Opinion of the Economic and Social Committee on: - the '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 - the '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: 1999-01-27
Institutions: European Economic and Social Committee
Subjects: ESC opinion, EU law, credit institution, electronic money, right of establishment

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proposal so that the reform can be concluded in the first
quarter of 1999 as part of Agenda 2000. This is also

necessary in order to prepare the impending accession
of major wine producers among the CCEE countries.

Brussels, 27 January 1999.

The President

of the Economic and Social Committee

Beatrice RANGONI MACHIAVELLI

Opinion of the Economic and Social Committee on:

— the ‘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

— the ‘Proposal for a European Parliament and Council Directive amending Direc-
tive 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’ (1)

(1999/C 101/15)

On 16 November 1998 the Council decided, in accordance with Article 198 of the Treaty
establishing the European Community, to consult the Economic and Social Committee on the
above-mentioned proposals.

The Section for the Single Market, Production and Consumption, which was responsible for
preparing the Committee’s work on the subject, had adopted its opinion on 19 January 1999.
The rapporteur was Mr Burani.

The Economic and Social Committee, at its 360th plenary session (meeting of 27 January
1999), adopted the following opinion by 36 votes to one with two abstentions.

1.

Introduction

1.1.
The main aspects of electronic commerce —
which is likely to spread rapidly — need to be regulated
at European and world levels. In its institutional role as
initiator, the Commission, mindful of the fact that
Europe is part of a global context, which necessitates
harmonious application of the standards on a world
scale, has a number of initiatives in progress, or planned,
to establish common European standards for the Mem-
ber States.

1.2.
Electronic commerce — as applied to the offering
for sale and purchase of goods and services — demands
that the settling of debit/credit transactions be done
rapidly, securely and conveniently, for the benefit of
those involved and to ensure the credibility of the system
as a whole. A number of up-and-running schemes
introduced by the financial system essentially give users
access to sums of money which are stored in the memory
of a computer and can be transferred to the creditor

electronically. This is known as ‘network money’ or
‘software money’. As the Commission notes in the
introduction to its explanatory memorandum, this is
not just one means of payment but the means of payment
for future electronic commerce on the Internet.

Alongside software money are appearing less
1.3.
sophisticated payment instruments within the reach of
the ordinary citizen, and even of those who have neither
a computer nor the means or knowledge necessary to
access the Internet or similar systems, whether closed or
these are micro-
open: prepaid cards. Essentially,
processor cards which memorize sums previously paid
to the issuer and from which are gradually ‘downloaded’
the necessary sums for small purchases; in practice, then,
this is the electronic version of a purse containing small
change and lower-denomination banknotes.

The issuing of electronic money (2) can be looked
1.4.
at in different ways: commercial, technical, financial
and monetary. The Commission wishes to regulate the

(1) OJ C 317, 15.10.1998, p. 7-12.

(2) In this context the term ‘electronic money’ denotes ‘soft-

ware money’ and ‘prepaid cards’ taken together.

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last two aspects — or rather has taken into account the
financial aspects while indirectly taking account of the
repercussions of the use of electronic money on currency
circulation — a subject for which the central banks have
sole responsibility.

The Commission takes the view that the issuing
1.5.
of electronic money must be regulated in its prudential
aspects: in other words, the issuers must be regarded as
financial bodies and as such subject to the first and
second Banking Directives — with, of course, the
necessary adjustments and exceptions to take account
of the special, restricted field of action of non-banking
bodies whose sole purpose is the issuing of electronic
money. Such bodies are described as ‘electronic money
institutions’; the Committee will use the abbreviation
‘EMIs’ for these.

2. Preliminary comments

2.1.
The Committee endorses the Commission initiat-
ive: the market — i.e. all operators and consumers —
must be protected against schemes which escape the
control of the authorities entrusted by the law of each
Member State with the task of ensuring that the financial
system is sound. The Committee therefore agrees with
extending the standards of the Banking Directives to
EMIs; however, it must express certain basic reser-
vations, which concern not so much the proposed
directives as such, as the consequences which would arise
from their ‘minimilist’ application. These consequences
may not be obvious at first sight, but precisely for this
reason every individual standard must be carefully
weighed in the light of its impact in fields other than
that of prudential supervision.

