Opinion of the European Central Bank of 18 January 1999 at the request of the Council of the European Union under Article 105(4) of the Treaty establishing the European Community and Article 4(a) of the Statute of the European System of Central Banks and of the European Central Bank on 1. a Commission proposal for a European Parliament and Council Directive on the taking up, the pursuit and the prudential supervision of the business of electronic money institutions, and 2. a Commission proposal for a European Parliament and Council Directive amending Directive 77/780/EEC on the coordination of laws, regulations and administrative provisions relating to the taking up and pursuit of the business of credit institutions
Date: 1999-01-18
Institutions: European Central Bank
Subjects: European Central Bank, credit institution, electronic money, financial institution, financial legislation

6.7.1999

EN

Official Journal of the European Communities

C 189/7

EUROPEAN CENTRAL BANK

OPINION OF THE EUROPEAN CENTRAL BANK

of 18 January 1999

at the request of the Council of the European Union under Article 105(4) of the Treaty estab-
lishing the European Community and Article 4(a) of the Statute of the European System of Central
Banks and of the European Central Bank on 1. a Commission proposal for a European Parliament
and Council Directive on the taking up, the pursuit and the prudential supervision of the business
of electronic money institutions, and 2. a Commission proposal for a European Parliament and
Council Directive amending Directive 77/780/EEC on the coordination of laws, regulations and
administrative provisions relating to the taking up and pursuit of the business of credit insti-
tutions

(1999/C 189/07)

from the Council of

1. On 24 November 1998 the European Central Bank (ECB)
received a request
the European
Union for an ECB opinion on 1. a Commission proposal
for a European Parliament and Council Directive on the
taking up, the pursuit and the prudential supervision of
the business of electronic money institutions (hereinafter
referred to as (cid:145)Draft Directive 1(cid:146)) and 2. a Commission
proposal
and Council
Directive amending Directive 77/780/EEC on the coor-
dination of laws, regulations and administrative provisions
relating to the taking up and pursuit of the business of
(cid:145)Draft
credit
Directive 2(cid:146)).

European Parliament

referred to as

(hereinafter

institutions

for

a

2. The ECB’s competence to deliver an opinion is based on
Article 105(4), first indent, of the Treaty establishing the
European Community (hereinafter
(cid:145)the
Treaty(cid:146)). In accordance with Article 17(5), first sentence,
of the Rules of Procedure of the ECB, this ECB opinion
has been adopted by the Governing Council of the ECB.

referred to as

3. The ECB notes that Draft Directive 1 and Draft Directive 2
are aimed at
in financial
fostering the single market
services by introducing a minimum set of harmonised
prudential rules for electronic money issuance and by
applying the arrangements for the mutual recognition of
home supervision provided for in Directive 89/646/EEC to
electronic money institutions (ELMIs). This includes the
safeguarding of the financial integrity and the operations
of ELMIs by, on the one hand, ensuring the stability and
soundness of ELMIs and, on the other, ensuring that the
failure of any one individual ELMI does not result in loss of
confidence in this new means of payment.

money could otherwise be carried out on an unregulated
basis. Early regulation is considered by the European
Commission to be the most practical way to harmonise
national approaches to electronic money.
in
addition, enhance legal certainty and contribute generally
to the development of electronic commerce.

It would,

5. The ECB further notes the concern to create a level
the issuance of electronic money by
playing-field for
both traditional credit institutions (CIs) and ELMIs, thus
ensuring that all issuers of electronic money are subject
to an appropriate form of prudential supervision. In this
perspecitve the ECB welcomes Draft Directive 2 to the
extent that it amends the definition of credit institution
in Article 1, first indent, of the First Banking Coordination
Directive and obliges institutions that do not intend to
enter into the full range of banking operations to issue
electronic money in accordance with the fundamental
an
credit
rules
amendment would promote the harmonious development
of
the
the issuance of electronic money throughout
Community and avoid any distortion of competition
between electronic money issuers, even as regards the
application of monetary policy measures.

institutions.

governing

Such

all

6. In August 1998 the ECB issued a report on the issuance of
electronic money (hereinafter referred to as (cid:145)the Report(cid:146)).
This Report sepecified,
inter alia, that a material devel-
opment of electronic money in the Community could
have significant implications for the conduct of monetary
policy by the ECB. The Report also elaborated on the role
which central banks would have to assume with regard to
electronic money schemes as part of
their oversight
responsibility for payment systems in the Community.

