ELM Electronic Money

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ELM 1

Application,
contents, purpose and general

ELM 1.1

Application

01/12/2004

ELM 1.1.1

ELM applies to every firm and every other person within a category listed in column (2) of the table in ELM 1.1.2 R and in accordance with column (3) of that table. ELM 1.1.3 R applies to an incoming EEA firm and an incoming Treaty firm instead of ELM 1.1.2 R.

27/04/2002

ELM 1.1.2

Application of different chapters of ELM (except for an incoming EEA firm or an incoming Treaty firm)

(1) Chapter

(2) Categories of person to which chapter applies

(3) Applicable rules and guidance

1 (Application, contents, purpose and general)

Every firm that wishes to issue e-money

ELM 1.3

An e-money firm

The whole chapter

A small e-money issuer and an applicant for a small e-money issuer certificate

The whole chapter except ELM 1.5

2 (Initial and continuing own funds requirements)

An ELMI that is not a lead regulated firm

The whole chapter

3 (Management of the e-money float)

An ELMI that is not a lead regulated firm

The whole chapter

4 (Limitations on activities)

An ELMI

The whole chapter

An e-money firm that is not an ELMI

The whole chapter except ELM 4.3

5 (Systems and controls; Rules for making calculations)(Note 1)

An ELMI

The whole chapter

An e-money firm that is not an ELMI

ELM 5.1, ELM 5.2 and ELM 5.4

6 (Redemption, information requirements and purse limits)

An e-money firm

The whole chapter

7 (Consolidated financial supervision)

An ELMI that is a member of a group and is not a lead regulated firm

The whole chapter

8 (Small e-money issuers)

An applicant for a small e-money issuer certificate and a small e-money issuer

The whole chapter

Note 1 = ELM 5.1.2 R and ELM 5.1.3 R contain further application statements with respect to ELM 5.4A.

01/01/2007
Past version of ELM 1.1.2 before 01/01/2007

Incoming EEA firms and incoming Treaty firms

ELM 1.1.3

(1) ELM 1 applies to an e-money firm that is:

(a) an incoming EEA firm; or
(b) an incoming Treaty firm;

if it has not established a branch in the United Kingdom. Otherwise ELM does not apply to such firms.
(2) ELM 1 and ELM 6 apply to an e-money firm that is:

(a) an incoming EEA firm; or
(b) an incoming Treaty firm;

if it has established a branch in the United Kingdom. Otherwise ELM does not apply to such firms.

27/04/2002

Firms established outside the EEA

ELM 1.1.4

The definition of ELMI covers firms that are established outside the EEA. Thus all those parts of ELM that apply to ELMIs apply to such firms. However if the ELMI is a lead regulated firm, chapters 2, 3 and 7 of ELM do not apply.

27/04/2002

Distance marketing activities

ELM 1.1.5

(1) ELM 1.4A sets out certain minimum requirements under the Distance Marketing Directive in respect of a customer's cancellation rights. These rules are supplemented by the requirements in COB 6.7.47 R (Exercising the right to cancel); COB 6.7.47 R (Cancellation notices served out of time) and to (Effects of cancellation) which all apply to e-money firms.
(2) As set out in, COB 6.4.25R 'issuing deposits'

27/04/2002
Future version of ELM 1.1.5 after 01/11/2007

ELM 1.2

Contents and purpose

01/12/2004

ELM 1.2.1

This chapter sets out which parts of ELM apply to which persons. It also explains that the regulated activity of issuing e-money is restricted to banks, building societies and ELMIs. It also sets out which parts of the rest of the Handbook apply to ELMIs.

27/04/2002

ELM 1.2.2

Chapter 2 sets out rules and guidance on the capital adequacy of ELMIs. Chapter 3 sets out rules and guidance on the investment of the e-money float in high quality liquid assets. It also restricts the use by ELMIs of derivatives and quasi-derivative contracts. Chapter 4 sets out rules and guidance that restrict the business of ELMIs to activities closely related to issuing e-money. It also prohibits issuing e-money at a discount. Chapter 5 has rules and guidance on systems and controls and rules relevant to making calculations under the ELM financial rules. Chapter 6 has rules and guidance on redemption of e-money, the supply of information and purse limits. Chapter 7 has rules and guidance about the measure of capital adequacy by reference to an ELMI's membership of a group. Chapter 8 contains provisions relevant to small e-money issuers and applications for a small e-money issuer certificate.

27/04/2002

ELM 1.2.3

ELM implements the parts of the E-Money Directive and (for ELMIs) the Banking Consolidation Directive dealing with these topics. As from 1 January 2007 the version of the Banking Consolidation Directive in force when the E-Money Directive came into force (Directive 2000/12/EC) was replaced by the current version. The FSA's policy in implementing the parts of the Banking Consolidation Directive that apply to ELMIs is generally that the current version of the Banking Consolidation Directive applies except that generally:

(1) ELM does not implement provisions of the current version of the Banking Consolidation Directive that have no counterpart in the previous version; and
(2) where the E-Money Directive applied a part of the previous version of the Banking Consolidation Directive that does not have a direct counterpart in the current version, ELM continues to implement the previous version.

01/01/2007
Past version of ELM 1.2.3 before 01/01/2007

ELM 1.2.4

The rules and guidance in ELM will help the FSA to meet the regulatory objectives of protecting consumers and maintaining market confidence. They do so by setting standards about the backing of e-money issued by an ELMI with high quality liquid assets. They also do so by setting minimum capital and other risk management standards. This mitigates the risk that ELMIs will be unable to meet their liabilities and commitments to consumers. ELM also protects consumers by regulating the relationship between issuers of e-money and those who hold their e-money.

27/04/2002
Future version of ELM 1.2.4 after 06/08/2010

ELM 1.2.5

The requirements for ELMIs are intended to take account of the following principles, which are based on the recitals to the E-Money Directive.

(1) It is desirable to provide a regulatory framework that helps to ensure that e-money delivers its full potential benefits and that avoids hampering technological innovation. Therefore the regime provides a "technology neutral" regulatory framework.
(2) In order to respond to the specific risks associated with e-money, the supervisory regime is targeted specifically at issues relating to issuing e-money. As a result, parts of the prudential supervisory regime applying to banks do not apply to ELMIs.
(3) It is necessary to preserve a level playing field between ELMIs and banks and building societies issuing e-money and, thus, to ensure fair competition among a wider range of institutions to the benefit of holders of e-money. To assist in achieving this, the removal of some features of the prudential supervisory regime applying to banks and building societies is balanced by rules that are stricter than those applying to banks and building societies. The main example of these stricter requirements is the limits on the business activities that ELMIs may carry on and the requirements about asset-liability management of the e-money float. As the main prudential measures that apply to ELMIs are targeted specifically at the issue of e-money, it is necessary to restrict the business of ELMIs to that activity.

27/04/2002

ELM 1.3

Restriction on issuing e-money

01/12/2004

ELM 1.3.1

Article 1(4) of the E-Money Directive says that Member States shall prohibit persons or undertakings that are not credit institutions from carrying on the business of issuing electronic money. The purpose is to ensure that only persons who are subject to a prudential regime designed to deal with the risks of issuing e-money engage in that activity.

27/04/2002

ELM 1.3.2

For persons who are not firms, this is implemented by the general prohibition. For firms, this is achieved by the rules in ELM. The definition of ELMI covers any firm whose permitted activities include issuing e-money. Only a bank, building society, incoming Treaty firm and incoming EEA firm are excluded. If a firm falls into the definition of an ELMI, all the rules in ELM about ELMIs apply. These include ELM 4.3.1 R (Restriction on activities), which prevents an ELMI from doing anything except issuing e-money and certain related activities. Therefore if a firm (other than a building society) wishes to have a Part IV permission that includes issuing e-money, it will either have to become an ELMI, and accept the restrictions that come with that status, or become a bank.

27/04/2002

ELM 1.3.3

However, article 8 of the E-Money Directive says that EEA States may allow their competent authorities to waive the application of some or all of the provisions of that Directive and the application of the Banking Consolidation Directive to certain small or local e-money schemes. The regime for such schemes is described in ELM 8. Even though a small e-money issuer does not have a Part IV permission that includes issuing e-money, it does not infringe the general prohibition by issuing e-money.

27/04/2002

ELM 1.4

Meaning of e-money and application of financial promotion

01/12/2004

ELM 1.4.1

Guidance on the meaning of e-money and the applicability of the parts of the Act and the Handbook that apply to financial promotions can be found in PERG 3.

27/04/2002

ELM 1.4A

Distance contracts: cancellation

01/12/2004

Right to cancel

ELM 1.4A.1

A retail customer has a right to cancel a distance contract the making or performance of which by the firm constitutes, or is part of, issuing e-money unless:

(1) the performance of the distance contract has been fully completed by both parties at the customer's express request before the customer exercises his right to cancel; or
(2) the firm has an initial service agreement with the customer and the contract is in relation to a successive operation or separate operation of the same nature under that agreement (see COB 1.11.3 R

09/10/2004
Future version of ELM 1.4A.1 after 01/11/2007

Cancellation period

ELM 1.4A.2

The right to cancel referred to in ELM 1.4A.1 R starts on the later of:

(1) the day of the conclusion of the contract; and
(2) the day on which the retail customer receives the contractual terms and conditions and other information required by ELM 6.8 (Information); and lasts for 14 calendar days.

09/10/2004
Future version of ELM 1.4A.2 after 01/11/2007

Failure to give information on cancellation rights

ELM 1.4A.3

If a firm does not give a retail customer notice of his cancellation rights in accordance with ELM 6.8.2A R and COB 6.4.25R, the contract remains cancellable and the retail customer can cancel the agreement at any time.

09/10/2004
Future version of ELM 1.4A.3 after 01/11/2007

Exercising the right to cancel

ELM 1.4A.4

A retail customer may, without giving any reason, cancel the contract by serving notice upon the firm, before expiry of the relevant cancellation period, in accordance with the instructions for exercising that right provided to the customer in accordance with ELM 6.8.2A R and COB 6.4.25R.

09/10/2004
Future version of ELM 1.4A.4 after 01/11/2007

ELM 1.4A.5

The following rules also apply as if issuing e-money were accepting deposits: COB 6.7.47R (Record keeping); COB 6.7.48R (Cancellation notices served out of time) and COB 6.7.51R to COB 6.7.53R (Effects of cancellation).

ELM 1.5

Application of other parts of the Handbook to ELMIs

01/12/2004

ELM 1.5.1

The application of other parts of the rest of the Handbook to ELMIs is summarised in ELM 1.5.2 G. For the detailed application of each chapter, see the Application provision at the start of the chapter or section. ELM 1.5.2 G does not apply to an incoming EEA firm, incoming Treaty firm or small e-money issuer.

27/04/2002

ELM 1.5.2

Application of other parts of the Handbook to ELMIs

Block

Module

Application

High level standards

Principles for businesses (PRIN)

Applies to every ELMI. As explained in PRIN 1.1.3 G, the Principles apply with respect to regulated activities generally, but, in applying the Principles with respect to issuing e-money, the FSA will proceed only in a prudential context.

Threshold conditions (COND)

Applies to every ELMI. Threshold condition 1 says that a firm that wishes to issue e-money must be a body corporate or a partnership. (See COND 2.1 for more detail.)

Statements of principle and code of practice for approved persons (APER)

Applies to every approved person who performs a controlled function for an ELMI.

The fit and proper test for approved persons (FIT)

Applies in relation to the criteria that the FSA will consider when assessing the fitness and propriety of a candidate for a controlled function to be performed for an ELMI. It is also relevant in assessing the continuing fitness and propriety of approved persons carrying on such a controlled function.

Senior management arrangements, systems and controls (SYSC)

SYSC 1 (Application and purpose), SYSC 2 (Senior management arrangements), SYSC 3 (Systems and controls), SYSC 12.1 (Group risk systems and control requirement) and SYSC 18 (Guidance on Public Interest Disclosure Act: Whistleblowing) apply to every ELMI.

General provisions (GEN)

Applies to every ELMI.

Business Standards

Interim Prudential sourcebooks: IPRU(INS), IPRU(FSOC), IPRU(BANK), IPRU(BSOC) and IPRU(INV)

These sourcebooks do not apply to ELMIs.

Prudential sourcebook for Banks, Building Societies and Investment Firms (BIPRU)

ELM 7 (Consolidated financial supervision) applies BIPRU 8 (Group risk-consolidation) to certain ELMIs who are members of a group.

General Prudential sourcebook (GENPRU)

GENPRU 1.4 (Actions for damages), GENPRU 3.1 (Cross sector groups), GENPRU 3.2 (Third country groups), GENPRU 3 Ann 1R (Capital adequacy calculations for financial conglomerates), GENPRU 3 Ann 2R (Prudential rules for third country groups), GENPRU 3 Annex 3G (Financial conglomerates: Cooperative decision making by competent authorities and consultation) and GENPRU 3 Ann 4R (Classification of groups) apply to an ELMI.

Other sourcebooks in Prudential Standards (Block 2): Prudential sourcebook for Insurers (INSPRU), Prudential sourcebook for Mortgage and Home Finance Firms, and Insurance Intermediaries (MIPRU) and Prudential sourcebook for UCITS Firms (UPRU)

These sourcebooks do not apply to ELMIs.

Market Conduct (MAR)

MAR 1 (The Code of Market Conduct) applies if an ELMI is seeking guidance as to whether or not behaviour amounts to market abuse. MAR 2 (Price Stabilising Rules), MAR 3 (Inter-Professional Conduct) and MAR 4 (Endorsement of the Takeover Code) do not apply to an ELMI when issuing e-money. MAR 5 (Alternative Trading Systems) will not apply to an ELMI, as there are restrictions on the type of business activities that an ELMI may carry on.