2.2. One basic reservation concerns the directive’s
approach, which is based on a rather mild form of
prudential supervision, which does not take account of
the requirements of supervision in the broad sense. This
statement requires clarification: the issuing of electronic
money is first and foremost a monetary phenomenon: it
does not create money but replaces it — at least to the
extent that electronic money is issued by withdrawing
cash or withdrawal from an account without credit
being granted. With the introduction of the single
currency, supervision of monetary flows will become
the responsibility of a central institution — the European
Central Bank — while prudential supervision will
remain the responsibility of the individual national
authorities. There is therefore an inevitable separation
of responsibilities and roles, which will be difficult
to overcome — should the proposed directives be
implemented in their current form — through the
planned cooperation between the European monetary
authority and the national prudential supervision auth-
orities.

systems, which come under the control and responsibility
of the monetary authorities. Such systems are commonly
regarded as a public interest function. The interoperabi-
lity of electronic money schemes — an essential precon-
dition for their efficiency in serving the internal market
and especially electronic commerce — requires the
issuers to take part in clearing and settlement systems.
Admission to such systems is subject to extremely rigid
rules, dictated by the need to forestall systemic risks: a
glance at these rules reveals that it would be very difficult
for EMIs meeting the minimalist requirements of this
draft directive to meet the criteria required for access to
the payment systems. It is true that participation in
settlement is possible through authorized intermediaries,
but this does not dispense with the need for rigorous
supervision of all those participating in the system.
Moreover, the supervision must be as far as possible of
a uniform level, given that the electronic money created
in one country of the Union is free to circulate in the
other countries.

2.4.
Another basic reservation concerns the concept
of electronic money: this definition lumps together two
products with some characteristics in common, but
which are essentially different in terms of the techniques
and technologies used, but above all in terms of their
purposes and implications for the market.

The common characteristics (1) are the possibility
2.5.
of use without authorization from a bank or other third
party, and anonymity in use: once a bank deposit or a
sum of cash has been transformed into electronic money,
the latter can circulate under the control of its owner
alone, and be transferred to others without its origin
being in principle, traceable. These characteristics make
it an ideal vehicle for money laundering or other illicit
purposes. The Commission notes this danger but seems
almost to underestimate it, warning in the explanatory
memorandum — in parenthesis — that the ‘Money
Laundering Directive will, of course, apply to electronic
money institutions’ (2). The ESC takes the view that the
possibility of electronic money being used for criminal
purposes is one of the major causes of concern, and that
regulations in this field must aim throughout to defend
society against this danger.

The difference in the purposes is that — in
2.6.
principle — software money can be used to transfer
sums of any amount: from a few cents of a euro or a
dollar for the use of an Internet page up to potentially
unlimited figures for commercial, financial or any other

Another obvious deficiency of the directive is
2.3.
that no account has been taken of its impact on payment

(1) COM(1998) 461 final, Explanatory Memorandum, ‘What

is electronic money?’.

(2) Article 2.1 of draft directive 98/0252 (COD).

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purposes. Prepaid cards, on the other hand, are ideal for
settling small transactions but are difficult to use for
any purpose other than those for which they were
designed. Software money can therefore be used indis-
criminately by large-scale operators or consumers, while
the prepaid card, on the other hand, can in principle
only be used by consumers. Bearing in mind the nature
of the money laundering operations and the size of
the amounts which can be transferred, prepaid cards
constitute a minimal risk (1); software money, on the
other hand, constitutes an ideal way of transferring
money anonymously and without controls (2).

2.7.
The Committee would stress most strongly that
this aspect would require clarification in terms of the
possibility of laundering of criminal money. Prepaid
cards are normally ‘loaded’ with relatively small
amounts: ECU 250 as a maximum limit, according
to the Commission (3), but more frequently around
ECU 150. In the case of cards issued by credit institutions,
loading takes place by withdrawal from a bank account;
under the directive under consideration, EMIs will be
able to issue cards in return for payment in cash. If the
amount loaded onto the cards remains within the
aforementioned limits, their use for money laundering
should not take on worrying proportions.

