Opinion of the Advocate General — ECLI:EU:C:2018:817
Date: 2018-10-04
Language of the case: Lithuanian
Subject matter: Right of establishment;Approximation of laws;Freedom to provide services
Procedure: Reference for a preliminary ruling
Origin: Lithuania

Summary of the arguments of the parties 18. In the first place, the Lithuanian Government considers, contrary to the referring court, that the concept of the ‘issuance of electronic money’ does not include the issuance and the redemption of electronic money. 19. The activity of issuing electronic money should be regarded only as swapping the par value by transferring that value electronically so that persons, by accepting the electronic money issued by the electronic money institution as a form of payment, can make payment transactions between themselves using that value. Moreover, once the electronic money holder has redeemed the electronic money at par value, it is no longer possible for him to make payment transactions in electronic money using that monetary value. 20. In the second place, with regard to the concept of ‘payment services linked to the issuance of electronic money’, the Lithuanian Government submits that the application of different methods for the calculation of own funds means that the requirement of ongoing capital for electronic money institutions providing payment services not linked to the issuance of electronic money is greater than for electronic money institutions not providing payment services not linked to the issuance of electronic money. 21. The main criterion for determining whether specific payment services must be considered linked or not linked to the issuance of electronic money is the extent of the potential risk in each specific case. This is confirmed by the Commission proposal of 9 October 2008, (5) including, inter alia, amendments to ongoing capital requirements in the proposal for a new directive, with new methods of calculation based on the nature and the risk profile of electronic money institutions. 22. Higher capital requirements are thus imposed on institutions providing payment services not linked to the issuance of electronic money, in so far as they provide a wider variety of payment services. 23. The Lithuanian Government observes, first, that the adoption of the EMD II Directive allowed electronic commerce institutions to expand their activities and provide, in addition to services closely linked to the issuance of electronic money, payment services listed in the annex to the PSD Directive and, in particular, the granting of certain credits. 24. Second, if payment services not linked to the issuance of electronic money are provided, the potential risk not only covers electronic money holders, but also third parties not participating in the system (the circle of such third parties can be very large and undefined) and who have not therefore entered into a contract with an electronic money institution — the defence of their interests would consequently be more limited. 25. For the Lithuanian Government, two cumulative conditions must be met for a service to be regarded as being linked to the issuance of electronic money: (i) the electronic money must be issued at the time of the service; and (ii) the service must be provided between participants in the electronic money system. 26. With regard to the relationship between Service I and the issuance of electronic money, the Lithuanian Government states that it has no doubts that before starting to operate Service I, the electronic money must have already been issued and considers that Service I corresponds to a transfer as provided for in the third indent of point 3 in the annex to the PSD Directive. 27. For the purpose of making transfers to bank accounts, clients of credit institutions accept funds — not electronic money — received once the electronic money is converted to its par value. Service I is therefore the transaction by which the electronic money institution (the issuer) transfers, at the request of the holder of electronic money, the electronic money, redeemed at par value, to a third-party account in a credit institution. 28. The payment transaction has therefore been made between the holder of electronic money and a third party. It is therefore an ‘outgoing’ payment. Such a payment can be regarded as linked to the issuance of electronic money only if it is made between two participants in the electronic money system. 29. The Lithuanian Government also observes that Service I is not linked or considered to be identical to the redemption of electronic money. Under Article 11(2) of the EMD II Directive, the redemption of electronic money is merely the return, at par value, of the monetary value of the money held to the holder of electronic money. 30. That definition is, moreover, consistent with the objectives of the EMD II Directive, set out in its preamble, which seek to preserve and strengthen the confidence of the electronic money holder who can redeem the electronic money at any time at par value. 31. In the case of Service I, the electronic money is not returned to the electronic money holder at par value. The objective of the electronic money holder is to make payments for goods and services. The method and form by which the money is redeemed is decisive in determining whether a specific service must be regarded as the redemption of electronic money or a payment service not linked to the issuance of electronic money. 