a simple ‘tick-box’ approach.
“We have added more examples to
improve clarity. We cannot include the terms ‘closed loop’ and
‘open loop’ because of the lack of clarity around their
meaning.”
All questions
answered?
The FSA also published its amended
perimeter guidance in this area. The Perimeter Guidance manual
(PERG) answers a number of the frequently asked questions.
But, rather unhelpfully, the FSA
put a caveat on all their Q&As: “The answers given in these
Q&As represent the FSA’s views but the interpretation of
financial services legislation is ultimately a matter for the
courts.
“How the scope of Electronic Money
Regulations affects the regulatory position of any particular
person will depend on their individual circumstances. If you have
doubts about your position after reading these Q&As, you may
wish to seek legal advice. The Q&As do not purport to be
exhaustive and are not a substitute for reading the relevant
legislation. In addition to FSA guidance, some of the Electronic
Money Directive provisions may be the subject of guidance or
communications by the European Commission.”
And finally, just to be really
helpful the FSA added: “It will be appropriate to take disciplinary
measures against a relevant person where there is evidence of
personal culpability on the part of that person.
“Personal culpability arises where
the behaviour was deliberate or where a relevant person’s standard
of behaviour was below that which would be reasonable in all the
circumstances at the time of the conduct concerned.”
So, there we have it – a real grey
area but fall foul of the regulation, or at least to have the
FSA take action, you need to have behaviour that was deliberate or
at least willfully negligent.
Therefore, provided you take proper care when setting up your
programme and use all reasonable efforts to ensure it is within the
guidance for a limited network, it is highly unlikely enforcement
action will ensue and you will be given time to address the issue
and either move the programme into the regulated space of e-money
or restrict it so that it ceases to cross the very grey line.
See also:
The FSA’s Perimeter Guidance manual