2.7.1.
Software money is a different matter. In prin-
ciple, with the few examples we have had so far, loading
takes place by transfer from a bank account which
in turn is funded by transfers checked according to
anti-moneylaundering standards (knowledge of
the
client, ascertaining the provenance of the funds, etc.).
There is therefore a ‘preventive filter’: the cash — which
is monitored — funds a named bank account before
becoming anonymous software money. In the case of
EMIs, the cash is transformed directly into anonymous
software money which can be transferred in real time to
any destination: a golden opportunity for criminals.
Even a superficial knowledge of the techniques used
(encryption of messages, ‘Chinese boxes’, etc.) is enough
to assess the risk. The ESC strongly recommends that
the Commission assess this aspect very carefully: even if
the anti-money laundering directive formally applies to
EMIs, it is extremely difficult to monitor its actual
implementation.

2.8.
The implications for the market are also different:
whereas at present pre-paid cards are not a matter for

(1) Even in this case, however, it is considerable that a large
number of small amounts deriving for example from
drug-selling on the street might converge on a ‘centralizing’
card, which could be used freely and anonymously.

(2) It is true that there are sophisticated ways of tracing the
itineraries of money transferred from one party to another,
but IT specialists are well aware that money launderers
can use equally sophisticated techniques and technology
to avoid any checks.

(3) COM(1998) 461 final, Explanatory Memorandum, ‘What

is electronic money?’, last paragraph.

concern in terms of risk, software money could be an
immediate, high potential risk for the market. The
question is far from being a trivial one, as will be shown
by the comments on the individual articles of the
directive.

2.9.
There is a further point to be made: prepaid
cards are used in small face to face payments; software
money is a payment instrument for distance sales, in
principle for any amount. They are two different
products, which cannot really be covered by a single set
of rules, at least in terms of standards relating to issuers.

inter-
Another basic reservation concerns
2.10.
national aspects. In the explanatory memorandum, the
Commission points out that in other countries (e.g.
USA) EMIs are not regulated and that in others (e.g.
Japan) the option to do so is currently being examined;
but it does not draw conclusions — let alone lay down
rules — on the recognition of third countries’ EMIs
which are not regulated or monitored but which could
operate on the territory of the European Union. The
second Banking Directive — which is extended to the
EMIs — lays down rules for the freedom of establishment
of credit institutions of third countries registered and
controlled in their countries of origin (4). Moreover, the
issuing of electronic money constitutes provision of
services without establishment and this is confirmed by
the present proposed directive on EMIs (Article 2.4)
which expressly lays down that ‘funds received in
exchange for electronic money shall not be regarded as
deposits’. Article 3 of the second Banking Directive,
which forbids persons or bodies which are not credit
institutions to collect deposits, is therefore not applicable
here.

2.11.
If the provisions cited in the previous point
were together interpreted to the letter, the issuing of
electronic money by third country bodies which are not
registered as credit institutions and not regulated would
amount to provision of financial services by unauthor-
ized intermediaries. However, the ESC takes the view
that such a conclusion would be difficult to apply in
practice, given the characteristics of electronic money.
Indeed, it would not seem to be possible to control and
prevent the use of electronic money (software money)
from an issuer in a third country by a European
beneficiary, or the offering of a software money service
by an American issuer to European customers.

2.12.
There are therefore objective difficulties in
identifying the means whereby supervisory authorities
could prevent a third country operator from offering
on-line financial services in EU territory; the existing

(4) Article 8 of Directive 89/646, OJ L 386, 30.12.1989.

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standards are clear, but infringement is likely to go
beyond mere breaking of the rules on the free provision
of services: indeed, it could create monetary flows which
are out of control. The Committee does not suggest
solutions; it confines itself to drawing attention to this
far from negligible aspect.

and costly to apply and even more problematic to
operate; in the absence of alternative solutions, the
recommendation in the previous point takes on even
more weight.