32. So far as concerns the relationship between Service II and the issuance of electronic money, the Lithuanian Government points out that it is defined as follows: (1) on the instruction of the seller, the buyer pays for the goods or services by making a transfer of funds to the applicant’s bank account and (2) upon receipt of the funds, the electronic money institution issues electronic money which it transfers into the seller’s electronic money account. 33. Accordingly, in the first place, it is indisputable that, with Service II, the funds received from the payer are converted to electronic money and credited to the account of the electronic money holder. However, the payment itself is, first and foremost, carried out at par value and not in electronic money. The payment transaction is regarded as completed when the electronic money institution receives the funds in its account in a credit institution. The electronic money is issued only as a second step. That subsequent issuance of the electronic money is the result only of the fact that a corresponding contract is concluded between the supplier of the goods or services, on the one hand, and the electronic money institution, on the other. Moreover, Service II does not satisfy the second criterion set by the Lithuanian Government, in so far as it is carried out between a third party and the electronic money holder. 34. Secondly, in the present case, it is an ‘incoming’ payment in the electronic money system and not a payment ‘carried out’ within that system, between its participants. 35. Service II cannot therefore be regarded as a service linked to the issuance of electronic money. 36. The Polish Government considers, first of all, that the expression ‘payment services that are not linked to the issuance of electronic money’ must be understood as referring to the payment services listed in the PSD Directive and provided by a given institution, without electronic money being issued in order to carry out those payment services. A contrario, payment services linked to the issuance of electronic money are services carried out by a given electronic money institution by means of issuing electronic money. 37. Accordingly, an electronic money institution pursuing the activity of issuing electronic money and providing payment services linked to the issuance of such money is required to maintain its own funds, at least at the level calculated under Method D, as provided for by the EMD II Directive. 38. However, if that institution also provides other payment services, in particular in connection with scriptural money payments, minimum own funds requirements must be calculated in accordance with Methods A, B or C, set out in Article 8(1) and (2) of the PSD Directive. 39. That interpretation is supported by Article 2.2 of the EMD II Directive which defines electronic money. 40. First, electronic money is not comparable to, or capable of being associated with, scriptural money. Scriptural money represents an entry in the books of the payment institution or the bank with which the client has a bank account, indicating the existence of an obligation on the part of the payment institution to pay (redeem) a specific sum of money. Payments made in scriptural money and thus through payment institutions or banks, do not constitute de jure the provision of monetary services consisting in the transfer of control over cash, but merely the transfer of the right to receive payment of a specific sum of money in cash and the settlement thereof, combined with the substitution of the issuer, if the payer and the payee operate with other payment institutions or banks. 41. Second, electronic money, contrary to scriptural money, is not an accounting entry indicating the obligation to pay cash, but rather a monetary value which is issued and stored electronically, including magnetically, linked to the requirement for its systematic redemption by the issuer to the electronic money holder. It thus consists of the transfer of control over monetary value between the payer and the payee. 42. Electronic money is therefore similar to cash, which also works by transferring control. The difference lies in the intangible nature of that currency and in the absence of a general obligation to accept it. 43. The monetary value is issued in exchange for cash or scriptural money and gives rise to an obligation to redeem the monetary value. Redemption occurs by the payment, in cash or scriptural money, corresponding to the value of the electronic money issued in exchange for the redemption of the monetary value issued. Following the issuance of electronic money, the issuer (the electronic money institution) effectively sells the monetary value, that is to say the issuer makes it available to the buyer, in exchange for the payment of a specific sum of money, and undertakes, at the same time, to buy the monetary value from the holder. 44. Electronic money is therefore issued for the purpose of making payment transactions. Monetary values issued for other purposes or by means of which it is not possible to make payment transactions cannot therefore be regarded as electronic money. Moreover, electronic money must be accepted by at least two persons other than the issuer. 45. Therefore, if the assumption of a given payment service had to presuppose that all payment transactions are carried out using scriptural money created following the purchase of electronic money, that would imply that the service in question cannot be regarded as a service linked to the issuance of electronic money. 