Conduct of Business sourcebook (COB)

The effect of:
(1) ELM 6.8.2A R is that COB 2.6 (General provisions in relation to distance contracts) applies;
(2) ELM 1.4A.5 R is that COB 6.7.47R; COB 6.7.48R and COB 6.7.51R to COB 6.7.53R apply; and

(3) ELM 6.8.2A R is that COB 6.4.25 R (Entering into a distance contract for accepting deposits) applies in relation to distance contracts concluded with retail customers as if references to 'accepting deposits' and 'deposits' were references to 'issuing e-money' and 'e-money' respectively.
Otherwise, COB does not apply to an ELMI when issuing e-money. As explained in AUTH App 3 the rules in COB about financial promotions do not usually apply to e-money, but may do so in certain situations.

Insurance: Conduct of Business sourcebook (ICOB)

Does not apply to an ELMI when issuing e-money

Mortgages: Conduct of Business sourcebook (MCOB)

Does not apply to an ELMI when issuing e-money

Client Assets sourcebook (CASS)

Does not apply to an ELMI when issuing e-money.

Training and Competence Sourcebook (TC)

TC 1 (Commitments) applies to ELMIs. TC 2 (Rules and Guidance) applies to a firm whose employees carry on activities listed in TC 2.1.4 R. Those activities do not include issuing e-money.

Regulatory processes

Authorisation manual (AUTH)

Applies to every ELMI.

Supervision manual (SUP)

The following chapters of SUP apply to every ELMI: 1, 2, 3, 5, 6, 7, 8, 9, 10, 11, 13, 15, 16 and 20. The following chapters of SUP do not apply to an ELMI: 4, 12, 14, 17, 18 and 19.

Enforcement manual (ENF)

Applies to every ELMI.

Decision-making manual (DEC)

Applies to every ELMI.

Redress

Complaints (DISP)

Applies to every ELMI.

Compensation (COMP)

An ELMI is not a participant firm for the purposes of COMP in relation to issuing e-money. Under article 9J of the Regulated Activities Order, the compensation scheme is not to provide for the compensation of persons in respect of claims made in connection with issuing e-money.

Complaints against the FSA (COAF)

Applies to every ELMI.

Specialist sourcebooks other than ELM

Credit unions (CRED), Professional firms, (PROF), Collective Investment Schemes (CIS) or COLL) and Recognised Investment Exchanges and Recognised Clearing Houses (REC).

These sourcebooks do not apply to an ELMI.

E-Commerce Directive sourcebook (ECO)

Applies to every ELMI that carries on electronic commerce activities. Also applies to every ELMI in relation to a financial promotion which is an outgoing electronic commerce communication.

Listing, Prospectus and Disclosure

Listing Rules (LR)

May apply if the ELMI is applying for listing in the United Kingdom or is a listed issuer in the United Kingdom.

Prospectus Rules (PR)

May apply if the ELMI makes an offer of transferable securities to the public in the United Kingdom or is seeking the admission to trading of transferable securities on a regulated market situated or operating in the United Kingdom.

Disclosure Rules and Transparency Rules (DTR)

May apply if the ELMI is an issuer, any class of whose financial instruments have been admitted to trading on a regulated market, or are the subject of an application for admission to trading on a regulated market, other than issuers who have not requested or approved admission of their financial instruments to trading on a regulated market.

ELM 1.6

Actions for damages

01/12/2004

ELM 1.6.1

A contravention of the rules in ELM does not give rise to a right of action by a private person under section 150 of the Act (and each of those rules is specified under section 150(2) of the Act as a provision giving rise to no such right of action) unless ELM 1.6.2 R applies.

27/04/2002

ELM 1.6.2

ELM 1.6.1 R does not apply to the rules in ELM 6 (Redemption, information requirements and purse limits) or ELM 8 (Small e-money issuers).

27/04/2002

Export chapter as

ELM 2

Initial and continuing own funds requirements

ELM 2.1

Application

01/12/2004

ELM 2.1.1

The effect of ELM 1.1.1 R to ELM 1.1.3 R is that this chapter:

(1) applies to an ELMI other than a lead regulated firm;
(2) does not apply to:

(a) an incoming EEA firm; or
(b) an incoming Treaty firm.

27/04/2002

ELM 2.2

Purpose

01/12/2004

ELM 2.2.1

This chapter requires ELMIs to have a minimum amount of capital.

27/04/2002

ELM 2.2.2

In addition, threshold condition 4 says that the resources of the [firm] must, in the opinion of the [FSA], be adequate in relation to the regulated activities that he seeks to carry on, or carries on. Principle 4 also requires all firms 'to maintain adequate financial resources'.

27/04/2002

ELM 2.2.3

The purpose of the capital requirements in this chapter is to:

(1) help an ELMI to maintain itself as a viable going concern, to overcome expected and unexpected difficulties and to sustain its infrastructure;
(2) help an ELMI to secure, in conjunction with the asset-liability management requirements in ELM 3, its ability to redeem e-money whenever redemption may be required; and
(3) help to maintain public confidence in an ELMI's ability to redeem e-money as and when required.

27/04/2002

ELM 2.2.4

This chapter implements article 4 of the E-Money Directive.

27/04/2002

ELM 2.3

Base capital requirements

01/12/2004

ELM 2.3.1

A firm must:

(1) (at the time it is granted an e-money permission) have initial capital, calculated in accordance with ELM 2.4.2 R;
(2) (at all times) maintain own funds, calculated in accordance with ELM 2.4.2 R;
amounting to not less than:
(3) (if the firm's base currency is the euro) one million euro;
(4) (if the firm has another base currency) the equivalent amount in that currency.

27/04/2002

ELM 2.4

Calculation of initial capital and own funds

01/12/2004

ELM 2.4.1

Initial capital and own funds are calculated in accordance with ELM 2.4.2 R.

27/04/2002

ELM 2.4.2

Calculation of initial capital and own funds

the sum of:

ordinary share capital (see ELM 2.4.3 R)

share premium account (see ELM 2.4.3 R)

audited reserves excluding revaluation reserves (see ELM 2.4.4 R)

externally verified interim net profits (see ELM 2.4.6 R)

partnership capital (see ELM 2.4.7 R)

= initial capital:

(A)

the sum of:

investments in own shares

intangible assets (see ELM 2.4.9 R)

interim net losses (see ELM 2.4.10 R)

= deductions for calculating tier one capital:

(B)

tier one capital = A - B

(C)

the sum of:

subordinated debt forming part of upper tier 2 capital (see ELM 2.4.11 R and ELM 2.4.13 R)

revaluation reserves

= upper tier 2 capital

(D)

subordinated debt forming lower tier 2 capital (see ELM 2.4.11 R and ELM 2.4.12 R)

(E)

D + E = tier two capital

the total amount of material holdings in certain persons (see ELM 2.4.17 R)

(F)

C + D + E - F = own funds

01/01/2005
Past version of ELM 2.4.2 before 01/01/2005

Ordinary share capital

ELM 2.4.3

Ordinary share capital may only be included when making the calculations in ELM 2.4.2 R to the extent that it is paid up and permanent. In addition, there must be no fixed dividend and, if the shares carry a dividend, the terms of those shares must provide that a dividend payment can only be made if the firm's governing body has agreed that it should be made and must provide that the amount of the dividend payment cannot exceed the amount recommended or decided on by the firm's governing body. Accordingly, any dividends must be non-cumulative. Sums credited to a firm's share premium account are only included in its own funds if they are in respect of shares forming part of its own funds.

27/04/2002

Reserves

ELM 2.4.4

Audited reserves are audited accumulated profits retained by the firm after deduction of tax and dividends and other audited reserves created by similar realised appropriations. Reserves include gifts of capital.

27/04/2002

ELM 2.4.5

If a reserve in ELM 2.4.2 R is negative, it must be deducted at the relevant stage of the calculation in ELM 2.4.2 R.

27/04/2002

Net profits

ELM 2.4.6

Externally verified interim net profits are interim net profits that the firm's external auditor has verified. They are net of any foreseeable charge, proprietors' drawings, dividend or similar amount.

27/04/2002

Partnership capital

ELM 2.4.7

Partnership capital is made up of the partners' capital accounts. The capital account is an account:

(1) into which capital contributed by the partners is paid; and
(2) from which under the terms of the partnership agreement an amount representing capital may be withdrawn by a partner only if:

(a) he ceases to be a partner and an equal amount is transferred to another such account by his former partners or any person replacing him as their partner; or
(b) the partnership is otherwise dissolved or wound up.

If partnership capital is negative, it must be deducted.

27/04/2002

ELM 2.4.8

Partnership capital is eligible for inclusion in a firm's own funds only to the extent that it is permanent and that no obligation that cannot be cancelled without cost exists to pay costs on it (for example in the form of interest).

27/04/2002

Intangible assets

ELM 2.4.9

Intangible assets are the full balance sheet value of intangible assets including goodwill, capitalised development costs, licences and intellectual property.

27/04/2002

Losses

ELM 2.4.10

Interim net losses are any interim net losses (audited or unaudited).

27/04/2002

Subordinated debt capital: requirements for both upper and lower tier two capital

ELM 2.4.11

Subordinated debt capital does not form part of the own funds of a firm unless the following requirements are met:

(1) the claims of the subordinated creditors (whether in respect of principal, interest or otherwise) must rank behind those of all unsubordinated creditors of the firm and behind any unsubordinated creditors of any partner in it;
(2) the debt capital is unsecured and fully paid up;
(3) to the fullest extent permitted under the laws of all relevant jurisdictions, creditors must waive their right to set off amounts they owe the firm against the subordinated debt capital;
(4) the remedies (other than rights falling into (3)) available to the subordinated creditor in the event of non-payment, an event of default, breach of agreement or other default in respect of the subordinated debt capital (so far as applicable) must be limited to:

(a) bringing proceedings for the winding up, bankruptcy or administration of the firm (or any partner in the firm) or any similar or equivalent proceedings under the law of any part of the United Kingdom or of any other country; or
(b) proving for the debt and claiming in the liquidation of the firm or in any other proceedings referred to in (4)(a);

(5) neither the firm nor any partner in it may by virtue of any remedy mentioned in ELM 2.4.11 R (4) be obliged to pay any sum or sums sooner than the same is payable under ELM 2.4.12 R (1) (in the case of lower tier two capital) or ELM 2.4.13 R (1) (in the case of upper tier two capital);
(6) the terms of the subordinated debt capital must be set out in a written agreement or instrument that contains terms that provide for the conditions set out in:

(a) (1) to (5); and
(b) ELM 2.4.12 R (in the case of lower tier two capital) or ELM 2.4.13 R (in the case of upper tier two capital); and

(7) the firm has obtained a written legal opinion from a suitably experienced external lawyer confirming that the debt capital meets the requirements of:

(a) (1) to (6); and
(b) ELM 2.4.12 R (in the case of lower tier two capital) or ELM 2.4.13 R (in the case of upper tier two capital).

27/04/2002

Subordinated debt capital: additional requirements for lower tier two capital

ELM 2.4.12

Subordinated debt capital does not form part of the of the lower tier two capital of a firm unless the following requirements are met (in addition to those in ELM 2.4.11 R):

(1) (without limiting the requirements in ELM 2.4.11 R (1)) the subordinated debt capital must not be capable of becoming due and payable before any maturity date set under (2) except (if it is subject to any events of default) on an event of default complying with (3);
(2) (without limiting the requirements in ELM 2.4.11 R (1)) the subordinated debt capital must:

(a) have a fixed original maturity of at least five years; or
(b) be subject to notice of repayment of at least five years; or
(c) be perpetual; or
(d) be repayable only in a winding up of the firm or in any other proceedings referred to in ELM 2.4.11 R (4)(a);

(3) any events of default are limited to the winding-up of the firm or the bringing of any other proceedings referred to in ELM 2.4.11 R (4)(a); and
(4) any:

(a) events of default; or
(b) remedy referred to in ELM 2.4.11 R (3) or ELM 2.4.11 R (4); or
(c) provision for a final maturity date;

must not prejudice the subordination set out in (1) and ELM 2.4.11 R (1).

27/04/2002

Subordinated debt capital: additional requirements for upper tier two capital

ELM 2.4.13

Subordinated debt capital does not form part of a firm's upper tier two capital unless the following requirements are met (in addition to those in ELM 2.4.11 R):

(1) (without limiting the requirements in ELM 2.4.11 R (1)) the subordinated debt capital is perpetual or is only repayable in a winding up of the firm or in any similar proceedings relating to the firm or relating to the firm and any partner of the firm;
(2) no interest, principal or other amount may be payable:

(a) at a time when the firm is in breach of any ELM financial rule or is insolvent; or
(b) if making that payment would result in the firm breaching any ELM financial rule or becoming insolvent;

(3) the firm may defer the payment of any interest;
(4) the subordinated debt capital complies with the conditions in article 63(2)(d) of the Banking Consolidation Directive;
(5) the debt capital is not subject to any event of default; and
(6) any remedy referred to in ELM 2.4.11 R (3) or ELM 2.4.11 R (4) must not prejudice the subordination set out in (1) and ELM 2.4.11 R (1).

01/01/2007
Past version of ELM 2.4.13 before 01/01/2007

ELM 2.4.14

For the purposes of calculating the amount of subordinated debt capital which may be included in a firm's own funds as lower tier two capital in its final five years to maturity the principal amount must be amortised on a straight line basis by 20% per annum.

27/04/2002

ELM 2.4.15

A firm may treat subordinated debt capital that would be eligible to form part of its upper tier two capital as falling into stage E of the calculation in ELM 2.4.2 R rather than stage D.

