The New Regulation Applicable To Electronic Money Institutions: A Regulatory Framework Dedicated To The Development Of The E-Money Market

The law dated 20 May 2011 (hereafter the "Law") implements in Luxembourg the European Directive 2009/110/EC on the taking up, pursuit and prudential supervision of the business of electronic money institutions (hereafter the "Directive") into the title II of the law dated 10 November 2009 relating to payment services, electronic money institutions and settlement finality in payment and securities settlement systems.

The CSSF Circular 11/517 dated 5 July 2011 explains the content of the Law.

The purposes of the Directive and of the Law is to promote the use of electronic money as a credible alternative to cash, the emergence of a single market for electronic payments, the creation of new secure and innovative electronic money services as well as electronic money institutions and finally to ensure a high level of consumer protection.

The new legal framework should then increase the attractiveness of electronic money for consumers and involve the development or a real electronic money market. In its circular, the CSSF summarised the most recent amendments of the Law as follows:

New definition of electronic money

First of all, the Law provides a new simplified and neutral definition of electronic money from a technical point of view, covering all situations in which an electronic money institution (or "EMI") issues a prepaid stored value in exchange for funds, as follows:

"a monetary value representing a claim on the issuer which is:

(i) stocked under electronically form, including magnetically, and

(ii) issued on receipt of funds for the purpose of making payment transactions, and

(iii) accepted by a natural or legal person other than the electronic money issuer."

This definition covers electronic money held on payment devices in the holder's possession (pre-paid cards, electronic purse) or stored on a remote server (network money or cyber money), as well as electronic money stored and used via mobile phones or internet payment accounts.

New prudential regime

EMIs constitute an independent category of financial services providers. EMIs are now submitted to a prudential regime aligned with the regime for payments institutions, subject to limited divergences provided by the Law. Indeed, the initial capital requirement has decreased from EUR 1 million to EUR 350.000. Furthermore, an exemption of certain authorisation requirements is applicable for EMIs issuing a volume of electronic money which does not exceed EUR 5...