46. Services carried out by using scriptural money generated as a result of a prior conversion of electronic money into bank money, for the purpose of subsequently reflecting the scriptural money in the bank account of the payment recipient, cannot therefore be regarded as services linked to the issuance of electronic money. Moreover, for similar reasons, payment services consisting in the acceptance of payments made in scriptural money, followed by the conversion of the funds received into electronic money, cannot be regarded as services linked to the issuance of electronic money. 47. Consequently, the services provided by the applicant in the main proceedings cannot be characterised as payment services linked to the issuance of electronic money since they are carried out using scriptural money. 48. The Commission claims, in essence, that it is necessary to assess, on a case-by-case basis, whether the payment services in question are independent or ancillary services. 49. Service I concerns a payment transaction by which, at the request of the electronic money holder, the electronic money institution redeems the funds at par value and transfers them to a third-party bank account, as confirmed by Article 5(2) of the EMD II Directive. 50. Service II concerns a payment service whereby, on the instruction of the seller, the buyer of goods and/or services pays for the goods and/or services by making a transfer/payment of funds to an electronic money institution, which, upon receipt of the funds, issues electronic money, at par value of the funds received, for the benefit of the seller. 51. The Commission considers that the provision of payment services, whether linked or not linked to the issuance of electronic money, must be examined from the point of view of the electronic money institution. Under Service II, the electronic money institution receives the funds from the buyer of the goods or services, for the benefit of the holder of electronic money, and again issues electronic money. That service is therefore necessary for the issuance of electronic money. It is not an independent service. 52. Services I and II should therefore be regarded as payment services linked to the issuance of electronic money. B. Assessment 1. Preliminary observations 53. By way of introduction, I will give some known examples of electronic money, such as Proton in Belgium, miniCASH in Luxembourg, Monéo in France and Geldkarte in Germany (all held on a payment card) but also PayPal at global level (the money is stored only on a network, in so far as it is an ‘information technology’ or virtual medium) — whereas bitcoin is not an electronic money. (6) 54. The purpose of the question referred for a preliminary ruling is to interpret the expression ‘the activities referred to in Article 6(1)(a) [of the EMD II Directive] that are not linked to the issuance of electronic money’, used in Article 5(2) of that directive. 55. The case in question thus raises the question whether on the basis of that provision: (i) a payment transaction, whereby, at the request of the electronic money holder to the electronic money institution, the electronic money (redeemable funds) redeemed at par value is transferred to a third-party bank account; and (ii) a payment transaction whereby, on the instruction of the seller, the buyer of goods and/or services pays for the goods and/or services by making a transfer/payment of funds to an electronic money institution (issuer of electronic money), which, upon receipt of the funds, issues electronic money, at par value of the funds received, for the benefit of the seller (electronic money holder) must be regarded or not as activities ‘linked to the issuance of electronic money’. 56. The stakes are high, since depending on the provision (or not) of services linked to the issuance of electronic money, the own funds requirements vary, in accordance with Article 5(2) of the EMD II Directive. 57. Accordingly, electronic money institutions whose activities include services linked to the issuance of electronic money should calculate their own funds requirements in accordance with Method D, (7) whereas the own funds requirements of electronic money institutions carrying out activities that are not linked to the issuance of electronic money should be calculated in accordance with Methods A, B or C, (8) which impose higher own funds requirements than Method D. 2. The text of the EMD II Directive 58. The questions from the referring court are linked to the fact that Articles 5(2) and 6(1)(a) of the EMD II Directive do not define (9) ‘the activities that are not linked to the issuance of electronic money’ (Article 5(2)), the ‘activities linked’ in that regard or even the ‘payment services’ [Article 6(1)(a)] that electronic money institutions may provide, the latter provision merely referring to a list included in the Annex to the PSD Directive. (10) 59. I will note only that the text refers to activities (not) ‘linked’ which seems to me to exclude the argument put forward by the Lithuanian Government that — to fall within the scope of Article 5(2) of the EMD II Directive — the transactions in question must be fully ‘integrated’ into the electronic money system. 60. Other articles of the EMD II Directive merit analysis. 