27/04/2002

ELM 2.4.16

ELM 2.4.13 R (4) refers to article 63(2)(d) of the Banking Consolidation Directive. This article says that the documents governing the issue of the [subordinated debt capital] must provide for debt and unpaid interest to be such as to absorb losses, whilst leaving the [firm] in a position to continue trading. Compliance with the other conditions of ELM 2.4.11 R and ELM 2.4.13 R will usually ensure that a firm complies with article 63(2)(d). The debt capital may only be repayable on a winding up of the firm. This contrasts with the corresponding provisions for lower tier two capital subordinated debt, where repayment is allowed in a wider range of circumstances. For instance, upper tier two capital should not become repayable merely because the firm goes into administration. Even in a winding up, the debt capital may only be repaid if all other creditors have been repaid and the firm has enough assets left to repay the debt capital. If the firm does not have enough assets to repay it, the debt is never repayable.

01/01/2007
Past version of ELM 2.4.16 before 01/01/2007

Material holdings

ELM 2.4.17

(1) The total amount of a firm's material holdings as referred to at stage F of the calculation in the table in ELM 2.4.2 R is the sum of:

(a) the total value of all ownership shares and all capital coming within (6) owned by the firm (or in which it has a position) in any relevant financial services company or financial institution in which the firm owns more than 10% of the ownership shares;
(b) the amount by which the total amount specified in (3) exceeds 10% of the firm's own funds (calculated before the deduction of material holdings at stage F of the calculation in ELM 2.4.2 R);
(c) ownership shares in any:

(i) insurance undertaking; or
(ii) insurance holding company;
if it fulfils one of the following conditions:
(iii) it is a subsidiary undertaking of the firm; or
(iv) the firm holds a participation in it; and

(d) any item of capital of a type referred to in (6) in an insurance undertaking or insurance holding company coming within (1)(c).

(2) In the case of ownership shares in an issuer with a share premium account, the figure of 10% in (1)(a) must be calculated by reference to the share capital plus share premium of that issuer.
(3) The amount referred to in (1)(b) is the sum of the total value of all the ownership shares and all capital coming within (6) owned by the firm (or in which it has a position) in financial institutions or relevant financial services companies except for financial institutions or relevant financial services companies that fall into (1)(a).
(4) The firm must include ownership shares and any item of capital of the type referred to in (6):

(a) of which it is not the registered owner but which it owns beneficially; or
(b) that are or should be included as an asset in its accounting records.

(5) The value of ownership shares and capital coming within (6) for the purposes of ELM 2.4.17 R is the full balance sheet value.
(6) An item falls into this paragraph if it is a subordinated debt or other item of capital that:

(a) (in the case of an insurance undertaking or insurance holding company) falls into Article 16(3) of the First Non-Life Directive or, as applicable, Article 27(4) of the Consolidated Life Directive; or
(b) (in the case of a relevant financial services company or financial institution) falls into Article 63 or Article 64(3) of the Banking Consolidation Directive.

01/01/2007
Past version of ELM 2.4.17 before 01/01/2007

Limits on components of own funds

ELM 2.4.18

Any item that would otherwise form part of a firm's tier two capital must be excluded from the firm's own funds to the extent that the firm's tier two capital would otherwise exceed its tier one capital.

27/04/2002

ELM 2.4.19

Any item that would otherwise fall into stage E of the calculation in ELM 2.4.2 R must be excluded from own funds to the extent that the sum of items falling into that stage would exceed 50% of the amount calculated at stage C of the calculation in ELM 2.4.2 R.

27/04/2002

Adjustments to own funds

ELM 2.4.20

In accordance with article 61 of the Banking Consolidation Directive, tier one capital and revaluation reserves must not be included within a firm's own funds to the extent that those items do not represent capital that is available to the firm for unrestricted and immediate use to cover risks and losses as soon as these occur, whether because of taxation charges, any future foreseeable taxation charges or for any other reason.

01/01/2007
Past version of ELM 2.4.20 before 01/01/2007

Credit institutions and material holdings

ELM 2.4.21

Credit institutions are not included in ELM 2.4.17 R (1)(a) as ELM 4.3.9 R does not allow a firm to have any ownership shares in a credit institution.

27/04/2002

Exclusion from own funds

ELM 2.4.22

In accordance with article 64(4) of the Banking Consolidation Directive, the fair value reserves related to gains or losses on cash flow hedges of financial instruments measured at amortised cost or any gains or losses on their liabilities valued at fair value that are due to changes in the firm's own credit standing must not be included within a firm's own funds.

01/01/2007

ELM 2.4.23

ELM 2.4.22 R reflects article 64(4) of the Banking Consolidation Directive.

01/01/2007

ELM 2.5

Continuing capital requirement

01/12/2004

Obligation to meet own funds requirement

ELM 2.5.1

A firm must, at all times, maintain own funds equal to or in excess of its own funds requirement.

27/04/2002

Calculation of own funds requirement

ELM 2.5.2

A firm's own funds requirement is, at any time, 2% of the higher of the following amounts:

(1) its e-money outstandings at that time; and
(2) the average of its daily e-money outstandings amount for the six month period ending at that time.

27/04/2002

Newly authorised ELMI without a six month average

ELM 2.5.3

If a firm has not been an ELMI for the whole of the period referred to in ELM 2.5.2 R (2), the firm must calculate the amount in ELM 2.5.2 R (2) from the projected amounts of its daily e-money outstandings amount for the six month period beginning on the day it is granted an e-money permission. Those projections must be the ones contained in the business plan supplied by the firm to the FSA as part of its application for the granting an e-money permission or (if the plan is amended and resubmitted to the FSA before the granting an e-money permission) the plan as so amended and resubmitted.

27/04/2002

ELM 2.5.4

If, in relation to a firm:

(1) the projections referred to in ELM 2.5.3 R (or any further projections prepared under this rule) have proved to be significantly incorrect; or
(2) it is reasonably likely that those projections will prove to be significantly incorrect;

and more than one month of the six month period beginning on the date the firm is granted an e-money permission remains at the time that the circumstances in ELM 2.5.4 R (1) or ELM 2.5.4 R (2) first arise, the firm must prepare revised projections of its daily e-money outstandings amount for the rest of that period.

27/04/2002

ELM 2.5.5

The revised projections in ELM 2.5.4 R must:

(1) be prepared to a high standard and be fair and reasonable;
(2) be based on reasonable and appropriate assumptions and research and (where appropriate) fact; and
(3) be completed and sent to the FSA within ten business days of the circumstances in ELM 2.5.4 R (1) or ELM 2.5.4 R (2) first arising.

27/04/2002

ELM 2.5.6

If a firm produces new projections under ELM 2.5.4 R, the amount referred to in ELM 2.5.2 R (2) must be calculated from the average of its daily e-money outstandings amount for the six month period beginning on the day it is granted an e-money permission, as follows:

(1) (for the period prior to the day as of which the calculation is being made) from the firm's actual e-money outstandings; and
(2) (for the remainder of the six month period) from those new projections.

27/04/2002

ELM 2.5.7

The effect of the rules in SYSC 3 is that a firm should take reasonable care to establish and maintain systems and controls that ensure that the firm will know as soon as reasonably possible if the projections referred to in ELM 2.5.4 R (1) have proved to be significantly incorrect or if it is reasonably likely that those projections will prove to be significantly incorrect.

27/04/2002
Future version of ELM 2.5.7 after 01/04/2009

Export chapter as

ELM 3

Management of the e-money float

ELM 3.1

Application

01/12/2004

ELM 3.1.1

The effect of ELM 1.1.1 R to ELM 1.1.3 R is that this chapter:

(1) applies to an ELMI other than a lead regulated firm;
(2) does not apply to:

(a) an incoming EEA firm; or
(b) an incoming Treaty firm.

27/04/2002

ELM 3.2

Purpose

01/12/2004

ELM 3.2.1

The purpose of this chapter is to apply to ELMIs prudent limits on their investments aimed at helping to ensure that their financial liabilities related to outstanding e-money are backed at all times by sufficiently liquid low risk assets.

27/04/2002

ELM 3.2.2

This involves addressing credit risk, market risk, foreign exchange risk, large exposure risk and liquidity risk.

27/04/2002

ELM 3.2.3

In addition, threshold condition 4 says that 'The resources of the [firm] must, in the opinion of the [FSA], be adequate in relation to the regulated activities that he seeks to carry on, or carries on'. Principle 4 also requires all firms 'to maintain adequate financial resources'.

27/04/2002

ELM 3.2.4

Credit risk is incurred whenever a firm is exposed to loss if another party fails to perform its financial obligations to the firm. This includes issuer risk, which could potentially result in a firm losing the full price of its investments, since default by the issuer could result in their value falling to nil.

27/04/2002

ELM 3.2.5

Liquidity is the ability of a firm to meet its liabilities at the time they fall due. Adequate liquidity is vital to the continuing viability of a firm and to maintaining the stability of the financial system as a whole. If consumers could not rely on being able to redeem their e-money in full in a timely fashion, they would lose confidence in the sector.

27/04/2002

ELM 3.2.6

The purpose of the liquidity requirements of this chapter is to help to enable a firm to be able to do the following in particular:

(1) to meet maturing obligations in the normal course of business (business liquidity);
(2) to maintain an additional cushion of liquidity to cope with unexpected events such as the failure of a significant counterparty or debtor (contingent liquidity); and
(3) to survive in a wider market-generated crisis (market liquidity).

27/04/2002

ELM 3.2.7

Where the firm's exposure to its counterparty is large, it risks a large loss should the counterparty default. Such a loss may be enough on its own to threaten the solvency of the firm and its ability to redeem e-money when required to do so. The purpose of the large exposure requirements is to help to ensure that a firm manages and diversifies its exposures to counterparties relating to its e-money float within suitable limits related to its capital resources.

27/04/2002

ELM 3.2.8

The purpose of the foreign exchange risk requirements in this chapter is to help to ensure that the e-money float is not put at risk by foreign exchange exposures.

27/04/2002

ELM 3.2.9

This chapter implements article 5 of the E-Money Directive. Although article 2 of the E-Money Directive disapplies the large exposures section of the Banking Consolidation Directive, article 5(2) reapplies it in part.

27/04/2002

ELM 3.3

Asset-liability management

01/12/2004

ELM 3.3.1

A firm must, at all times, have qualifying liquid assets of a value no less than the amount of its e-money outstandings at that time.

27/04/2002

ELM 3.3.2

For the purpose of ELM 3.3.1 R, a firm's qualifying liquid assets must be valued at the lower of:

(1) cost;
(2) the amount that can reasonably be realised in money from that investment (within the time specified in ELM 3.3.11 R (2) or less) by redemption, realisation, sale, exchange or other disposal of that asset.

27/04/2002

ELM 3.3.3

Where an asset is marketable the value attributed to it under ELM 3.3.2 R (2) should normally be the quoted market price, except where there is reason to suggest that it could not realise the asset held in the quantity actually held at that price. If there is reason to suggest that the asset could not be realised at that price, the value attributed to it under ELM 3.3.2 R (2) should be the price at which it can be realised.

27/04/2002

ELM 3.3.4

In determining the value attributed to assets, the firm should take into account any difficulty it might have in realising value from any concentration of assets.

27/04/2002

Liquid assets

ELM 3.3.5

A qualifying liquid asset is an investment fulfilling all the following criteria:

(1) it is unsubordinated;
(2) it ranks at least equally with the unsubordinated, non-preferred and unsecured obligations of the person who owes the obligation under the qualifying liquid asset in question;
(3) it is:

(a) a zero weighted asset; or
(b) a deposit that is repayable on demand and is held with a Zone A credit institution; or
(c) a qualifying debt security; and

(4) either:

(a) it has a residual maturity of one year or less; or
(b) (in the case of an investment on which a floating rate of interest is payable) the interest rate will be redetermined no later than one year from the time in question.

27/04/2002

ELM 3.3.6

The total amount of investments that fall into (b) or (c) of ELM 3.3.5 R (3) that are included as qualifying liquid assets in the calculation in ELM 3.3.1 R must not exceed an amount equal to 20 times the firm's own funds at the time in question.

27/04/2002

ELM 3.3.7

ELM 3.3.6 R only applies to qualifying liquid assets held to comply with ELM 3.3.1 R. It does not prohibit holding qualifying liquid assets that fall into (b) and (c) of ELM 3.3.5 R (3) in excess of 20 times the firm's own funds. Instead, it requires that the firm should have sufficient zero weighted assets or own funds to ensure that the firm complies with the limit in ELM 3.3.6 R.

27/04/2002

ELM 3.3.8

A zero weighted asset is any of the following:

(1) cash;
(2) a security issued by and representing a claim on (or that is fully, directly and unconditionally guaranteed by):

(a) a central government or central bank of a Zone A country; or
(b) the European Communities; or
(c) the European Central Bank;

but only if it is sufficiently liquid.

27/04/2002
Future version of ELM 3.3.8 after 01/12/2009

ELM 3.3.9

A qualifying debt security means a debenture or government and public security (other than a zero weighted asset) that:

(1) is sufficiently liquid;
(2) is not issued by a controller of the firm or by a person in the same group as the firm; and
(3) satisfies the condition in ELM 3.3.10 R.

27/04/2002

ELM 3.3.10

The condition referred to in ELM 3.3.9 R is that either:

(1) the security is issued by and represents a claim on (or it is fully, directly and unconditionally guaranteed by):

(a) a multilateral development bank; or
(b) the regional or local government of a Zone A country; or
(c) a Zone A credit institution, but only if the security does not form part of its regulatory capital resources; or
(d) an ISD investment firm or recognised third country investment firm, but only if the shares of that person are listed on a recognised investment exchange or designated investment exchange; or

(2) the security:

(a) is listed on a recognised investment exchange or designated investment exchange; and
(b) is subject to a degree of default risk that, by virtue of the solvency of the issuer or guarantor (as the case may be) is no greater than what would be within the range of what is normal for a security falling into ELM 3.3.10 R (1).