2.13.
Finally, the Committee is somewhat concerned
about the consequences which excessively ‘minimalist’
legislation would have on consumer protection. The
checks to be carried out on EMIs are designed to prevent
a situation where they find it difficult or impossible to
meet their commitments; the principle is, of course,
valid for all credit institutions, and extending it to EMIs
is entirely acceptable. However, despite the checks,
experience shows that accidents are always possible; in
such an eventuality consumers are not protected against
the loss of their funds, given that electronic money is
not regarded as a ‘deposit’ and is therefore not covered
by deposit guarantee funds. A justifiable objection
would be that the small amounts involved with prepaid
cards mean that such protection is not essential; but this
would not be justified in the case of ‘software money’
which could involve much higher amounts.

2.14.
The main problem, however, concerns the
aspect of general protection of the market, and more
particularly of electronic money creditors, following the
sale of goods or services. If an EMI became insolvent,
such creditors would not be able to enforce payment of
the sums due to them. Even if the amount due to each
individual creditor was not very substantial, the total of
the commitments in relation to the market as a whole
could be such as to involve a systemic risk in the payment
systems and in the market itself. This consideration
becomes particularly important in view of the fact that
the bulk of the creditors are small and medium-sized
enterprises in the commercial,
tourism or services
sectors. Let us not be deluded by today’s relatively
modest figures: if it is true that, in the Commission’s
words, ‘pre-paid cards ... have the potential to replace a
substantial part of cash payments’ and that software
money ‘is emerging as the payment instrument for the
growing electronic commerce on the Internet’ (1), the
sums involved could become gigantic. Hence the need
for strict, continuous and thorough checks on operators,
both when they begin their activity and above all in the
course of the activity; these are conditions which, in the
Committee’s view, are essential, and which have not
been satisfactorily met in the draft directive.

2.15.
A guarantee fund for electronic money, designed
to safeguard owners and beneficiaries in the event of
bankruptcy of the issuer, would probably be difficult

3. Specific comments on the Proposal for a Directive
on the taking up, the pursuit and the prudential
supervision of the business of electronic money
institutions (2)

3.1. Article 1: Scope, definitions and restriction of

activities

The concept of ‘electronic money’, as defined
3.1.1.
in point 3(b) of this article, seems unsatisfactory since
the single term covers two products which should instead
be kept distinct, as suggested in the earlier points of this
opinion (2.2-2.7): the definitions given under 3(b)(iii)
(electronic surrogate for coins and banknotes) and
3(b)(iv) (suitable for electronic transfers of limited value)
are suitable for prepaid cards, but not entirely — and
not in all cases — for software money.

3.1.2.
Turning in particular to point 3(b)(iv), the
Committee notes that the expression ‘limited value
payments’ is too vague and therefore unacceptable in a
directive which requires clarity. The Commission’s
interpretation of the concept of ‘limited value payments’,
is unclear, and lends itself to different interpretations in
the Member States. Moreover, no article of the draft
directive imposes value limits on electronic money: an
omission which in the Committee’s view, nullifies — or
at any rate renders illogical — the limitation implied in
the Commission definition (see also points 3.7, 3.7.1 and
3.7.2 below).

The most serious reservations concern the
3.1.3.
quality of the EMIs which, under the provisions of 3(a)
and 3(b)(i) of Article 1 can issue electronic money of
any type. As shown above software money can constitute
a much larger phenomenon — with much more serious
implications — than the issuing of pre-paid cards. The
Directive should make a clear separation between the
two activities, by making issues of software money
subject to much more rigorous provisions than those
laid down at present.

3.2. Article 2: Application of Banking Directives

3.2.1.
A list of extensions, exceptions and exclusions
of the obligations of EMIs with regard to prudential
controls imposed by the various banking directives cited
in points 1, 2 and 3 of this Article runs the risk of giving
rise to over-technical discussions which would require
a long and complicated investigation comprehensible
only to specialists. After a summary — and of course

(1) COM(1998) 461 final.

(2) 98/0252 (COD).