61. Article 1(1) of the EMD II Directive, which defines the directive’s scope (including its regulatory scope), states that that legislative act of the European Union lays down ‘the rules for … issuing electronic money’. Article 11(1) of that directive, set out in Title III, entitled ‘Issuance and redeemability’, requires the issuance of electronic money at par value on the receipt of funds. Article 11(2) of that directive requires, upon request by the electronic money holder, the redemption, at any moment and at par value, of the electronic money held. 62. To place those provisions of Article 11 in the context of the other provisions of the EMD II Directive, I take the view that the referring court was right to think that ‘the issuance of electronic money’ within the meaning of the EMD II Directive includes, inter alia, the issuance and redeemability of electronic money. 63. It can also be assumed that the purpose of electronic money (which can be deduced from its definition in Article 2.2 of the EMD II Directive, that is to say, making payment transactions) does not mean that the payment services linked to the issuance of electronic money in question concern only payment transactions using electronic money. It is obvious that the money issuance and/or money redemption referred to are/is normally performed by way of payment transactions made from other funds. (11) 64. I take the view (like the Commission) that it is also apparent from the definition of electronic money set out in Article 2.2 of the EMD II Directive, which refers to payment transactions as defined in point 5 of Article 4 of the PSD Directive, (12) that payment services related to electronic money include services linked not only to the issuance, but also to the redemption, of electronic money. 65. The Lithuanian Government submits that Article 11(1) and (2) of the EMD II Directive clearly distinguishes between issuance and redemption which cannot therefore be regarded as linked. 66. That argument cannot be upheld. 67. It should be noted that, admittedly, issuance and redemption are two separate actions governed by Article 11(1) and (2) of the EMD II Directive respectively. However, it is clear that the intention of the EU legislature was that they should nevertheless be closely linked. 68. Article 11(2) of the EMD II Directive provides that ‘Member States shall ensure that … electronic money issuers redeem, at any moment … the monetary value of the electronic money held’. The right to redemption is thus created automatically and is unconditional. It is not therefore an independent action. 69. It follows that, in order to be ‘linked’, the payment service in question must be necessary for the issuance or redemption of electronic money. 70. I agree with the Commission that it is apparent from the EMD II Directive that payment services — whether linked or not linked — can be provided outside of the electronic money system. 71. It is normal that both the issuance and the redemption of electronic money remain connected with a traditional bank account. Contrary to what the Lithuanian Government claims, it is therefore immaterial in that regard that the person loses the option of paying in electronic money. 72. Therefore, the issuance and redemption of electronic money are separate but not independent actions. 73. Indeed, the concept of ‘redeemability’ is understood as a reference to the possibility for a consumer to get back his electronic money at all times by credit transfer or in cash. (13) 74. In other words, the issuance of electronic money is only one part of the process, the other part being the redemption of electronic money. (14) 75. That duality is explained by P. Storrer who wrote (in particular with regard to transposing the EMD II Directive into French law) that ‘[t]he units of electronic money are called electronic value, with each unit represented by a claim embedded in a security … the concept of a claim on the issuer is characteristic of electronic money and makes it possible to distinguish it from scriptural money which is indissociable from its repository, the account … [it is merely] two aspects of the debt security — the claim to electronic money has two aspects, depending on whether it concerns the holder: claim for redemption …, or the acceptor: claim for conversion … We believe that electronic money … is inherently redeemable, redeemability being subject, moreover, to a detailed regime which constitutes an essential aspect of the contractual right to electronic money … [E]lectronic money seems to us to be inherently redeemable as opposed to being redeemable by virtue of its regime. Because that redeemability will add an additional criterion to the identification of an electronic money product more than it will be a consequence of its classification. (15) 76. Returning to Article 11(2) of the EMD II Directive, that provision requires Member States to ensure that, upon request by the electronic money holder, electronic money issuers redeem, at any moment and at par value, the monetary value of the electronic money held (a similar rule is laid down in Article 11(1) with regard to the issuance of electronic money). In addition, the issuance of electronic money and the redemption of such money are carried out by means of payment transactions from other funds (for example, by means of a transaction through a payment card or an ongoing credit transfer operation). 