27/04/2002
Future version of ELM 3.3.10 after 01/11/2007

Test for liquidity

ELM 3.3.11

Investments held by a firm are only sufficiently liquid if they satisfy all of the following requirements:

(1) the firm is without delay able to get quotations for the sale or purchase of the investments complying with the following conditions:

(a) the prices are for transactions that would fall into ELM 3.3.11 R (2) and ELM 3.3.11 R (3); and
(b) the firm gets the prices from persons who are not associates of the firm, who are independent of the firm and who are willing and able to buy and purchase those investments at the prices they quote;

(2) it is reasonable to conclude that, except in exceptional circumstances, the firm will be able to find a buyer for the investments and complete the sale, for money, within a time that is within the range of (or that is quicker than) what is normal for a sale falling into (5);
(3) it is reasonable to conclude that, except in exceptional circumstances, the price that the firm will be able to obtain for the sale of the investments will not be materially affected by either the speed of the sale or the amount of the investments sold;
(4) they are regularly traded;
(5) taking into account all other factors such as the volume of trading and the number of persons who frequently trade in them, their liquidity is at least as great as would be within the range of what is normal for government and public securities (being traded on the main market for those government and public securities) of the central government of a Zone A country that are widely and continuously traded in large volumes; and
(6) the firm can buy or sell the investments in a market in which:

(a) there is a timetable for the settlement of sales of those investments; and
(b) it is general market practice in that market to follow that timetable;

so that the settlement timetable for purchases of those investments is generally not a matter for negotiation.

27/04/2002

ELM 3.3.12

ELM 3.3.11 R (1) does not apply to a security listed on a recognised investment exchange or designated investment exchange.

27/04/2002

Establishment of the e-money float

ELM 3.3.13

A firm must choose which particular qualifying liquid assets to treat as the e-money float for the purposes of ELM. The firm must do so on a consistent basis. In particular, the firm must not treat a particular investment as part of its e-money float for the purposes of some of the rules in ELM and not for others.

27/04/2002

ELM 3.4

Foreign exchange risk

01/12/2004

ELM 3.4.1

A firm must, at all times, have sufficient own funds to ensure that its FX exposure does not exceed its absolute FX exposure limit.

27/04/2002

ELM 3.4.2

A firm must, at all times, have sufficient own funds to ensure that its FX exposure does not exceed its FX exposure limit on more than:

(1) one day in any one week period; or
(2) two days in any one month period; or
(3) five days in any one year period;

ending on the day in question.

27/04/2002

Calculation of FX exposure

ELM 3.4.3

A firm's FX exposure is its net FX open position multiplied by 8%.

27/04/2002

ELM 3.4.4

A firm's net FX open position is calculated as follows:

(1) only take into account an asset, liability or other position that:

(a) is denominated in, or gives rise to a position in, a foreign currency; and
(b) forms part of its e-money outstandings or e-money float;

(2) items forming part of its e-money float must be valued in accordance with ELM 3.3.2 R;
(3) for each foreign currency:

(a) sum the long and short positions;
(b) calculate the net long or short position for that currency;

(4) convert each net position, long and short, into the firm's base currency at prevailing spot rates;
(5) sum all short positions and sum all long positions;
(6) the largest figure from (5) is the firm's net FX open position.

27/04/2002

ELM 3.4.5

For the purposes of determining the currency in which a position is denominated, a firm must apply the following principles:

(1) where the price of an investment is quoted in only one currency, a position in that investment must be treated as denominated in that currency;
(2) where the price of an investment is quoted in more than one currency, a position in that investment must be treated as denominated in the currency in which the firm accounts for the investment.

27/04/2002

FX exposure limits

ELM 3.4.6

A firm's absolute FX exposure limit is, at any time, the amount by which, at that time, the firm's own funds exceed 2.5% of its e-money outstandings. If there is no such excess, the firm's absolute FX exposure limit is zero.

27/04/2002

ELM 3.4.7

A firm's FX exposure limit is, at any time, the amount by which, at that time, the firm's own funds exceed 3% of its e-money outstandings. If there is no such excess, the firm's FX exposure limit is zero.

27/04/2002

ELM 3.4.8

The effect of ELM 3.4.1 R and ELM 3.4.2 R is that a firm should not generally have any FX exposure unless its own funds exceed 3% of its e-money outstandings.

27/04/2002

ELM 3.4.9

If a firm's own funds are 2.5% or less of its e-money outstandings, the firm should not have any FX exposure.

27/04/2002

ELM 3.4.10

If the firm's own funds are between 2.5% and 3% of its e-money outstandings, it should not in general have any FX exposure, but may occasionally have an FX exposure as long as it does so no more frequently than set out in ELM 3.4.2 R. The FX exposure must not exceed the amount by which its own funds exceed 2.5% of its e-money outstandings.

27/04/2002

ELM 3.4.11

If the firm's own funds exceed 3% of its e-money outstandings, it may have an FX exposure of up to the amount of that excess. It may exceed that limit by up to ?% of its e-money outstandings, but only if it does so occasionally, in accordance with ELM 3.4.2 R.

27/04/2002

ELM 3.4.12

The limits in ELM 3.4.2 R are cumulative. Therefore, for example, if a firm exceeds its FX exposure limit more than once in a one week period, the firm will breach ELM 3.4.2 R even though it is within the limits in ELM 3.4.2 R (2) and (3).

27/04/2002

ELM 3.5

Large exposure risk

01/12/2004

Large exposure limits

ELM 3.5.1

A firm must not at any time have any large e-money float exposure that exceeds 25% of its own funds.

27/04/2002

ELM 3.5.2

The total of a firm's large e-money float exposures must not at any time exceed 800% of its own funds.

27/04/2002

General rules for calculation of exposures

ELM 3.5.3

(1) A firm has an e-money float exposure to a person if the firm is exposed to the risk of incurring losses:

(a) in connection with an item that forms part of the firm's e-money float and that involves an obligation of that person; or
(b) if the firm realises an asset or off-balance sheet position that relates to an investment forming part of the firm's e-money float issued by that person or that otherwise involves an obligation of that person; or
(c) if the risk:

(i) relates to an investment forming part of the firm's e-money float; and
(ii) is wholly or mainly attributable to the risk that the person fails to meet or cannot meet an obligation or to the condition or prospects of that person (including its financial soundness).

(2) The amount of a firm's e-money float exposure in (1) is the maximum loss that the firm might suffer.
(3) An individual item gives rise to an individual e-money float exposure.
(4) The total e-money float exposure to a person is the sum of all such individual e-money float exposures.

27/04/2002

ELM 3.5.4

When calculating the amount of an e-money float exposure for the purpose of ELM, a firm must include accrued interest and dividends due.

27/04/2002

ELM 3.5.5

A firm's e-money float exposures relate to the exposures that it has in connection with its e-money float.

27/04/2002

Exclusions

ELM 3.5.6

A firm must not take account of the following e-money float exposures for the purposes of the definition of large e-money float exposure:

(1) a claim or other asset required to be deducted at stages C or F set out in ELM 2.4.2 R;
(2) a bill endorsement on a bill already endorsed by another firm;
(3) an e-money float exposure under a zero weighted asset;
(4) an e-money float exposure that is secured by collateral held by the firm in the form of:

(a) zero weighted assets; or
(b) a deposit of money with or certificates of deposit issued by the firm;

(but see ELM 3.5.16 R);
(5) an e-money float exposure with a residual maturity of one year or less to a full credit institution (including a deposit that is a qualifying liquid asset under ELM 3.3.5 R (3)(b)), but only if that e-money float exposure does not form part of that credit institution's regulatory capital resources.

27/04/2002

Calculation of large e-money float exposure

ELM 3.5.7

Each of the following is a large e-money float exposure of a firm:

(1) (if the total of the firm's e-money float exposures to a person equals or exceeds 10% of the firm's own funds) all the firm's e-money float exposures to that person; and
(2) (if the total of the firm's e-money float exposures to each member of a group of closely related counterparties equals or exceeds 10% of the firm's own funds) all the firm's e-money float exposures to each member of that group of closely related counterparties.

27/04/2002

ELM 3.5.8

A person, together with each person who is closely related to that person, is a group of closely related counterparties.

27/04/2002

ELM 3.5.9

In ELM 3.5.8 R, persons are closely related if:

(1) the financial soundness of one of them is, or is likely to be, significantly affected by the financial soundness of the others; or
(2) it would be prudent to regard them as representing the same risk, because the same factors are likely to affect the financial soundness of them all or for some other reason.

27/04/2002

ELM 3.5.10

In ELM 3.5.8 R, persons are also closely related if there are close links between them within the meaning of paragraph (2) of the definition of that term.

27/04/2002

ELM 3.5.11

(1) ELM 3.5.10 R does not apply with respect to particular e-money float exposures if the firm:

(a) has taken all steps that are reasonably required to prove that the persons in question are not closely related as defined in ELM 3.5.9 R; and
(b) makes and retains a record of the steps taken under (1)(a).

(2) A firm must retain the record in (1) for the period of three years after the firm ceases to take advantage of the disapplication of ELM 3.5.10 R by (1) (including where the firm ceases to have that e-money float exposure).

27/04/2002

ELM 3.5.12

The persons who are closely related to each other under ELM 3.5.9 R and each person who is linked with any of them under ELM 3.5.10 R are all closely related to each other for the purposes of ELM 3.5.8 R.

27/04/2002

Treatment of guarantees and collateral

ELM 3.5.13

To the extent that an e-money float exposure is directly and unconditionally guaranteed by a third party, a firm may, for the purposes of the rules in this section, treat that part of the e-money float exposure as having been incurred to the guarantor.

27/04/2002

ELM 3.5.14

If an e-money float exposure is secured by collateral in the form of securities issued by a third party, a firm may, for the purposes of the rules in ELM 3.5, treat that e-money float exposure as having been incurred to that third party, as long as ELM 3.5.15 R, ELM 3.5.16 R and ELM 3.5.17 R allow this.

27/04/2002

ELM 3.5.15

A firm may not recognise the benefits of collateral or a guarantee for the purpose of ELM 3.5.6 R unless ELM 3.5.6 R specifically permits this.

27/04/2002

ELM 3.5.16

A firm may not recognise the benefits of collateral for the purpose of this section, unless:

(1) the firm has an unconditional right to apply the collateral to discharge (or to use the proceeds of realising the collateral to discharge) the liability forming the e-money float exposure;
(2) the collateral arrangements are:

(a) legally well-founded in all relevant jurisdictions; and
(b) enforceable in the default, liquidation, bankruptcy or other similar circumstance of the person who provides the collateral, the person to whom the firm has the e-money float exposure and the firm; and

(3) the firm has obtained legal opinions from suitably experienced external lawyers confirming that the requirements of (1) and (2) are satisfied and has taken such other steps as are reasonable to confirm that they are satisfied.

27/04/2002

ELM 3.5.17

A firm may not recognise the benefits of collateral under ELM 3.5.14 R unless:

(1) the securities referred to in ELM 3.5.14 R are not issued by:

(a) the firm;
(b) another member of its group;
(c) the person to whom the firm has the e-money float exposure in question; or
(d) (in a case in which the question is whether the firm has a large e-money float exposure under ELM 3.5.7 R (2)) any member of that group of closely related counterparties;

(2) the securities are listed on a recognised investment exchange or designated investment exchange;
(3) the mark to market value of the securities is at least 200% of the amount of the e-money float exposure concerned, except that:

(a) the percentage figure is 250% rather 200% in the case of shares;
(b) the percentage figure is 150% rather than 200% in the case of debentures issued by a full credit institution if those debentures do not form part of its regulatory capital resources; and
(c) the percentage figure is 150% rather than 200% in the case of debentures or government and public securities issued by regional or local authorities of an EEA State or by a multilateral development bank; and

(4) the securities issued by any credit institution do not form part of its regulatory capital resources.

01/01/2007
Past version of ELM 3.5.17 before 01/01/2007

ELM 3.5.18

A firm must make the choices set out in this section on a consistent basis. In particular, the firm must not:

(1) treat a guaranteed e-money float exposure as being one to the guarantor for the purposes of some of the rules in ELM and as being to the principal debtor for others; or
(2) treat a secured e-money float exposure as being one to the person who is the debtor under the security that is held as collateral for the purposes of some of the rules in ELM and as being to the debtor under the secured obligation for others.

27/04/2002

ELM 3.5.19

ELM 3.5.17 R does not apply to ELM 3.5.6 R.

27/04/2002

ELM 3.5.20

[Deleted]

01/01/2007
Past version of ELM 3.5.20 before 01/01/2007

Notifying the FSA of reportable large exposures

ELM 3.5.21

A firm must notify the FSA if:

(1) it proposes to enter into a transaction or transactions that would result in it having a reportable large exposure; or
(2) it has a reportable large exposure not already notified under (1).

27/04/2002

ELM 3.5.22

The reporting requirement in ELM 3.5.21 R applies to the total e-money float exposure, that is, it includes e-money float exposures that are exempt from the limits set in ELM 3.5.1 R and ELM 3.5.2 R as well as those that are not.

27/04/2002

Factors to consider when deciding whether to incur an exposure

ELM 3.5.23

When considering the acceptability of a particular e-money float exposure, the FSA expects a firm to consider:

(1) the standing of the counterparty;
(2) the nature of the firm's relationship with the counterparty;
(3) the nature and extent of security taken against the e-money float exposure;
(4) the maturity of the e-money float exposure; and
(5) the firm's expertise in the type of transaction.

27/04/2002

ELM 3.6

Liquidity and interest rate risk

01/12/2004

ELM 3.6.1

A firm must maintain adequate liquidity, taking into account the nature and scale of its business, so that it is able to meet its obligations as they fall due.