4. The ECB also notes that the current regulatory initiative is
motivated by the absence of a clear legal framework for
electronic money issuance in the European Union and by
the non-bank issuance of electronic
the concern that

7. Given its interest in ensuring the effectiveness of monetary
policy, the smooth operation and integrity of payment

C 189/8

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Official Journal of the European Communities

6.7.1999

that it would be essential

systems, the avoidance of systemic risk and the protection
of the stability of the financial markets, the ECB stated in
its Report
for the following
minimum requirements to be met with regard to the
issuance of electronic money: 1.
issuers of electronic
money must be subject to prudential supervision; 2. the
rights and obligations on the part of
the respective
participants in an electronic money scheme must be
cleary defined and disclosed; such rights and obligations
jurisdictions; 3.
must be enforceable under all relevant
schemes must maintain adequate
electronic money
technical, organisational and procedural
to
prevent, contain and detect threats to the security of the
counterfeits; 4.
scheme, particularly
such as money
protection against
laudering, must be taken into account when designing
and implementing electronic money schemes; 5. electronic
money schemes must supply the central bank in each
relevant country with any information, including statistical
information, that is required for monetary policy purposes;
6. issuers of electronic money must be legally obliged to
redeem electronic money against central bank money at
par at the request of the holder of the electronic money;
the details of this requirement are to be specified; and 7. it
must be possible for central banks (for the ECB in Stage
Three of EMU)
to impose reserve requirements on all
issuers of electronic money.

threat of
abuse,

the
criminal

safeguards

8. In

to

the

the ECB identified in its Report

abovementioned minimum
addition
requirements,
two
further objectives which it deemed desirable to pursue:
(i) the interoperability of electronic money schemes; and
(ii) the adoption of adequate guarantee; insurance or loss-
sharing schemes aimed at protecting customers against
losses and at preserving confidence in electronic money.

Draft Directive 1

9. The ECB would welcome a reference in the recitals to the
oversight competence of the European System of Central
Banks (ESCB) with regard to electronic money schemes.
(This competence is based on Article 105(2),
fourth
indent, of the Treaty and on Article 3(1), fourth indent,
of the Statute of the European System of Central Banks
and of the European Central Bank (hereinafter referred to
as (cid:145)the Statute(cid:146)).) In such reference the ECB would also
the need for cooperation between the
propose that
relevant overseers and supervisory authorities in evaluating
the integrity of electronic money schemes should be
identified.

10. As regards Article 1, the ECB notes in the first instance
that the application of Draft Directive 1 is limited to those
issuers of electronic money that are ELMIs. The ECB
wonders whether
it would be conceivable for Draft
Directive 1 also to contain some provisions related to
the issuance of electronic money that would be equally
applicable to both CIs and ELMIs. For example, and as
indicated above, the ECB stated in its Report the need

for issuers of electronic money, i.e. both CIs ans ELMIs, to
be legally obliged to redeem electronic money against
central bank money at par at the request of the holder
of the electronic money. In view of the need to create a
level playing-field for the issuance of electronic money and
on account of the monetary and payment systems policy
considerations (see also paragraph 19 below), this type of
requirement
and ELMIs.
should apply to both CIs
Furthermore, the ECB would welcome the indtroduction
of a prohibition preventing persons or undertakings other
than credit institutions (i.e. CIs and ELMIs) from engaging
in the business of issuing electronic money.

11. With regard to the definition of an electronic money insti-
tution in Article 1(3)(a), the ECB would like to indroduce
the specification that (cid:145)electronic money institution(cid:146) shall
mean an undertaking, other than a credit institution as
defined in Article 1,
indent, of Council Directive
77/780/EEC, which engages principally in the issuance of
instruments of payment of electronic money and/or in the
investment of the proceeds from such activities without
being subject to Council Directive 93/22/EEC.

first

12.

In respect of the definition of electronic money in Article
1(3)(b), the ECB is of the view that the proposed definition
of electronic money may focus too closely on the technical
features of electronic money and be difficult to translate
into legal terms. From this perspective, the ECB would like
to suggest the introduction of the concept that electronic
money represents a claim on the issuer of electronic
money, which claim is redeemable in either legal tender
or scriptural money, that is incorporated in an electronic
medium, and accepted as an instrument of payment by
(non-affiliated) undertakings other than the issuing insti-
tution. Moreover, in relation to Article 1(3)(b)(iv), the ECB
is unclear about the added value of referring to (cid:145)electronic
transfers of limited value(cid:146) since such a reference may give
the impression that electronic transfers of large value may
somehow not be covered by Draft Directive 1.

includes,

13. With regard to Article 1(4)(a), the ECB is of the view that
the wording (cid:145)and the issuing and administering of other
means of payment within the meaning of point 5 of the
Annex to Directive 89/646/EEC(cid:146)
for
(this
example, credit cards,
travellers’ cheques and bankers’
is too broad. For example, allowing ELMIs to
drafts)
issue and administer
instruments of payment which
involve the granting of credit to individual or corporate
customers (e.g. credit cards) would expose ELMIs to risks
that do not seem to be addressed. In addition, if the ELMIs
enter into areas of business other than the issuance and
administration of electronic money, ELMIs cease to be the
specialised institutions that
they were intended bo be,
which may call into question the advisability of having a
special regulatory framework for ELMIs which could,
in
effect, only marginally be engaged in the issuance of elec-
tronic money. It is also problematic from the perspective