77. Accordingly, payment services ‘that are not linked to the issuance of electronic money’ referred to in Article 5(2) of the EMD II Directive should also include payment services that are not linked to the redemption of electronic money. 78. In so far as payment services linked to the issuance (or the redemption) of electronic money are not otherwise defined in the EMD II Directive, I take the view (like the Commission) that it is necessary to regard all payment services which are necessary for the issuance or redemption of electronic money as payment services ‘linked to the issuance of electronic money’ (Article 5(2) of the EMD II Directive). In other words, those services must play an ancillary role in the issuance of electronic money. 79. It is therefore necessary to assess on a case-by-case basis whether the payment services in question are independent or ancillary services. If the payment service is provided for the purpose of enabling the issuance or redemption of electronic money, it must be regarded as being linked thereto. 3. Application to the two transactions at issue in the present case 80. The first case referred to in the question referred for a preliminary ruling concerns a payment transaction whereby, at the request of the electronic money holder, the electronic money institution redeems the funds at par value and transfers the redeemable funds to a third-party bank account. 81. The transfer of redeemable funds by an electronic money institution is closely linked to the issuance of electronic money which, as I have already stated, should also include redemption. 82. However, the transfer of those redeemable funds should form part of a single transaction carried out by the electronic money institution. In the event that the transfer of redeemable funds to another bank account is not part of a single transaction, that transfer should be regarded as an independent payment service. 83. Under Article 7(1) of the EMD II Directive, the electronic money institution is required to safeguard funds that have been received in exchange for electronic money that has been issued, in accordance with Article 9(1) and (2) of the PSD Directive. 84. I agree with the Commission that this means that the electronic money institution has the obligation (16) to safeguard those funds up to the amount of electronic money deposited in the account of the institution. By contrast, there is no such obligation to safeguard the funds once the electronic money has been redeemed. That rule may be based on the fact that the transfer of funds must take place immediately after the electronic money institution has redeemed those funds to the electronic money holder. If the redeemable funds are held longer by the electronic institution, Article 7(3) of the EMD II Directive provides that the safeguarding requirements laid down in Article 9 of the PSD Directive apply. It follows that the funds must be safeguarded in order for an independent payment service to be provided in accordance with the provisions of the PSD Directive. 85. Consequently, the referring court was right to find in the order for reference that, in so far as the issuance of electronic money also includes the redemption of such money provided for in Article 11(2) of the EMD II Directive, it is necessary to regard the payment service in question (Service I) as a payment transaction ‘linked to the issuance of electronic money’ within the meaning of Articles 5 and 6 of that directive, by which the redeemable funds are transferred to a third-party bank account on the instruction of the electronic money holder. 86. The second case referred to by the referring court concerns a payment transaction whereby, on the instruction of the seller, the buyer (payer) of goods and/or services pays for the goods and/or services by making a transfer/payment of funds to an electronic money institution (issuer of electronic money), which, upon receipt of the funds, issues electronic money, at par value of the funds received, for the benefit of the seller (electronic money holder). 87. As the Commission rightly observes, the provision of payment services, whether linked or not linked to the issuance of electronic money, must be considered from the point of view of the electronic money institution. 88. In the case in question, the electronic money institution receives funds from the buyer of goods or services and transfers them to the seller by issuing electronic money. In that case, the payment service by which the electronic money institution receives funds and issues electronic money is necessary for the issuance of electronic money; it is not therefore an independent service. 89. Accordingly, I also agree with the referring court that the fact that buyers of goods and/or services (payers) transfer (pay) funds to the applicant (the electronic money institution) for the purpose of payment for goods and/or services rather than for the purpose of electronic money issuance is irrelevant. Those buyers (payers) pay the applicant for goods and/or services on the instruction of the trader (the applicant’s customer), and the latter has entered into a contract with the applicant, which, upon receipt of the funds from the buyers, immediately issues electronic money at par value of the funds received. Therefore, the purpose of the buyers does not gainsay the existence of a direct link between the payment transaction and the issuance of electronic money. 