27/04/2002

ELM 3.6.2

A firm should be able to meet its obligations as they fall due. It should hold sufficient liquidity to ensure it can be considered to be conducting its business in a prudent manner. This includes holding adequate liquidity to meet:

(1) its e-money outstandings; and
(2) requirements to make other payments such as cash flows in respect of off-balance sheet instruments and other expenses.

27/04/2002

ELM 3.6.3

A firm can meet such obligations in a number of ways:

(1) by holding sufficiently immediately available cash (including bank deposits) or marketable assets; this is the primary method to be used to meet e-money obligations;
(2) by securing an appropriate matching future profile of cash flows from maturing assets and liabilities; and
(3) by borrowing; this is subject to the firm's ability to raise funds and the cost at which they can be raised, which depends upon its standing in the market and on the general liquidity situation at the time.

27/04/2002

ELM 3.6.4

There are no specific rules about holding capital against interest rate risk as this risk is addressed by two other parts of ELM. These are the prohibition on paying interest in ELM 4.3.7 R and the limitations on the residual maturity of qualifying liquid assets and on the period within which the interest rate on them must be redetermined in ELM 3.3.5 R (4).

27/04/2002

ELM 3.7

Derivatives

01/12/2004

ELM 3.7.1

A firm must not be a party to or have a position in a derivative or quasi derivative contract unless ELM 3.7.2 R allows this.

27/04/2002

ELM 3.7.2

A firm may be a party to a derivative or quasi derivative contract if:

(1) the sole purpose (ignoring any other purposes which together are insignificant) of becoming a party to it is hedging market risks arising from:

(a) issuing e-money; or
(b) the e-money float;

(2) so far as reasonably possible, being a party to that derivative or quasi derivative contract achieves the permitted purpose described in ELM 3.7.2 R (1);
(3) the derivative or quasi derivative contract is sufficiently liquid; and
(4) either:

(a) the derivative or quasi derivative contract is an exchange rate contract relating to a foreign currency with an original maturity of 14 days or less; or
(b) the derivative or quasi derivative contract:

(i) is an interest rate or foreign exchange related contract;
(ii) is regularly traded on a recognised investment exchange or designated investment exchange; and
(iii) is subject to daily margin requirements under the rules of that exchange.

27/04/2002

Export chapter as

ELM 4

Limitations
on activities

ELM 4.1

Application

01/12/2004

ELM 4.1.1

The effect of ELM 1.1.1 R to ELM 1.1.3 R is that:

(1) this chapter applies to ELMIs;
(2) this chapter, except ELM 4.3, applies to a bank or building society that is an e-money firm;
(3) no part of this chapter applies to:

(a) an incoming EEA firm; or
(b) an incoming Treaty firm.

27/04/2002

ELM 4.1.2

In the case of an overseas firm, ELM 4.4 applies only in relation to e-money issued from an establishment maintained by the firm in the United Kingdom.

27/04/2002

ELM 4.1.3

Except in the case set out in ELM 4.1.2 R, the rules in this chapter apply on a worldwide basis.

27/04/2002

ELM 4.1.4

Thus for example an ELMI cannot carry on any activity prohibited by ELM 4.3.1 R anywhere in the world.

27/04/2002

ELM 4.2

Purpose

01/12/2004

ELM 4.2.1

One purpose of this chapter is to limit the activities of an ELMI to ones closely connected to issuing e-money. ELM simplifies, for ELMIs, the capital adequacy requirements that apply to banks and building societies but imposes controls that do not apply to them. Those controls include ones on the activities that an ELMI may carry on. The prudential requirements for ELMIs are not designed to support a wider range of activities. The limitation on activities provides further help in ensuring that an ELMI is able to redeem its e-money when it is required to.

27/04/2002

ELM 4.2.2

This chapter implements article 1(5) of the E-Money Directive and the prohibition in that Directive on issuing e-money at a discount.

27/04/2002

ELM 4.2.3

The prohibition on issuing e-money at a discount avoids the financial risk that might affect an e-money firm that issues e-money for less than the amount required to redeem it. The prohibition also helps to prevent e-money firms from creating monetary value in an uncontrolled way. In an extreme case, that could lead the monetary stock to expand without central banks being able to monitor it. That would hinder monetary analysis and affect the adequacy of monetary policy instruments. If the activities of e-money firms were to become a source of such instability, that could prejudice consumers who deal with them.

27/04/2002

ELM 4.3

Restriction to issuing e-money and related activities

01/12/2004

Restriction on activities

ELM 4.3.1

A firm must not undertake or carry on business activities other than issuing e-money, except for those in ELM 4.3.2 R.

27/04/2002

ELM 4.3.2

The activities referred to in ELM 4.3.1 R are:

(1) the provision of financial and non-financial services closely related to issuing e-money, such as:

(a) the administering of e-money by the performance of operational and other ancillary functions related to its issuance; and
(b) the issuing and administering of other means of payment; and

(2) the storing (on behalf of other undertakings or public institutions) of data on e-money electronic devices on which e-money issued by the firm is stored or which can be used to use or spend e-money issued by the firm;

but excluding the granting of any form of credit.

27/04/2002

ELM 4.3.3

The activities permitted by ELM 4.3.2 R include distributing e-money issued by another person.

27/04/2002

Restriction on giving credit

ELM 4.3.4

A firm must not grant any credit in the course of or for the purpose of the business of issuing e-money.

27/04/2002

ELM 4.3.5

ELM 4.3.2 R and ELM 4.3.4 R together prevent a firm from granting credit. Granting credit includes making loans.

27/04/2002

ELM 4.3.6

If a person buys e-money from a firm and pays for it by cheque (so that the firm does not immediately receive value for it) that does not amount to granting credit under ELM 4.3.4 R.

27/04/2002

Restriction on interest

ELM 4.3.7

A firm must not pay interest or any similar sum on e-money issued by it.

27/04/2002

ELM 4.3.8

A firm may issue e-money in the way described in ELM 4.4.2 G without infringing ELM 4.3.7 R.

27/04/2002

Restriction on holdings in other undertakings

ELM 4.3.9

A firm must:

(1) not have an ownership share; and
(2) ensure that no member of its sub group has any ownership share;

in another undertaking except in an undertaking that falls into ELM 4.3.11 R.

27/04/2002

ELM 4.3.10

A firm must ensure that the only other members of its sub group are ones that fall into ELM 4.3.11 R.

27/04/2002

ELM 4.3.11

An undertaking only falls into this rule if its only activity is the performance of operational or other ancillary functions related to e-money issued or distributed by the firm referred to in ELM 4.3.9 R or ELM 4.3.10 R.

27/04/2002

ELM 4.4

Prohibition on issue of e-money at a discount

01/12/2004

ELM 4.4.1

A firm must not issue e-money that has a monetary value greater than its e-money issue price.

27/04/2002

ELM 4.4.2

A firm may want, for promotional reasons, to issue e-money to a client on terms that the client pays less than its monetary value. For instance, a firm may want to:

(1) give away some e-money to new clients on their first load to encourage them to start using the product; or
(2) give away ?X of e-money for each ?Y of e-money a client buys or for each ?Y of goods or services that the client buys using e-money issued by the firm.

27/04/2002

ELM 4.4.3

A firm may be able to issue e-money in the way described in ELM 4.4.2 G without infringing ELM 4.4.1 R. A sum paid by a third party to the firm before the firm issues e-money can form part of the e-money issue price for that e-money if:

(1) that sum is paid to the firm in payment of part or all of the e-money issue price for that e-money; and
(2) at the time when the firm issues that e-money it applies that sum towards the payment of the e-money issue price of that e-money.

27/04/2002

ELM 4.4.4

The fact that a firm incurs costs distributing e-money does not necessarily mean that that e-money is issued at a discount. But the payment by the firm of commission to distributors to whom the firm issues e-money may amount to issuing it at a discount.

27/04/2002

ELM 4.4.5

Under Principle 11, a firm must deal with its regulators in an open and cooperative way, and must disclose to the FSA appropriately anything relating to the firm of which the FSA would reasonably expect notice. If a firm decides to launch a promotion of the type described in ELM 4.4.2 G, the firm should notify the FSA of its intention and details about the promotion. Those details should include the type of promotion, any other businesses taking part in it, the likely amount over the life of the promotion of the difference between the monetary value of the e-money and the amount to be paid by those to whom the firm issues it and the proposed length of the promotion. The information should also include details about the persons who are to make the payments in ELM 4.4.2 G, how much each is to pay and when the payments are to be made.

27/04/2002

ELM 4.4.6

The firm should also keep the FSA informed of changes in its expectations during the promotion described in ELM 4.4.2 G and of any substantial difference between its expectations and the actual outcome.

27/04/2002

Export chapter as

ELM 5

Systems
and controls; Rules for making calculations

ELM 5.1

Application

01/12/2004

ELM 5.1.1

The effect of ELM 1.1.1 R to ELM 1.1.3 R is that:

(1) this chapter applies to ELMIs;
(2) ELM 5.4 applies to a bank or building society that is an e-money firm;
(3) none of this chapter applies to:

(a) an incoming EEA firm; or
(b) an incoming Treaty firm.

27/04/2002

ELM 5.1.2

ELM 5.4A applies with respect to the carrying on of:

(1) regulated activities; and
(2) ancillary activities in relation to regulated activities.

01/01/2007

ELM 5.1.3

ELM 5.4A also:

(1) applies with respect to the carrying on of unregulated activities in a prudential context; and
(2) takes into account any activity of other members of a group of which the firm is a member.

01/01/2007

ELM 5.2

Purpose

01/12/2004

ELM 5.2.1

This chapter contains rules about certain aspects of systems and controls and senior management arrangements. It also contains guidance on rules elsewhere in the Handbook on these topics.

27/04/2002

ELM 5.2.2

In addition, threshold condition 4 says that 'The resources of the [firm] must, in the opinion of the [FSA], be adequate in relation to the regulated activities that he seeks to carry on, or carries on'. This includes the means by which a firm manages the incidence of risk in connection with its business.

27/04/2002

ELM 5.2.3

Threshold condition 5 says that a firm must satisfy the FSA that he is a fit and proper person having regard to all the circumstances.

27/04/2002

ELM 5.2.4

Principle 3 also requires a firm to take reasonable care to organise and control its affairs responsibly and effectively, with adequate risk management systems.

27/04/2002

ELM 5.2.5

The purpose of this chapter is to amplify the requirements of Principle 3 for firms in specific areas and thus make it more likely that firms will have adequate systems and controls. It also increases certainty by providing guidance on some of the specific ways in which the rules in SYSC 3 apply in relation to issuing e-money. This chapter also helps to establish a firm's compliance with threshold conditions 4 and 5.

27/04/2002
Future version of ELM 5.2.5 after 01/04/2009

ELM 5.2.6

This chapter implements article 7 of the E-Money Directive and (for ELMIs) articles 11(1) and 22 of the Banking Consolidation Directive.

01/01/2007
Past version of ELM 5.2.6 before 01/01/2007

ELM 5.3

Business to be directed by at least two individuals

01/12/2004

ELM 5.3.1

A firm must ensure that at least two individuals effectively direct its business.

27/04/2002

ELM 5.3.2

ELM 5.3.1 R, sometimes known as the 'four eyes requirement', provides that at least two individuals must effectively direct the business of a firm. Compliance with the rule would help to establish a firm's compliance with Principle 3 ('Management and control') and its continued meeting of the threshold condition 5 ('Suitability'). It also reflects the requirement in Article 11(1) of the Banking Consolidation Directive.

01/01/2007
Past version of ELM 5.3.2 before 01/01/2007

ELM 5.3.3

In the case of a body corporate, the FSA expects that the individuals concerned are either executive directors or persons granted executive powers by, and reporting immediately to, the board; and, in the case of a partnership, the FSA looks for at least two general or active partners.

27/04/2002

ELM 5.3.4

Compliance with ELM 5.3.1 R is also in particular relevant to whether a firm complies with the rules covering senior management arrangements, systems and controls (see SYSC).

27/04/2002

ELM 5.3.5

At least two independent minds should be applied to both the formulation and implementation of the policies of the firm. Where the firm nominates just two individuals to direct its business, the FSA will not regard them as both effectively directing the business where one of them makes some, albeit significant, decisions relating only to a few aspects of the business. Each should play a part in the decision-making process on all significant decisions. Both should demonstrate the qualities and application to influence strategy, day-to-day policy and their implementation. This does not require their day-to-day involvement in the execution and implementation of policy. It does, however, require involvement in strategy and general direction, as well as knowledge of, and influence on, the way in which strategy is being implemented through day-to-day policy.

27/04/2002

ELM 5.3.6

The four eyes requirement applies to the firm a whole. Thus, in the case of an overseas firm, the FSA assesses whether at least two individuals effectively direct the business of the firm and not just the business of the branch(es) in the United Kingdom. The FSA also takes into account the manner in which management decisions are taken in the UK branch(es) in assessing the adequacy of the firm's systems and controls.

27/04/2002

ELM 5.4

Systems and controls: e-money firms

01/12/2004

ELM 5.4.1

The guidance in ELM 5.4 is guidance on the rules in SYSC 3 as they apply to issuing e-money. It is in addition to the guidance in SYSC itself.

27/04/2002
Future version of ELM 5.4.1 after 01/04/2009

ELM 5.4.2

Under SYSC 3.2.3 G and SYSC 3.2.4 G, a firm should carry out appropriate due diligence on any person to whom it outsources any function or task and keep the suitability of that person for that task or function under review. A firm should monitor the performance by that person of the outsourced tasks and functions.