6.7.1999

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Official Journal of the European Communities

C 189/9

issue without becoming a credit

of achieving a level playing-field between CIs and ELMIs,
particularly since the list of instruments of payment is not
exhaustive and could, as a consequence, be read as
including instruments of payment which ELMIs could
not
institution under
the current definition (e.g. debit cards which imply the
maintenance of deposit accounts. For the reasons set out
above, the ECB is of the opinion that the wording (cid:145)and the
issuing and administering of other means of payment(cid:146)
shoult either be deleted with the introduction of a
prohibition in this respect or be restricted to prepaid
instruments of payment.

14.

it

the ECB notes that

should be reiterated that

In respect of Article 1(4)(b),
the
possible range of non-financial businesses may be too
broad because they may prove to play a very important
role and to bear varying levels of inherent risk. In this
respect
the own funds
requirements and limitations of investments applicable to
ELMIs are based only on the financial liabilities of ELMIs
related to outstanding electronic money. The ECB would
welcome a more specific wording on the non-financial
activities in which the ELMIs are allowed to engage and
would propose that the reasoning for this be given in the
explanatory memorandum. In any case, if the ELMIs are
the risks
allowed to undertake non-financial activities,
inherent in such activities as well as the risks inherent in
the investment of the proceeds of such activities should be
addressed.

15.

In relation to Article 2(1), the ECB would prefer to reverse
the wording to the effect that references to credit insti-
tutions in all relevant Community legislation would be
generally applicable, except of course in those cases, to
be listed in this Article 2,
in which such application
would not be appropriate or relevlant.

16.

In relation to Article 2(2), the ECB would like to express
its concern, with reference to Article 5 of Directive
77/780/EEC, about the appropriateness for ELMIs, even
though they eill be categorised ad credit instituions, to
use the word (cid:145)bank(cid:146) in their denomination. Such use of
the word (cid:145)bank(cid:146) by ELMIs could confuse the public at large,
if account is taken of the fact that ELMIs will not, as part
of their activity of issuing electronic money as stated in
Article 2(4), take deposits. Any possible confusion in this
respect should be avoided.

17. The ECB welcomes the application to ELMIs of Council
Directive 91/308/EEC on the prevention of
the use of
the financial system for the purpose of money laundering
as well as that of Council Directive 92/230/EEC on the
supervision of credit institutions on a consolidated basis.

introduction of measures

18. With regard to the first part of Article 2(4) the ECB would
the
a
welcome
loss-sharing or insurance scheme) to protect
guarantee,
holders of
and to
preserve their confidence in this instrument of payment.
This would be even more desirable if the use of electronic
money in the Community were to develop substantially
over time.

electronic money against

(such as

losses

rates

In addition,

function of money,

19. With regard to the second part of Article 2(4), the ECB
would like to reiterate its view, based on considerations of
monetary and payment systems policy, that ELMIs, as well
as any other institutions engaged in the business of issuing
electronic money, should be under an obligation to offer
the possibility of redemption, at par value, of their elec-
vis-(cid:224)-vis holders of electronic
tronic money liabilities
money. From the monetary policy point of view,
the
redeemability requirement is necessary in order, inter alia,
to preserve the unit-of-account
to
maintain price stability by avoiding the unconstrained
issuance of electronic money, and to safeguard both the
controllability of
liquidity conditions and the short-term
set by the ESCB. These considerations
interest
would be addressed by introducing continuing redeem-
ability,
i.e. holders of electronic money would have the
possibility of redeeming their electronic money at all
times.
the holders of electronic money
should have the unconditional right to leave the relevant
electronic money scheme at their discretion. Redemption
payments by electronic money issuers to holders of elec-
tronic money as described above should be made either in
tender or, with the respective electronic money
legal
holder’s consent, via banking channels by making an
irrevocable payment order to credit the electronic money
In the latter case, the electronic
holder’s bank account.
the possibility of
money holder must have
freely
to which the redemption
choosing the bank account
payment is credited. Such redemption payments should
be denominated in the same currency as the currency in
which
is
denominated. Such redemption payments would have to
be made at the latest on the local business day following
the day on which the request for redemption is received by
the relevant issuer of electronic money. Redemption of
electronic money should be allowed (cid:151) at
for a
certain period of time (to be determined) (cid:151) after the
expiry date of such electronic money or of such device
on which the electronic money value is stored, if it is still
technically possible to ascertain the value of such elec-
tronic money. Disposable and reloadable cards should be
redeemability
treated
requirement. In principle, redemption should be free of
charge. Fees or commissions payable on redemption of
electronic money could only be accepted if they did not
exceed a reasonable and fair estimate of the costs for the
relevant electronic money issuer related to the redemption.
If such fees or commissions were deemed to be acceptable,
they should be clearly communicated to customers in
advance. The
be
applied indiscriminately to all electronic money schemes
irrespective of their size. In other words, the redeemability
requirement should not be waived for any issuer of elec-
tronic money, however small. Lastly, the ECB understands
the second sentence of the second part of Article 2(4) as
meaning that Member States should not address in their