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also technical — examination of the subject as a whole,
the Committee expresses the view that EMIs are subject
to sound administrative and asset-management require-
ments in theory rather than in practice. The more
detailed comments on Article 5 (points 3.5.1 and 3.5.2
below) also apply to this article: even if different
authorities apply stricter rules, it is already clear that
others will not be prepared to follow them in this
respect.

3.2.2.
The last paragraph of this article sketches out
the possibility that unused amounts of electronic money
may be non-redeemable under a contract and therefore
in practice collected by the issuer. The Committee
totally disagrees on this point: on the contrary, the
reimbursement of unused amounts must always be
expressly laid down. It is not just a matter of elementary
recognition of consumer rights;
in law, failure to
reimburse would certainly constitute misappropriation
of funds (1). Nor does the principle of contractual
freedom apply — since the issuing of electronic money
is the result of an acceptance contract, any clause
providing an inappropriate advantage for the seller
would be regarded as unlawful under the directives on
consumer protection.

To imply a reimbursement obligation would
3.2.3.
have cast doubt on the tenuous proposition — main-
tained in the first part of the paragraph in question —
that the issuing of electronic money does not constitute
collection of deposits within the meaning of Article 3 of
Directive 89/646/EEC (2). The Committee does not
wish to go into the merits of this rather arbitrary
interpretation, but it cannot accept that it should be
defended at the expense of the consumer. It therefore
suggests that their interests be safeguarded by means
of a ‘restitution’ of unused amounts rather than a
‘reimbursement’.

To sum up, on the one hand it is not clear why
3.2.4.
a prudential supervision directive should include a
standard relating to the contractual aspects between
issuer and bearer; on the other hand, if this standard is
to be retained, it should lay down exactly the opposite:
amounts collected but not used must always be
refundable.

3.3. Article 3: Initial capital and ongoing own funds

requirements

3.3.1.
This Article lays down that the initial capital
of an EMI shall be no less than ECU 500 000 and that

at all times its own funds shall be not less than 2 % of
the financial liabilities (for credit institutions the figure
is 8 %). The Committee has serious doubts about the
soundness of these limits, particularly as regards initial
capital: an amount of ECU (euro) half a million is
certainly not enough to begin a proper activity, however
limited its scope. Bearing in mind that the proportion of
2 % of the sums collected must be constantly maintained,
one cannot help wondering — if the operations succeed
— whether and how a firm of such limited size could
find the necessary capital straight away.

3.3.2.
Taking account of the substantial differences
between pre-paid card issuers and software money
issuers, the Committee suggests that the limits be raised
to ECU (euro) 1 million and 3 % for the former and to
at least ECU (euro) 3 million and 6 % for the latter. The
Commission’s wish to facilitate access to new activities
by the largest possible number of new participants is
understandable, but this result cannot and must not
be achieved through a weakening of the prudential
standards which — as we do well to remember — are
meant to protect the market.

3.4. Article 4: Limitations of investments

3.4.1.
Point 1 of this Article lays down the types of
investments which EMIs can hold in order to derive an
income from the sums collected. Since they are not
regarded as credit institutions which invest such sums
in financing, and bearing in mind the special type of
activities of EMIs, the basic idea is that the investments
are at ‘0 credit risk’ and/or highly liquid (sight deposits
or bills of exchange). This idea seems to be respected,
with the exception of point 1(b)(iv) which is worded in
such a way that its seems to allow investments in credit
instruments issued by any firm not linked with the EMIs.
Not all bills of exchange are secure and liquid. The
Committee is reluctant to believe that the standard is so
extensive: it therefore suggests that this point be worded
in a more precise and restrictive way.

(1) This applies in the Committee’s view to single use cards
(e.g. telephone cards) which exclude reimbursement; in
any case such cards are not covered by the Directive
under consideration. However, given the volume of funds
collected in this way, the attention of consumer associations
is drawn to the question.

(2) Text of the Article: ‘The Member States shall prohibit
persons or undertakings that are not credit institutions
from carrying on the business of taking deposits or other
repayable funds from the public.’.