27/04/2002
Future version of ELM 5.4.2 after 01/04/2009

ELM 5.4.3

A firm should, to the degree appropriate in the light of the factors listed in SYSC 3.1.2 G (1):

(1) authenticate the identity of customers with whom it transacts and the capacity and authority to act of persons with whom the firm deals;
(2) use transaction authentication methods that ensure that transactions in e-money to which it is a party do not have to be unwound or reversed;
(3) ensure that proper authorisation controls and access privileges are in place for all its systems, databases and applications;
(4) ensure that measures are in place to protect the data integrity of transactions in e-money to which it is a party and records and information about such transactions;
(5) ensure that measures are in place to prevent fraud;
(6) establish clear audit trails for all transactions in e-money to which it is a party; and
(7) ensure the confidentiality of customer and transaction information, having regard to the sensitivity of the information and any other relevant factor.

27/04/2002
Future version of ELM 5.4.3 after 01/04/2009

ELM 5.4.4

The risks of regulatory concern referred to in SYSC 3.2.11 G relating to e-money include the following risks:

(1) unauthorised creation, transfer or redemption of e-money;
(2) incorrect attribution of funds within the system for the creation, circulation and redemption of e-money issued by the firm or in which it transacts;
(3) loss of e-money within the system referred to in (2) and loss of function of any part of that system; and
(4) use of the system referred to in (2) for financial crime or in a way that may harm or misuse any part of the financial system.

27/04/2002
Future version of ELM 5.4.4 after 04/01/2009

ELM 5.4A

Organisation and internal control mechanisms

01/01/2007

ELM 5.4A.1

A firm must have robust governance arrangements, which include a clear organisational structure with well defined, transparent and consistent lines of responsibility, effective processes to identify, manage, monitor and report the risks it is or might be exposed to, and adequate internal control mechanisms, including sound administrative and accounting procedures.

01/01/2007

ELM 5.4A.2

The arrangements, processes and mechanisms referred to in ELM 5.4A.1 R must be comprehensive and proportionate to the nature, scale and complexity of the firm's activities.

01/01/2007

ELM 5.4A.3

ELM 5.4A.1 R and ELM 5.4A.2 R reflect article 22 of the Banking Consolidation Directive.

01/01/2007

ELM 5.5

Rules for making calculations

01/12/2004

Exchange rates for the ELM financial rules

ELM 5.5.1

Except as otherwise provided for in ELM, a firm must, for the purposes of the ELM financial rules, translate assets and liabilities denominated in a foreign currency into the firm's base currency using the closing mid market rate of exchange.

27/04/2002

Accounting policy for the ELM financial rules

ELM 5.5.2

Except as otherwise provided for in ELM, and subject to ELM 5.5.3 R, a firm must determine amounts included in the calculations required by the ELM financial rules in accordance with the accounting principles and rules which the firm would apply if it were drawing up financial statements under the Companies Act 1985 including those accounting principles and rules contained in the United Kingdom Statements of Standard Accounting Practice (SSAPs) and Financial Reporting Standards (FRSs) or, where applicable, international accounting standards effective at the relevant time.

ELM 5.5.3

A firm must determine amounts included in the calculations required by the ELM financial rules in such a way as to reflect the substance and not merely the legal form of the underlying transactions and balances.

27/04/2002

Valuation under the ELM financial rules

ELM 5.5.4

A firm must value assets, liabilities and positions on a prudent and consistent basis, as well as having regard to the liquidity of the investment concerned and any special factors which may adversely affect the closure of the position. This rule does not override the valuation requirements in ELM 3.3.2 R (Valuation of qualifying liquid assets).

27/04/2002

Export chapter as

ELM 6

Redemption, information requirements
and purse limits

ELM 6.1

Application

01/12/2004

ELM 6.1.1

The effect of ELM 1.1.1 R to ELM 1.1.3 R is that this chapter:

(1) does not apply to an incoming EEA firm or incoming Treaty firm carrying on business in the United Kingdom on a cross-border services basis only;
(2) applies to all other e-money firms.

27/04/2002

ELM 6.1.2

This chapter applies only in relation to e-money issued in the course of the regulated activity of issuing e-money carried on from an establishment maintained by the firm in the United Kingdom, unless ELM 6.10.1 R provides otherwise.

27/04/2002

ELM 6.2

Purpose

01/12/2004

ELM 6.2.1

One purpose of this chapter is to ensure that a firm redeems on demand any e-money issued by it. This will ensure that a consumer who finds that for the moment there is nothing he wishes to buy using e-money he has bought is not left with an asset that he cannot use and that he cannot turn back to cash to spend elsewhere. This will increase confidence among consumers in e-money as a product.

27/04/2002

ELM 6.2.2

The purse limit in ELM 6.9.1 R protects holders of e-money by restricting the financial loss a holder of e-money may suffer if he loses his consumer e-money card or if the firm becomes insolvent. It takes into account the fact that the compensation scheme does not apply.

27/04/2002

ELM 6.2.3

This chapter implements article 3 of the E-Money Directive and article 33a of the previous version of the Banking Consolidation Directive (Directive 2000/12/EC).

01/01/2007
Past version of ELM 6.2.3 before 01/01/2007

ELM 6.2.4

The purpose of the rules about redemption in ELM is that holders of e-money issued by the firm should have the right to redeem that e-money at par in a simple and easy way. If any fee is charged for redemption, it should be limited. Holders should have the right for redemption proceeds to be paid in the currency in which the e-money is denominated and paid immediately in banknotes and coins or by transfer to a conventional bank account. Therefore a firm should not have a contract with a holder of e-money under which the holder is only entitled to redeem e-money on different terms.

27/04/2002

ELM 6.2.5

However, ELM 6 does not require a firm to redeem e-money in a way that the holder does not want; it requires that the holder should be entitled to have the e-money redeemed in accordance with ELM 6. Thus if, at the time that a holder of e-money is exercising a redemption right, the holder asks the firm to pay the proceeds in a currency other than the one in which it is denominated, the firm may do so. Similarly, the holder may ask the firm to pay the proceeds of redemption in a way different from that in ELM 6.5.

27/04/2002

ELM 6.2.6

This also means that a firm may allow a holder of e-money issued by the firm to use it to buy a currency other than the one in which the e-money is denominated through an automatic teller machine.

27/04/2002

ELM 6.3

Duty to redeem

01/12/2004

Person entitled to redemption

ELM 6.3.1

A firm must, if requested to do so, redeem, at par, any e-money it has issued if the request is from a person who lawfully holds the e-money and who is:

(1) the person to whom the firm issued the e-money; or
(2) any other person holding the e-money in accordance with the e-money scheme rules other than a merchant who has accepted e-money in the course of business in settlement of goods or services.

01/04/2005
Past version of ELM 6.3.1 before 01/04/2005

Currency of redemption

ELM 6.3.2

A firm must give a person who is exercising a redemption right against the firm the right to have the proceeds of redemption paid to him in the currency in which the e-money is denominated.

27/04/2002

Time of redemption

ELM 6.3.3

A firm must give a person who is exercising a redemption right against the firm in accordance with ELM 6.5.1 R:

(1) (in the case of redemption for cash) the right to receive the cash immediately following the completion of the procedures in ELM 6.3.4 R;
(2) (in the case of redemption in accordance with ELM 6.5.1 R (2)) the right to be paid as follows:

(a) the firm must give the necessary payment instructions immediately following the completion of the procedures in ELM 6.3.4 R; and
(b) the firm must ensure that the funds reach the holder's account within five business days of the day on which it gave the instructions in (2)(a).

27/04/2002

Money laundering and other checks

ELM 6.3.4

(1) The procedures referred to in ELM 6.3.3 R are the carrying out of any checks that are reasonably required to prevent money laundering or fraud or to check whether the holder of the e-money is a person who is entitled to redeem it.
(2) A firm must complete any procedures referred to in (1) as soon as reasonably possible.

27/04/2002

ELM 6.3.5

Nothing in ELM 6.3 requires a firm to do anything:

(1) [deleted]
(2) prohibited by the Money Laundering Regulations; or
(3) that would be a criminal offence under the law of any part of the United Kingdom; or
(4) (in relation to e-money) that would be a criminal offence under the law of a country other than the United Kingdom in which the firm redeems or would redeem that e-money.

01/03/2006
Past version of ELM 6.3.5 before 01/03/2006

Redemption prevented by circumstances beyond the firm's control

ELM 6.3.6

A firm does not breach ELM 6.3.3 R (2) if the failure of the funds to reach the holder's account in time is caused by a failure outside the firm's control on the part of any third party that is involved in the funds transfer.

27/04/2002

Guidance

ELM 6.3.7

Merchants who accept e-money in the course of their business do not benefit from this right to redemption but will usually make separate contractual arrangements for redemption.

01/04/2005
Past version of ELM 6.3.7 before 01/04/2005

ELM 6.3.8

ELM 6.3.3 R recognises that it may not be possible to make electronic payments to e-money holders at once owing to the timetable of the settlement cycle for retail payments.

27/04/2002

ELM 6.3.9

The par value of e-money is its monetary value.

27/04/2002

ELM 6.3.10

The redemption right applies against the issuer of e-money. Issuer means the same thing as it does for the purpose of article 74A of the Regulated Activities Order (Electronic money). There is guidance on the meaning of issuer under that article in AUTH App 3.2 (The regulated activity of issuing e-money).

27/04/2002
Future version of ELM 6.3.10 after 06/10/2007

ELM 6.4

Exceptions to the duty to redeem

01/12/2004

Minimum redemption amount

ELM 6.4.1

ELM 6.3.1 R does not apply if:

(1) the e-money to be redeemed has a par value of less than:

(a) (if the e-money is denominated in euro) 10 euro; or
(b) (if it is denominated in another currency) the equivalent of 10 euro in that currency; and

(2) this exception is expressly provided for by the e-money scheme rules.

27/04/2002

Expiration of e-money

ELM 6.4.2

If the e-money scheme rules provide that e-money ceases to be valid after a specified period, the redemption right does not apply after the end of that period.

27/04/2002

ELM 6.4.3

A firm must not issue e-money that is valid for less than a year. If a firm issues e-money to banks or other distributors who then distribute it to the public, the firm must use reasonable endeavours to ensure that it remains valid for at least a year after its distribution to the public.

27/04/2002

Guidance

ELM 6.4.4

The duty to redeem assumes that the person asking for redemption is able to present or make available the e-money for redemption. Thus, for example, if the e-money scheme in question is card based, and the person in question loses his card, ELM 6.3.1 R does not require the firm to reimburse the holder or redeem that e-money for him.

27/04/2002

ELM 6.4.5

A firm should consider whether it is under any duty to compensate a holder of e-money issued by it who loses his consumer e-money card or whose e-money is used fraudulently by another. For example, a firm should consider whether the duty of a card issuer under regulation 21 (Payment by card) of the Consumer Protection (Distance Selling) Regulations 2000 to recredit or to return sums in the event of fraudulent use of a payment card applies to it, particularly in the case of e-money stored on a plastic card.

27/04/2002

ELM 6.5

Methods of redemption

01/12/2004

ELM 6.5.1

A firm must give a person who is exercising a redemption right against the firm the right to have the proceeds of redemption paid to him:

(1) in cash; or
(2) by electronic transfer to an account with a bank or other financial undertaking nominated by that person.

27/04/2002

ELM 6.5.2

A firm must ensure that the exercise of the redemption right will not be unreasonably difficult for anyone entitled to exercise it.

27/04/2002

ELM 6.5.3

Subject to ELM 6.5.2 R, the firm may choose which of the methods of redemption in ELM 6.5.1 R to offer.

27/04/2002

ELM 6.5.4

ELM 6.5.1 R reflects article 3(1) of the E-Money Directive and article 33a of the previous version of the Banking Consolidation Directive (Directive 2000/12/EC). Neither ELM 6.5.1 R nor ELM 6.5.2 R takes precedence over the other. A firm must therefore organise its affairs so that it can comply with both rules.

01/01/2007
Past version of ELM 6.5.4 before 01/01/2007

ELM 6.5.5

If the methods by which the firm offers to redeem e-money are the same as those by which it is made available to the public, those methods of redemption are likely to be reasonable for the purposes of ELM 6.5.2 R. If a firm distributes e-money it issues through its branches, restricting the places where it can be redeemed to those branches is likely to be reasonable for the purpose of ELM 6.5.2 R.

27/04/2002

ELM 6.5.6

A firm does not necessarily breach ELM 6.5.2 R if it does not offer the redemption right at each automated teller machine at which persons may withdraw cash by using e-money issued by the firm. For instance, a firm may issue e-money in the United Kingdom that can be used to withdraw cash from automated teller machines abroad. It may be reasonable for the firm not to offer the redemption right at the automated teller machines abroad.

27/04/2002

ELM 6.6

Charges for redemption

01/12/2004

ELM 6.6.1

A firm may not charge a person any fee, expenses or other charge for or in connection with the exercise of a redemption right, except that a firm may charge a fee for the redemption of e-money if the following conditions are satisfied:

(1) the e-money scheme rules give the firm the right to charge that fee;
(2) the person exercising the redemption right is informed of the amount of the fee after the person makes the request for redemption and before completion of the redemption;
(3) that person is given the opportunity, after he has received the information as described in (2), of withdrawing the request before the e-money is redeemed;
(4) the fee is in accordance with the firm's usual tariff of fees for such redemptions; and
(5) the fee is no greater than necessary to recover the costs to the firm of carrying out that redemption.

27/04/2002

ELM 6.6.2

Any fee permitted by ELM 6.6.1 R must never exceed the amount of e-money offered for redemption.

27/04/2002

ELM 6.7

Terms of redemption

01/12/2004

Contents of e-money scheme contracts

ELM 6.7.1

A firm must ensure that (for each e-money scheme under which it issues e-money) the e-money scheme rules (so far as the firm is a party to the relevant contracts or can control their contents) are consistent with the rules in this chapter.

27/04/2002

Obligation to enter into contracts with those entitled to redeem e-money

ELM 6.7.2

A firm must (for any e-money scheme under which the firm issues e-money) ensure that there is a contract between it and:

(1) any person to whom it issues e-money; and
(2) any other person with a redemption right against the firm.

