European Commission confirms narrower scope of e-money acceptance under EMD2

What was the question?

The question was:

• whether the wording “accepted by a natural or legal person other than the electronic money issuer” in the definition of e-money in Article 2(2) of EMD2 implies that a third party payee must become the holder of the e-money and thus that there must be a direct contractual arrangement between the e-money issuer and all payees (obligating the payees to accept the issued e-money as a means of payment and granting the payees a right of redemption of the e-money); or
• whether the criterion that a third party must “accept the electronically stored monetary value” could be considered to be met where a third party payee accepts a customer’s payment with a card that is backed by the customer’s e-money, regardless of the fact that the payee will not become a holder of the issued e-money.

How did the European Commission respond?

The Commission referred with approval to the Court of Justice of the European Union’s (ECJ) findings in Case C-661/22 that:

• e-money is a monetary asset separate from the funds received by the e-money issuer on its redemption;
• the creation of that separate monetary asset requires not only the reception of funds by the issuer, but also the consent of the user for the issuance of e-money, represented by a contractual agreement between the user and the issuer; and
• there is no issuance of e-money in cases where there is no conversion of funds received into ‘electronically, including magnetically, stored money which could be used by a network of customers who would accept it voluntarily’.

Given the above, the Commission stated that:

• the acceptance of e-money by someone other than the e-money issuer – in accordance with the definition of e-money in Article 2(2) of EMD2 - requires the transferability and voluntary acceptance of e-money as a separate monetary asset; and
• the mere reception by the payee of funds (‘scriptural money’) resulting from the redemption of that e-money does not meet the acceptance criterion.

The Commission further reasoned that Recital 18 of EMD2 provides that “electronic money needs to be redeemable to preserve the confidence of the electronic money holder”, thereby classifying redeemability as ‘an intrinsic feature of electronic money’. It also pointed to Article 11, which provides both:

• that the conditions of redemption should be stated in the contract between the e-money issuer and the e-money holder (Article 11(3)); and
• that the redemption rights of a person, other than a consumer, who accepts e-money shall be subject to the contractual agreement between the issuer and that person (Article 11(7)),

meaning that where the person who accepts e-money becomes a holder of e-money, a contractual arrangement between that person and the e-money issuer is required.

For more on the ECJ’s decision in Case C-661/22, take a look at our article ‘Payment services versus e-money issuance: Court of Justice of EU clarifies regulatory border’.

What does this mean?

Impacted firms will need to be thinking about revisiting current business models and contractual arrangements in light of this newly issued guidance.

If you have any questions arising from this article, please get in touch with any of the listed people or your usual Hogan Lovells contact. 

Authored by Eimear O’Brien, Charles-Henri Bernard and Virginia Montgomery.