90. I am therefore of the opinion that the second payment service at issue (Service II) must also be regarded as an activity ‘linked to the issuance of electronic money’. V. Conclusion 91. For those reasons, I propose that the Court should answer the question referred for a preliminary ruling by the Lietuvos vyriausiasis administracinis teismas (Supreme Administrative Court, Lithuania) as follows: Article 5(2) of Directive 2009/110/EC of the European Parliament and of the Council of 16 September 2009 on the taking up, pursuit and prudential supervision of the business of electronic money institutions amending Directives 2005/60/EC and 2006/48/EC and repealing Directive 2000/46/EC must be interpreted as meaning that, in circumstances such as those in the present case, the following are to be regarded as payment services that are linked to the issuance of electronic money: (a) a payment service whereby the electronic money holder requests the electronic money institution which issues the electronic money to carry out a single transaction, including both the redemption of the electronic money and the transfer of the funds to a third-party bank account; and (b) a payment service whereby, on the instruction of the seller, the buyer (payer) of goods and/or services pays for the goods and/or services by making a transfer/payment of funds to an electronic money institution (issuer of electronic money), which, upon receipt of the funds, issues electronic money, at par value of the funds received, for the benefit of the seller (electronic money holder). 1 Original language: French. 2 Even if the latter expression is more usually associated with bitcoin (Storrer, P., Droit de la monnaie électronique, RB-Edition, 2014, p. 23). See footnote 6 of this Opinion. 3 Directive 2009/110/EC of the European Parliament and of the Council of 16 September 2009 on the taking up, pursuit and prudential supervision of the business of electronic money institutions amending Directives 2005/60/EC and 2006/48/EC and repealing Directive 2000/46/EC (OJ 2009 L 263, p. 7) (‘Directive EMD II’). 4 Directive 2007/64/EC of the European Parliament and of the Council of 13 November 2007 on payment services in the internal market amending Directives 97/7/EC, 2002/65/EC, 2005/60/EC and 2006/48/EC and repealing Directive 97/5/EC (OJ 2007 L 319, p. 1) (‘the PSD Directive’). 5 Proposal for a Directive of the European Parliament and of the Council on the taking up, pursuit and prudential supervision of the business of electronic money institutions, amending Directives 2005/60/EC and 2006/48/EC and repealing Directive 2000/46/EC (COM(2008) 627 final). 6 Although many people believe (wrongly) that this is the case. It is actually a virtual currency which ‘does not fall under the definition of means of payment within the meaning of the Monetary and Financial Code or, more specifically, the definition of electronic money, in so far as bitcoin is not issued on … receipt of funds. Moreover, unlike electronic money, bitcoin does not come with any legal guarantee of redemption at any time and at par value’ (Banque de France, Les dangers liés au développement des monnaies virtuelles: l’exemple du bitcoin, Focus No 10, 5 December 2013). 7 Set out in Article 5(3) of the EMD II Directive. 8 Set out in Article 8(1) and (2) of the PSD Directive. 9 This was not the case for the previous directive, Directive 2000/46 of the European Parliament and of the Council of 18 September 2000 on the taking up, pursuit of and prudential supervision of the business of electronic money institutions (OJ 2000 L 275, p. 39). See, for example, Vereecken, M., Monnaie électronique: commentaire des directives européennes, Euredia No 1 2004, pp 43 to 79, which I add often continues to be relevant for the provisions of the (new) EMD II Directive. 10 It should be noted that while that annex specifies the activities that issuers of electronic money are entitled to undertake, it does not decide on whether those activities are linked or not linked to the issuance of electronic money. 11 See Article 11(1) and (2) of the EMD II Directive. 12 Payment transactions are defined in point 5 of Article 4 of the PSD Directive as ‘an act, initiated by the payer or by the payee, of placing, transferring or withdrawing funds, irrespective of any underlying obligations between the payer and the payee’. 13 See Article 5 of the Commission proposal (COM(2008) 627 final), cited in footnote 5 of this Opinion. 14 See, with regard to the principle of redeemability, in particular Poullet, C., and Vuitton, R., La remboursabilité de la monnaie électronique, Bulletin du Cercle François Laurent, No 3, 2004, pp. 93-147. 15 See Storrer, P., Droit de la monnaie électronique, RB Édition, Paris 2014, pp. 61-65. See also, Lasserre Capdeville, J., ‘Le droit régissant le paiement par monnaie électronique en France’, Revue Lamy Droit des affaires, No 73, July-August 2012, pp. 93-97.For Austria, see Gerhartinger, H., Elektronisches Geld im österreichischen Bank- und Privatrecht, Bank Verlag Wien, Cologne, 2010. See also, Bulearcă, A., ‘Electronic Money, Means of Payment in Domestic and International Economic Exchanges. Statutory Changes at EU and EEA Level’, in Sararu, C.-S., (ed.), Studies of Business Law — Recent Developments and Perspectives, Peter Lang, Frankfurt am Main, 2013, pp. 195-210, which also concerns the transposition of the EMD II Directive in Romania. 16 When applying the methods provided for in Article 9(1)(a), (b) or (c) of the PSD Directive.