27/04/2002

ELM 6.7.3

The contract referred to in ELM 6.7.2 R (1) must be in force at the time the firm issues the e-money.

27/04/2002

ELM 6.7.4

The contract referred to in ELM 6.7.2 R (2) must be in force either before the person with the redemption right referred to in ELM 6.7.2 R (2) obtains the e-money in question or as soon as reasonably possible afterwards, having regard to the laws of the jurisdiction in question and the nature of the scheme. It must however be in force no later than the time of redemption.

27/04/2002

Obligation to offer redemption as a contractual right

ELM 6.7.5

Any contract referred to in ELM 6.7.2 R must incorporate the duty of the firm under the rules in this chapter to redeem e-money issued by it as a term of that contract. That term must be enforceable against the firm by the person who holds the e-money. That term must include all the rights that the rules in ELM 6.3 to ELM 6.6 say that the firm must give to a person exercising a redemption right against the firm.

27/04/2002

ELM 6.8

Information

01/12/2004

ELM 6.8.1

A firm must not issue e-money to any person unless that person has been supplied with the information in ELM 6.8.2 R and, where appropriate, ELM 6.8.2A R.

09/10/2004

ELM 6.8.2

A firm must make available to actual and prospective holders of e-money issued by the firm or that may be issued by it in the future:

(1) information about the redemption right, including the information specified in ELM 6.8.4 R; and
(2) the information specified in ELM 6.8.5 R.

27/04/2002

ELM 6.8.2A

COB 2.6 (General provisions related to distance contracts) and COB 6.4.25R (Entering into a distance contract for accepting deposits) applies to a firm as if references to 'accepting deposits' and 'deposits' were references to 'issuing e-money' and 'e-money' respectively.

09/10/2004
Future version of ELM 6.8.2A after 01/11/2007

ELM 6.8.3

The information in ELM 6.8.2 R must be in a durable medium and in a readily comprehensible form.

09/10/2004

ELM 6.8.4

The information referred to in ELM 6.8.2 R (1) is:

(1) the amount of any fee of the type referred to in ELM 6.6.1 R, or, if there is no such fee, that fact;
(2) details of how the redemption right is to be exercised;
(3) the amount of any limit of the type set out in ELM 6.4.1 R, or, if there is no such limit, that fact; and
(4) the length of any period of validity of the type set out in ELM 6.4.2 R, or, if there is no such period of validity, that fact.

27/04/2002

ELM 6.8.5

The information referred to in ELM 6.8.2 R (2) is:

(1) an explanation of the liability of a holder of e-money issued by the firm, and of the liability of the firm, for loss arising from, and the risks to such a holder arising from:

(a) the use, by a person other than such a holder, of the e-money electronic device used by the holder;
(b) fraud by another in relation to such a holder's e-money;
(c) access to or use of such a holder's e-money by another;
(d) loss, malfunction, theft or damage to or of any e-money electronic device used by such a holder;

(2) any other significant risks arising from the acquisition, use or holding of the e-money;
(3) the fact that the compensation scheme does not cover claims made in connection with issuing e-money;
(4) details about any scheme that compensates holders of e-money issued by the firm in cases where the firm is unable to satisfy claims against it in relation to e-money or the fact that there is no such scheme;
(5) details about:

(a) the Financial Ombudsman Service and its application to the e-money scheme in question;
(b) any other complaints and redress procedures available to the holder; and
(c) how the holder may initiate those procedures; and

(6) a geographical address at which the firm may be contacted.

27/04/2002

ELM 6.8.6

In the case of e-money schemes that use consume e-money cards and under which the risk of theft or loss is on the holder of the e-money, the information in ELM 6.8.2 R should warn a holder of e-money that he should treat his consumer e-money card like cash in a wallet. The warning should say that if he loses his consumer e-money card or it is stolen, he will lose any money in it, in just the same way as if he lost his wallet.

27/04/2002

ELM 6.9

Purse limits and warnings on cards

01/12/2004

Purse limits

ELM 6.9.1

(1) A firm must ensure that:

(a) e-money issued by it cannot be stored on a consumer e-money device with a capacity that exceeds the sum in (2); and
(b) a consumer e-money holder is not able to hold, as part of the same balance or otherwise under the same arrangements, e-money issued by the firm of an amount that exceeds, at any time, the sum in (2).

(2) The sum referred to in (1) is:

(a) (in a case in which the e-money is denominated in sterling) ?1000;
(b) (in a case in which the e-money is denominated in another currency) the equivalent of ?1000 in that currency.

27/04/2002

Exception to the purse limit

ELM 6.9.2

ELM 6.9.1 R does not apply in a particular case if:

(1) the firm has (in accordance with ELM 6.9.4 R) first given a warning of the matters in ELM 6.9.3 R to the consumer e-money holder referred to in ELM 6.9.1 R (1)(b) and the owner for the time being of the e-money stored on the consumer e-money device referred to in ELM 6.9.1 R (1)(a)(that consumer e-money holder being referred to as the "holder" in ELM 6.9);
(2) the firm has received an acknowledgement from the holder in accordance with ELM 6.9.5 R; and
(3) the requirements of ELM 6.9.7 R are met as respects the consumer e-money device referred to in ELM 6.9.1 R (1)(a) or which the holder uses to spend or otherwise use his e-money and as respects the scheme under which the firm issues the e-money.

27/04/2002

ELM 6.9.3

The warning referred to in ELM 6.9.2 R (1) is a warning that:

(1) the compensation scheme does not apply to e-money issued by the firm;
(2) if the firm becomes insolvent the e-money in question may become valueless and unusable; and
(3) accordingly if the firm becomes insolvent the holder may lose his e-money.

27/04/2002

ELM 6.9.4

The warning referred to in ELM 6.9.2 R (1) must:

(1) be in writing;
(2) be presented in a way that can be easily understood; and
(3) be presented in such manner as, depending on the means by which the warning is given, is best calculated to bring it to the attention of the holder and to allow him to consider it.

27/04/2002

ELM 6.9.5

The acknowledgement referred to in ELM 6.9.2 R (2) is an acknowledgement from the holder to the firm that the holder has read and understood the warning given to him under ELM 6.9.2 R (1) and that he accepts those risks.

27/04/2002

ELM 6.9.6

The acknowledgement referred to in ELM 6.9.2 R (2) must:

(1) be in writing; and
(2) relate to the warning referred to in ELM 6.9.2 R (1) only.

27/04/2002

ELM 6.9.7

The requirements of this rule are only met in a particular case if:

(1) the scheme under which the e-money is issued is organised in such a way that the loss, malfunction, theft or damage to or of the consumer e-money device referred to in ELM 6.9.2 R (3) will not result in the holder losing any e-money or in any substantial prejudice to his redemption right or his ability to exercise it;
(2) (in the case of any scheme under which a firm issues e-money) the firm is able to prevent the use or spending of any e-money it issues under that scheme; and
(3) the identity of the person who is entitled to e-money issued by the firm under the scheme in question, the amount of such e-money to which he is entitled, the identity of the person who at any time has a redemption right against the firm under that scheme and the amount that he is entitled to have redeemed are determined by records maintained by or on behalf of the firm and are not affected by the matters in (1).

27/04/2002

ELM 6.9.8

The requirements of ELM 6.9.7 R may still be met if the holder is responsible for any unauthorised use of his consumer e-money device that occurs between its loss or theft and the consumer e-money holder notifying the firm of its loss or theft.

27/04/2002

ELM 6.9.9

The acknowledgement in ELM 6.9.2 R (2) may be contained in a written contract in physical form between the firm and the consumer e-money holder. If it is, the firm should ensure that the signature of the consumer e-money holder acknowledging the matters in ELM 6.9.5 R is in addition to the signature by which the consumer e-money holder consents to the terms of the contract. If the firm contracts electronically with the consumer e-money holder, the firm should ensure that the consumer e-money holder's electronic acknowledgement of the matters in ELM 6.9.5 R is separate from his electronic agreement to the terms of the contract.

27/04/2002

ELM 6.9.10

The requirements in ELM 6.9.7 R cover a scheme in which the firm maintains the record of who owns e-money it issues. A holder of e-money issued by the firm should not be at risk from the theft, malfunction, loss or damage to his consumer e-money device as the firm has a record of how much he owns. This is in contrast to a scheme in which the e-money is stored on a consumer e-money card where the loss of the device means that the holder loses the e-money on it.

27/04/2002

ELM 6.9.11

ELM 6.9.4 R (2) means that, in a card-based e-money scheme, the firm should be able to freeze a stolen consumer e-money card once the owner tells the firm that it has been stolen. If an e-money scheme does not have the records referred to in ELM 6.9.7 R (3) or is unable to freeze the use of consumer e-money devices in accordance with ELM 6.9.7 R (2), but the firm accepts the risk of loss of the device, the purse limits in ELM 6.9.1 R still apply.

27/04/2002

Warnings on cards

ELM 6.9.12

A firm must ensure that any consumer e-money card on which e-money issued by it can be stored or which can be used to spend or use e-money issued by it has the following information physically printed on it or on the packaging in which it is made available to the public:

(1) a geographical address at which the firm may be contacted; and
(2) a brief summary of the risks if the consumer e-money card is lost or stolen.

27/04/2002

ELM 6.10

Establishing to what e-money ELM 6 applies

01/12/2004

ELM 6.10.1

If (with respect to any obligation of a firm about e-money in ELM 6 and a scheme under which that firm issues that e-money) that scheme falls into ELM 6.10.3 R, that obligation extends to all e-money issued under that scheme, unless ELM 6.10.2 R provides otherwise.

27/04/2002

ELM 6.10.2

ELM 6.10.1 R does not:

(1) cover a case in which the design referred to in ELM 6.10.3 R does not materially contribute to the firm's inability to make the distinction referred to in ELM 6.10.3 R; or
(2) cover e-money in respect of which the firm can establish it is not subject to that obligation; or
(3) require a firm to extend any rights to a person whose holding the e-money in question is contrary to the e-money scheme rules.

27/04/2002

ELM 6.10.3

An e-money scheme falls into this rule if it is designed in such a way that generally the firm is unable to distinguish between e-money that comes within the scope of the obligation referred to in ELM 6.10.1 R and e-money that would otherwise not.

27/04/2002

ELM 6.10.4

The rules in this chapter make various distinctions about e-money. For example, they distinguish between e-money issued by the firm and e-money issued by other e-money issuers. With some e-money schemes it may not be possible for a firm to make those distinctions. If this is the case, ELM 6.10.1 R ensures that the rules in this chapter still apply.

27/04/2002

ELM 6.10.5

Thus, for example, if a firm is unable to distinguish between:

(1) e-money issued by the firm and e-money issued by other issuers under the e-money scheme in question, it should offer the redemption right to holders of all e-money issued under that scheme;
(2) e-money issued by the firm within the territorial scope of this chapter and other e-money issued by the firm, it should offer the redemption right to holders of all e-money issued by it.

27/04/2002

Export chapter as

ELM 7

Consolidated financial supervision

ELM 7.1

Application

01/12/2004

ELM 7.1.1

The effect of ELM 1.1.1 R to ELM 1.1.3 R is that this chapter:

(1) applies to an ELMI that is a member of a group;
(2) does not apply to:

(a) a lead regulated firm; or
(b) an incoming EEA firm; or
(c) an incoming Treaty firm.

27/04/2002

ELM 7.2

Purpose

01/12/2004

ELM 7.2.1

The requirements of this chapter address three main areas of supervisory concern arising from group membership:

(1) losses in another group entity lead to financial pressure on a firm, because of financial or reputational linkages, or both;
(2) capital is subject to double gearing or leveraging: that is, a solo assessment of a firm over-estimates the quantity or quality of capital, or both, that is available to support that firm's risks, because of the way its capital has been raised or accounted for by the group;
(3) business is booked in an unauthorised group entity to avoid regulatory requirements.

27/04/2002

ELM 7.2.2

This chapter implements the consolidation requirements of the Banking Consolidation Directive as applied by article 2 of the E-Money Directive.

27/04/2002

ELM 7.3

Consolidated capital adequacy

01/12/2004

ELM 7.3.1

If:

(1) a firm (firm A) is a member of a group;
(2) another member of that group (firm B) is a firm that is subject to BIPRU 8;
(3) firm B is in firm A's immediate group; and
(4) firm A is included in the scope of the consolidation under BIPRU 8 as it applies to firm B;

firm A must comply with BIPRU 8 as it applies to firm B except that the rules in BIPRU 8 relating to non-EEA sub-group do not apply.

01/01/2007
Past version of ELM 7.3.1 before 01/01/2007

ELM 7.3.2

If:

(1) ELM 7.3.1 R does not apply to a firm;
(2) he firm is a member of an EEA consolidated group;
(3) there is a full credit institution or an investment firm in that EEA consolidated group;
(4) the undertaking in (3) is in the firm's immediate group; and
(5) that EEA consolidated group is not subject to supervision on a consolidated basis by a competent authority of another EEA State under the Banking Consolidation Directive, the E-Money Directive or the Capital Adequacy Directive;

the firm must comply with BIPRU 8 with respect to that EEA consolidated group as follows:

(6) BIPRU 8 applies as it does to a bank in a UK consolidation group; and
(7) the rules in BIPRU 8 relating to non-EEA sub-group do not apply.