3.4.2.
The rest of the Article does not call for specific
comments. However the Committee would draw the
Commission’s attention to point 6, which obliges the
competent authorities to take action ‘promptly’ if the
value of the investments falls below the amount of the
financial liabilities. It is not clear how the authorities
can become aware of a critical situation when Article 5
lays down that verification of EMIs’ compliance with
the rules shall be carried out by the same authorities on
the basis of data provided ‘not less than’ twice a year.

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3.5. Article 5: Verification by competent authorities

— compliance with the standards laid down by the first

and second Banking Directives.

3.5.1.
This Article contains the inconsistency men-
tioned in point 3.4.2 above, which would seem to apply
an unacceptable concept of prudential control. Indeed,
the provision for notification every six months under-
estimates the need for constant control of firms which
by their very nature must be highly liquid and solvent
at any time. It is true that in practice the prudential
authorities of certain countries will lay down stricter
rules which are consistent with healthy supervision
principles; but this does not remove the risk of adoption
of ‘minimalist’ rules in other countries, which would
create distortions of competition between EMIs in
different countries. Such a risk is very high, given that
initially some countries have expressed opposition to a
directive on the subject: if obliged to accept one, they
will adopt it in its ‘lighter’ form.

The Committee is not certain that all the
3.5.2.
competent authorities will adopt on their own initiative
a policy of strict control, following the situation of each
EMI at brief intervals enabling timely action, as is
already the rule for all credit institutions. Article 5
should therefore oblige the national authorities to
subject the EMIs to the same controls — with the same
frequency — as those which apply to other financial
institutions.

3.6. Article 6: Sound and prudent operation

3.6.1.
This Article is based on the provisions of the
second Banking Directive, with the changes required by
the special nature of EMI operations. The Committee
has no special comments to make on this.

3.7. Article 7: Waiver

3.7.1.
Article 7.1 exempts EMIs whose activity is
purely ‘national’ from a number of provisions if they (a)
have a total amount of financial liabilities (amount
collected and not used) normally not exceeding
ECU 10 million and never exceeding ECU 12 million,
and (b) issue electronic money up to a maximum
chargeable value of ECU 150 for each user:

3.7.2.
These rules are obviously dictated by the
intention to exempt ‘small’ local initiatives from obli-
gations which could be too onerous; however, their
consequences could go beyond those foreseen by the
Commission. In practice, EMIs which are of ‘negligible’
size (but are funds collected to an amount of ECU (euro)
10 million really negligible?) are free from obligations
and — to a large extent — from controls. Such a liberal
measure would certainly encourage the creation of small,
local schemes, but the question arises of what benefit
there would be for the market: on the one hand it would
be impossible to control developments, and on the
other it would become difficult to prevent abuses and
bankruptcies — the latter being possible in view of the
ease of access even for very small scale or rather amateur
initiatives.

3.7.3.
In this context, the Committee would point
out that the Commission has repeatedly recommended
that payment systems should be interoperable — a
condition which is essential to consumers but cannot be
achieved with small-scale systems.

3.7.4.
The issuing of electronic money is certainly a
far from negligible phenomenon. The Commission
acknowledges this at the beginning of its Explanatory
Memorandum, where it notes that prepaid cards used
as an electronic purse ‘have the potential to replace a
substantial part of cash payments over the long term’.
The Committee therefore wonders whether the exemp-
tion provided for by this Article is consistent with the
content of the ‘monetary policy’ section of the said
memorandum which states, inter alia, that ‘due account
must be taken of the potential implications of e-money
issuance for the conduct of monetary policy’. All aspects
of the question — even apparently marginal aspects —
should therefore be kept in view.

3.7.5.
In this context, it should be borne in mind that
existing initiatives by sports clubs and similar bodies
use the collection of funds (however this may be
described) as a convenient and profitable source of
liquidity: the possibility of acting in full liberty without
controls and above all without the financial activities
being separated from the ‘other’ activities involves high
risks for consumers and for the market.

— the obligation under Article 1(4) of this directive
to keep financial activities separate from other
activities;

3.7.6.
exemptions provided for under Article 7(1)(b).

