Italian implementation of European Directive No. 2009/110/EC offers new business opportunities for electronic money institutions
- September 10, 12
On April 28, 2012 Italy officially published Legislative Decree No. 45. The Decree, enacted on April 16, 2012, implements European Directive No. 2009/110/EC (“ELMI 2”), which amends prior EU legislation on electronic money.
ELMI 2 creates an improved legal framework designed to strengthen the internal market while ensuring adequate supervision and a level playing field for providers of payment services.
The first step towards this end was taken with Directive on Payment Services No. 2007/64/CE (“PSD Directive”), implemented in Italy through Legislative Decree No. 11 on January 27, 2010. The PSD Directive provided the legal foundation for the creation of an EU-wide single market for payments and introduced the innovative “payment institution,” an intermediary authorized along with banks and electronic money institutions to provide payment services throughout the European Union.
Besides implementing ELMI 2, the Decree amends Italian Legislative Decree No. 385 (September 1, 1993), thereby adjusting the regulation of electronic money institutions to the legal framework of payment institutions. It establishes uniformity across all categories of payment service providers in order to remove entry barriers to the payment services market and to stimulate new electronic money issuing activities.
The Decree provides a broader, more technically neutral, definition of “electronic money” that applies to all electronic monetary instruments. The Decree, through this broader definition, promotes technological innovation, covering not only all electronic money products available in the market today, but also those that could be developed on new platforms in the future.
Under the Italian Decree implementing EMLI 2, ”electronic money” means electronically (including magnetically) stored monetary value, as represented by a claim on the issuer, which is issued on receipt of funds for the purpose of making payment transactions and which is accepted for payment to third parties other than the electronic money issuer. According to the Decree, the following do not constitute electronic money: a) instruments that can be used to acquire goods or services only in the issuer’s or under a commercial agreement with the issuer either within a limited network of vendors or for a limited range of goods or services; and b) the monetary value used for the payment of transactions executed by means of any telecommunication device for the purchase of digital goods or services, provided that the telecommunication operator does not act only as an intermediary between the payment service user and the supplier of the goods and services 1.
In addition, the Decree lists the following as electronic money issuers: banks, electronic money institutes duly authorized by the Italian National Bank and the European Central Bank, national central banks of member states, the Italian state and the other member states, regional or local authorities and Poste Italiane (the Italian national postal service), in compliance with specific regulations of each public entity2.
Furthermore, the Decree introduces new forms of consumer protections such as:
A mandatory ten-year statute of limitations on redemption rights. Under the Decree (article 114-ter, paragraph 1 of the Bank Code), the redemption rights for electronic money expire ten years after termination of the relationship with the service provider. This change was introduced in order to prevent banks and electronic money institutions from continuing the practice of terminating redemption rights 12 months after the expiration date of the instrument. Redemption may be requested by the customer at any time during the ten year period and must be made at full face value with no restriction on minimum payment amount.
Safeguarding of customers funds. In order to protect customer funds from third-party claims by creditors, electronic money institutions are required to keep electronic money holders’ funds separate from funds used by the institution for other business activities.
The Decree creates new opportunities for companies that do not currently provide financial, banking, or payment services as part of their core businesses to obtain authorization from the Italian central bank to become electronic money institutions. By becoming an electronic money issuer a company may be able to directly manage any transaction related to the payment of accounts and issue its own debit, credit, pre-paid, or fidelity cards.
Indeed, any company may conduct electronic money issuing, as long as funds, payment services, and other related activities are kept separate, and an individual within the company is appointed to supervise these activities. However, in order to ensure the financial reliability of a company’s electronic money issuing activities and to exercise effective control, the central bank of Italy may require creation of a new, separate corporate entity exclusively for the purpose of electronic money issuing.