electronic money

redeemability

requirement

relevant

liability

equally

respect

should

least

this

the

of

in

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Official Journal of the European Communities

6.7.1999

national legislation the matter of whether or not electronic
money is to be redeemable. The foregoing is, in any event,
without prejudice to the competences of the ECB.

20. With regard to Article 3, the ECB assumes that a well-
founded analysis was carried out
the
proposed level of initial capital as well as the ongoing
capital
risks
inherent in the range of electronic money activities that
can be carried out by ELMIs.

are proportionate

to conclude that

requirements

to the

less than their

21. As regards Article 4(1), the ECB notes that ELMIs would be
able to grant credit, through the instruments of payment
that they are authorised to issue and administer, to their
individual and corporate customers to the extent that they
hold low-risk investments, in accordance with this Article,
of an amount which is not
financial
liabilities related to outstanding electronic money. The
risks inherent in the granting of credit do not seem to
be addressed by Draft Directive 1 in spite of
the fact
that such risks may have a material
impact on the
financial stability of ELMIs. As a consequence, and with
a reference to paragraph 13 above, the ECB would like to
propose the introduction of a general prohibition for
to their individual or corporate
ELMIs to grant credit
customers. Moreover, with regard to Article 4(4),
the
ECB would be in favour of requiring a minimum level of
harmonisation pertaining to the imposition of limitations
on the market risks which ELMs may incur on the basis of
their
than leaving it up to each
Member State to choose the appropriate limitations. A
minimum level of harmonisation could be considered a
prerequisite for granting ELMIs an EU passport.

investments,

rather

22. As regards Article 5, the ECB wonders whether its wording
does not hamper the relevant authorities’ right to conduct
on-site inspections. The ECB would therefore like to
suggest deleting the wording (cid:145)on the basis of data
supplied by the electronic money institutions(cid:146).

23. As regards Article 6(2),
in
the ECB would see merit
making a general
reference in the recitals of Draft
Directive 1 to the issue of
the outsourcing of certain
activities of ELMIs. On the other hand,
the ECB has
the proposed unilateral,
some doubts about whether
immediate and unconditional repudiation by ELMIs of
the contractual arrangements underlying the cooperation
between them and other undertakings would be practically
to
feasible if

the effective exercise of

the ELMIs’ right

monitor
outsourced activities were to be impaired.

and contain the

risks

associated with the

to a minimum level of

24. As regards Article 7, the ECB would favour an approach
whereby all ELMIs irrespective of their size would be fully
subject
the
Community level.
In particular, and as outlined above,
the redeemability requirement should be applied indis-
criminately to all electronic money schemes irrespective
of
the possibility should be
preserved in all cases for the ECB to impose minimum
reserve requirements on ELMIs and to collect statistical
information from them.

their size and, similarly,

regulation at

Draft Directive 2

25. As already pointed out in the Report, the ECB sees great
merit suing an amendment to the First Banking Coor-
dination Directive to include all
issuers of electronic
money in the definition of (cid:145)credit institution(cid:146), along with
repayable
institutions which receive deposits or other
for their own
funds from the public and grant credit
account. It was noted at the time that this would indeed
provide a level playing-field, particularly as it would ensure
that all issuers of electronic money would be subject to an
appropriate form of prudential supervision and would fall
into the category of institutions which, in accordance with
Article 19(1) of the Statute, are potentially subject to ECB
reserve requirements and statistical reporting requirements
in stage three of EMU. This possibility for the ECB to
reporting
impose reserve requirements and statistical
requirements on all issuers of electronic money in stage
three of EMU is crucial,
in particular with a view to
ensuring preparation for a substantial growth in electronic
money with a material impact on monetary policy. These
requirements are also necessary in view of the need for
equal treatment compared with issuers of other types of
instruments of payment which are already subject
to
reserve requirements and statistical reporting requirements.

26. This ECB opinion shall be published in the Official Journal

of the European Communities.

Done at Frankfurt am Main on 18 January 1999.

The President of the ECB

W. F. DUISENBERG