In short, the Committee resolutely opposes the

— the need — laid down in Article 3(1) — for initial

capital of no less than ECU 500 000;

— the obligation to register under certain conditions,

in accordance with Article 8;

3.7.7.
The following observation is appropriate here:
for electronic money (clearly one has the prepaid card
in mind) exemptions are provided if the maximum
storage value is ECU (euro) 150; one should therefore
conclude that the directive is not intended to lay down

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an obligatory maximum limit for the storage amount in
electronic money instruments, and in particular on
prepaid cards. A limit should however be fixed as a
necessary measure for consumer protection.

3.7.7.1.
A prepaid card is by its very nature ‘anony-
mous’, as stated by the Commission (1); if it is lost (or
stolen), the effects are the same as for the loss of cash
— it is lost for ever. It is necessary to avoid the consumer
being supplied with a payment instrument which, if lost,
could cause serious losses to that consumer; hence the
need to contain the loss within normally tolerable limits.
The Commission defined a tolerable loss at an earlier
stage:
in the Recommendation on the relationship
between issuers and payment card carriers (2) it was laid
down that in the event of loss or theft of the card the
consumer could be liable — only in certain cases — up
to a maximum limit of ECU 150.

3.7.7.2.
Following the same logic and approach, the
Commission cannot avoid the obligation to lay down
the same maximum limit of ECU 150 for prepaid cards,
which in the event of loss carry higher potential risks
than credit or debit cards. Moreover, if the prepaid card
has to serve for ‘small’ payments (see point 3.1.2 above),
why issue cards of a high and potential unlimited value?
The ESC proposes then that the maximum limit of ECU
(euro) 150 be laid down explicitly in the directive;
software money, which presents quite different features,
should not be subject to limitations.

3.8. Article 8: Grandfathering

3.8.1.
By analogy with the second Banking Directive,
EMIs already operating before the entry into force of
national rules to implement the directive will be regarded
as authorized. The Committee has no objection but
recommends that careful attention be paid to schemes
which come into operation between now and 31 Decem-
ber 1999 (the date laid down by Article 9 for the entry
into force of the national provisions necessary to comply

(1) COM(1998) 461 final — Explanatory Memorandum,
‘What is electronic money?’, penultimate paragraph.
(2) COM(97) 353 final of 9.7.1997 and ESC Opinion in OJ

C 95, 30.3.1998.

Brussels, 27 January 1999.

with the directive). In order to avoid the hurried creation
of such schemes to take advantage of the Community
‘legislative vacuum’ it would perhaps have been prefer-
able for ‘grandfathering’ to be confined to bodies existing
on a previous date, such as 31 July 1998.

4. Specific comments on the proposal to amend Direc-

tive 77/780/EEC (3)

4.1.
The Committee has no special comments to
make on the draft directive, which is the logical follow-up
to the preceding one: it includes EMIs among the ‘credit
institutions’ covered by the first and second Banking
Directives.

4.2. However, there appears to be an inconsistency
in Article 3. The directive is to enter into force 20 days
after the date of publication in the Official Journal,
whereas the directive on prudential supervision of EMIs
lays down (Article 8) that it shall be adopted by the
Member States by 31 December 1999. The result would
be that between the date of entry into force of this
directive and 31 December 1999 there would be ‘credit
institutions’ (EMIs) which are not regulated by European
rules, unlike other ‘credit institutions’ (banks) which are
already so regulated.

5. Conclusions

5.1.
The Committee, which represents the social
partners, notes that in drawing up this directive the
Commission has based its approach mainly on opening
up the markets in a climate of maximum competition
involving as little regulation as possible. The Committee
agrees with this and takes note of it, but at the same
time feels duty-bound to point out that too little attention
has been devoted to the effects of applying the directive in
other fields, some of which fall outside the Commission’s
remit (monetary impact) or are not relevant in a
the
prudential supervision directive (protection of
„market (consumers and user firms) and the need to
defend society against organized crime). In these respects
the directive appears to need careful revision.

(3) 98/0253 (COD).

The President

of the Economic and Social Committee

Beatrice RANGONI MACHIAVELLI