E-money in the UK: The Electronic Money Association overview and suggestions

1. E-money in the UK:The Electronic Money Associationoverview and suggestions 11 June 2002 Dr Thaer Sabri Chief Executive Electronic Money Association

2. Background • Early 2001, interested parties comprised: • Bank owned issuers • Independent issuers • Telecom sector • Transport sector • March 2001, initial FSA consultative meeting • A number of common interests & various degrees of involvement in issues • Formed a regulatory Working Group • August 2001 wider role of group required formalisation • September 2001 formed the EMA

3. The EMA’s Objectives • EMA Objectives: • Represent the joint interests of industry • Pursue such interests • Develop minimum standards wherever required • Vehicle for communication within industry and with third parties • Sharing of information • Includes issuers, prospective issuers and small issuers • (Mondex, Mastercard, Paypal, Travelex)

4. Learnings • Iterative process of cooperation within industry • Gradual sharing of information • Mutual support also for single party issues • Healthy but competitive relationship • Openness and discussion fosters a better relationship with regulators • Better understanding of issues at stake • Education process regarding commercial reality and regulatory requirements makes compromise more likely • Longer term view of regulatory framework • Influence of industry with other parties also greater

5. The UK Consultation Process • The financial services industry is regulated by the FSA • The FSA is required to consult stakeholders on rules and guidance that it issues • The Directive was implemented in two stages: • Introduction of ELMI’s and e-money into law by amending statutory instruments – carried out by Treasury • Putting in place the regulatory framework – prudential rules & guidance – carried out by the FSA • HM Treasury consulted on the scope of regulation & definition of e-money October 2001 to January 2002 • The FSA consulted Dec 2001 to Feb 2002

6. Issues at stake – HM Treasury • HM Treasury • Definition of e-money • Issuing at a discount • Compensation & Ombudsman schemes • Criteria for waived institutions • Transitional arrangements & time available • Outcome • E-money definition amended • Marketing promotions not opposed • Compensation scheme disapplied, FSA to decide on Omb. Sch. • Waived criteria unchanged • Transitional provisions issues noted, to be addressed by FSA

7. Issues at stake – FSA • FSA • Interpretation of definition of e-money • Immediate issuance & deposit taking • Issuing at a discount & marketing promotions • Proposed purse limit and conditions for exceeding it • The cost of participation in the Financial Ombudsman scheme • Criteria for waived institutions • Transitional arrangements & time available

8. Issues at stake – FSA • Outcome • E-money definition to include all technologies & designs • Immediate issuance: allowance for settlement & operational delays • Extensive allowance for marketing promotions, provided float is topped up to full value • Purse limit increased to £1000 and conditions made more reasonable • Participation in the Ombudsman scheme reduced substantially • Criteria for waived institutions; unchanged no virtual equivalence • Transitional arrangements, allowance for FSA delays

9. Current Items • Application of Money laundering legislation • Know your customer requirements • Possibility of an anonymous product • Record keeping requirements, scope • FATF Special Recommendation VII • Review of the FATF Forty Recommendations - consultation • Industry best practice, voluntary, addressing: • IT and non IT related risk • Legal, • Reputational, • Cross border, and • Operational risk

10. Some future Items • Some of the issues are: • Passporting • Privacy • The business barrier - creating a marketplace for products & services

11. Cooperation • Common regulatory objectives • Common framework based on EU Directive, therefore: • Greater influence on EU interpretation if consensus shown • Common representations for review of Directive in 2005; • Common anti Money Laundering challenges • Greater influence with third parties; ECB, OECD etc. • Best practice • Protects industry from reputational risk • Increases likelihood of creating an e-money marketplace • Mitigates liability

12. Cooperation • Passporting • Practical means of enabling cross border products by: • Sharing knowledge on local consumer law, and • Money laundering compliance requirements • Fostering communication and sharing of knowledge in areas of common interest: combating fraud, money laundering etc.

13. EMA Founding Members • These included: • American Express International Inc • Association of Train Operating Companies • British Telecommunications Plc • Electronic Transaction Corporation (UK) Ltd • Flawless Money Ltd • Internet Bearer Underwriting Corporation Inc • MasterCard International • Mondex UK • Oakington Ltd • Orange UK • PayPal Inc • Splash Plastic Ltd • T-Mobile • The Post Office • Transport for London • Travelex Plc • UK Smart Ltd • Vodafone UK

14. Thank you • Dr Thaer Sabri • Chief Executive • The Electronic Money Association • Director • Flawless Money LTD • Thaer@flawlessmoney.com • M 0797 111 2066