01/01/2007
Past version of ELM 7.3.2 before 01/01/2007

ELM 7.3.2A

If:

(1) ELM 7.3.1 R and ELM 7.3.2 R do not apply to a firm;
(2) the firm is a member of an UK consolidated group;
(3) there is a full credit institution or an investment firm in that UK consolidated group; and
(4) the undertaking in (3) is in the firm's immediate group;

the firm must, at all times, maintain capital resources (calculated in accordance with the relevant rule) at a level that ensures that, taking into account (in the manner and to the extent provided for in that rule) the capital resources of other members of the firm's group, the firm would comply with BIPRU 8 as it applies when there is a bank in the UK consolidation group if it applied to the firm. For the purposes of ELM 7.3.3 R, the rules in BIPRU 8 apply to the UK consolidated group in the same way as they apply to a UK consolidation group under BIPRU 8. The rules in BIPRU 8 relating to non-EEA sub-group do not apply.

01/01/2007

ELM 7.3.3

If:

(1) ELM 7.3.1 R, ELM 7.3.2 R and ELM 7.3.2A R do not apply to a firm;
(2) the firm is a member of an EEA consolidated group; and
(3) that EEA consolidated group is not subject to supervision on a consolidated basis by a competent authority of another EEA State under the Banking Consolidation Directive, the E-Money Directive or the Capital Adequacy Directive;

the firm must ensure that at all times its own funds are of such an amount that its EEA group risk own funds are equal to or exceed its EEA group risk own funds requirement.

01/01/2007
Past version of ELM 7.3.3 before 01/01/2007

ELM 7.3.4

If:

(1) ELM 7.3.1 R, ELM 7.3.2 R, ELM 7.3.2A R and ELM 7.3.3 R do not apply to a firm; and
(2) the firm is a member of a UK consolidated group;

the firm must ensure that at all times its own funds are of such an amount that its UK group risk own funds are equal to or exceed its UK group risk own funds requirement.

01/01/2007
Past version of ELM 7.3.4 before 01/01/2007

ELM 7.4

Scope of consolidation

01/12/2004

ELM 7.4.1

A firm's EEA consolidated group is the consolidated sub-group of the firm's EEA financial parent undertaking.

27/04/2002

ELM 7.4.2

A firm has no EEA consolidated group if the firm would be its only member or if it has no EEA financial parent undertaking.

27/04/2002

ELM 7.4.3

A firm's UK consolidated group is the consolidated sub-group of:

(1) the firm's UK financial parent undertaking; or
(2) (if the firm has no UK financial parent undertaking and the firm is a UK domestic firm) the firm.

27/04/2002

ELM 7.4.4

A firm has no UK consolidated group if the firm would be its only member.

27/04/2002

ELM 7.4.5

A firm, having given prior notice to the FSA, may exclude from its EEA consolidated group or UK consolidated group for the purposes of this chapter:

(1) an undertaking, the total assets of which; or
(2) two or more undertakings, the total of whose assets added together;

are less than the smaller of 10 million euro and 1% of the total assets of the firm.

27/04/2002

ELM 7.5

Calculation of capital adequacy on a consolidated basis

01/12/2004

EEA group risk own funds

ELM 7.5.1

A firm's EEA group risk own funds are calculated as follows:

(1) the own funds of members of the EEA consolidated group are consolidated using the principles that apply to preparing consolidated accounts under the Companies Act 1985 and in accordance with accounting principles generally accepted in the United Kingdom;
(2) for these purposes the own funds of a person to whom ELM 2.4.2 R does not apply are calculated as if it did apply;
(3) the adjustments provided for in article 65 of the Banking Consolidation Directive apply (if required by the Banking Consolidation Directive), in accordance with (1);
(4) the deductions specified in ELM 2.4.2 R must be recalculated at the level of the EEA consolidated group;
(5) the deduction at stage (F) of the calculation in ELM 2.4.2 R does not apply to material holdings held by members of the EEA consolidated group in another member;
(6) the limits in ELM 2.4.18 R and ELM 2.4.19 R (Limits on components of own funds) must be applied;
(7) minority interests are not included; and
(8) own funds of members of the EEA consolidated group other than the person at its head are only included if they represent capital that is freely transferable to other members of the EEA consolidated group.

EEA group risk own funds requirement

ELM 7.5.2

A firm's EEA group risk own funds requirement is calculated by way of consolidation using the principles that apply to preparing consolidated accounts under the Companies Act 1985 as follows:

(1) the rules for calculating a firm's own funds requirement must be applied to the firm's EEA consolidated group as if it were a single firm subject to the ELM financial rules;
(2) the consolidation must be in accordance with accounting principles generally accepted in the United Kingdom.

27/04/2002
Future version of ELM 7.5.2 after 06/06/2008

Proportional consolidation

ELM 7.5.3

All items included in the calculation of a firm's EEA group risk own funds and EEA group risk own funds requirement must be included in full, even though the member of the EEA consolidated group concerned is not a wholly owned subsidiary undertaking of the undertaking at the head of the EEA consolidated group.

27/04/2002

The Banking Consolidation Directive

ELM 7.5.4

A firm's EEA group risk own funds and EEA group risk own funds requirement must be calculated in a way that is not contrary to the Banking Consolidation Directive as applied by the E-Money Directive. The other rules in ELM 7.5 are subject to this rule.

27/04/2002

UK group risk own funds and UK group risk own funds requirement

ELM 7.5.5

A firm's UK group risk own funds and UK group risk own funds requirement are calculated in the same way as its EEA group risk own funds and EEA group risk own funds requirement except that references to its UK consolidated group are substituted for references to its EEA consolidated group.

27/04/2002

ELM 7.6

Large exposures

01/12/2004

The EEA group

ELM 7.6.1

If ELM 7.3.3 R applies to a firm, the firm must ensure that at all times its own funds are of such an amount that:

(1) no EEA group large exposure exceeds 25% of its EEA group risk own funds;
(2) the total of its EEA group large exposures does not exceed 800% of its EEA group risk own funds.

27/04/2002

ELM 7.6.2

A firm's EEA group large exposures must be calculated as follows:

(1) the rules for calculating a firm's large e-money float exposures must be applied to the firm's EEA consolidated group as if it were a single firm subject to the ELM financial rules;
(2) the exclusions in ELM 3.5.6 R are applied at the level of the firm's EEA consolidated group; and
(3) the consolidation must be in accordance with accounting principles generally accepted in the United Kingdom.

27/04/2002

The UK group

ELM 7.6.3

If ELM 7.3.4 R applies to a firm, the firm must ensure that at all times its own funds are of such an amount that:

(1) no UK group large exposure exceeds 25% of its UK group risk own funds;
(2) the total of its UK group large exposures does not exceed 800% of its UK group risk own funds.

27/04/2002

ELM 7.6.4

A firm's UK group large exposure means the same thing as its EEA group large exposure except that references to members of its EEA consolidated group are replaced with references to its UK consolidated group.

27/04/2002

ELM 7.7

Waiver

01/12/2004

ELM 7.7.1

Article 73 of the Banking Consolidation Directive says that competent authorities responsible for exercising supervision on a consolidated basis may decide that a credit institution, financial institution or ancillary services undertaking which is a subsidiary or in which a participation is held need not be included in the consolidation in certain cases. These include the following:

(1) where the undertaking concerned is situated in a third country where there are legal impediments to the transfer of the necessary information;
(2) if, in the opinion of the competent authorities responsible for exercising supervision on a consolidated basis, the consolidation of the financial situation of the undertaking concerned would be inappropriate or misleading as far as the objectives of the supervision of credit institutions are concerned.

01/01/2007
Past version of ELM 7.7.1 before 01/01/2007

ELM 7.7.2

It is generally the FSA's policy to agree to a firm's request to modify the rules in ELM 7 so as to exclude undertakings from the consolidation in the cases listed in ELM 7.7.1 G if section 148 of the Act allows this. See SUP 8 (waiver and modification of rules) for information on how to apply for such a modification.

27/04/2002

ELM 7.8

Summary of consolidation rules

01/12/2004

ELM 7.8.1

The rules in this chapter are in addition to the other rules about own funds in ELM.

27/04/2002

ELM 7.8.2

If a firm is not part of a group, ELM 7 does not apply.

27/04/2002

ELM 7.8.3

Broadly speaking, ELM 7.3.1 R to ELM 7.3.2A R apply the consolidation rules in BIPRU 8 to an ELMI.

01/01/2007
Past version of ELM 7.8.3 before 01/01/2007

ELM 7.8.4

If an ELMI is a member of a group that has another member in it subject to BIPRU 8, then ELM 7.3.1 R applies BIPRU 8 to the ELMI in the same way as it applies to the other firm.

01/01/2007
Past version of ELM 7.8.4 before 01/01/2007

ELM 7.8.5

ELM 7.3.2 R and ELM 7.3.2A R say that where ELM 7.3.1 R does not apply, BIPRU 8 applies to the ELMI if there is a full credit institution or investment firm in the group. If the ELMI is part of an EEA consolidated group of which the FSA is the lead regulator, BIPRU 8 applies to that EEA consolidated group. If the ELMI is not part of such a group or another EEA competent authority is lead regulator for the EEA consolidated group, then BIPRU 8 applies to the UK consolidated group of the ELMI.

01/01/2007
Past version of ELM 7.8.5 before 01/01/2007

ELM 7.8.6

ELM 7.3.3 R or ELM 7.3.4 R applies if there are no full credit institutions or investment firms in the EEA group. ELM 7 sets out a special regime for firms in such groups. This assesses capital adequacy by applying the ongoing own funds requirement in ELM 2.5.1 R at the level of the group. If one of those rules apply, the large exposure requirements in ELM 3.5 are also applied at the level of the UK consolidated group or EEA consolidated group.

27/04/2002

ELM 7.8.7

If the ELM financial rules do not capture adequately the risks that arise because of a firm's membership of its group, of the effect which membership may have on the firm or of the risks that may arise because of the firm's connection with any person, the FSA may impose a requirement that has the effect of taking those other persons into account for the purpose of the prudential supervision of the firm. For example, ELM 7.3.3 R or ELM 7.3.4 R (and the corresponding provisions of ELM 7.6) could be extended beyond the UK consolidated group or EEA consolidated group.

27/04/2002

ELM 7.8.8

The definitions of EEA financial parent undertaking and UK financial parent undertaking require that the parent undertaking concerned should be the highest relevant parent undertaking in the firm's group. In some cases there may be more than one person who could be such a parent undertaking but for that provision but it is not possible to say that one of them is the highest. The result may be that the firm does not have an EEA financial parent undertaking or UK financial parent undertaking. In such a case, the FSA will generally seek to add a requirement to the firm's permission that will apply the relevant provisions in ELM 7 in a suitably adapted form.

27/04/2002

ELM 7.8.9

If a firm is linked to other financial services undertakings by a consolidation Article 12(1) relationship, the FSA will determine how to apply the provisions of this chapter.

01/01/2005

ELM 7.8.10

If a firm is part of a financial conglomerate, the provisions of GENPRU 3.1 apply. If a firm is part of a third-country group, the provisions of GENPRU 3.2 apply.

01/01/2007
Past version of ELM 7.8.10 before 01/01/2007

Export chapter as

ELM 8

Small e-money issuers

ELM 8.1

Application

01/12/2004

ELM 8.1.1

The effect of ELM 1.1.1 R and ELM 1.1.2 R is that this chapter applies to:

(1) an applicant for a small e-money issuer certificate; and
(2) a small e-money issuer.

27/04/2002

ELM 8.1.2

The provisions of ELM 8.3.11 G and ELM 8.3.12 G (Criminal offences relating to status) are relevant to a person who is not a small e-money issuer.

27/04/2002

ELM 8.2

Purpose

01/12/2004

ELM 8.2.1

This chapter, together with articles 9C to 9G of the Regulated Activities Order (Exclusions), implements the provisions of article 8 (Waiver) of the E-Money Directive by setting out the procedure for applying for, and revoking, a certificate (a small e-money issuer certificate).

27/04/2002

ELM 8.2.2

This chapter also contains provisions relating to the obtaining of information by the FSA from a small e-money issuer to ensure the exclusion provisions referred to in ELM 8.2.1 G are not abused.

27/04/2002

ELM 8.3

Introduction

01/12/2004

The small e-money issuer certificate

ELM 8.3.1

The holder of a small e-money issuer certificate (a small e-money issuer) is excluded from the regulated activity of issuing e-money.

27/04/2002

ELM 8.3.2

A small e-money issuer is not an exempt person within the meaning of the Act, that is a person who is carrying on a regulated activity but exempt from the need to be authorised. The small e-money issuer is not, as such, carrying on a regulated activity. This means, in particular, that:

(1) an authorised person can be a small money issuer (unless it is a full credit institution (see ELM 8.4.2 G); and
(2) a small e-money issuer does not benefit from the exclusion in article 16 of the Financial Promotion Order (Exempt persons).

27/04/2002

ELM 8.3.3

AUTH App 3.4 gives guidance on the restrictions on financial promotion in section 21 of the Act (Restrictions on financial promotion) in relation to e-money.

27/04/2002
Future version of ELM 8.3.3 after 06/10/2007

ELM 8.3.4

A person who issues e-money on a limited scale may apply to the FSA for a small e-money issuer certificate. This chapter contains the provisions relating to the certificate in the following sections:

(1) ELM 8.4 gives guidance on the three conditions under which a certificate may be given;
(2) ELM 8.5 contains the direction on how to apply for a certificate and gives guidance on the application procedure;
(3) ELM 8.6 contains the direction on how to apply for a revocation of a certificate and gives guidance on how the FSA may revoke a certificate on its own initiative; and
(4) ELM 8.7 contains rules and guidance about the provision of information to the FSA, including the rules which require a small e-money issuer to give periodic reports and change reports to the FSA on Form ELM-SI (which is set out in ELM 8 Annex 2 R).

27/04/2002
Future version of ELM 8.3.4 after 31/08/2008

ELM 8.3.5

The legislative provisions in respect of a small e-money issuer certificate are primarily contained in articles 9C to 9G of the Regulated Activities Order. The rules and guidance in this chapter are based on those provisions.

27/04/2002

Procedural provisions

ELM 8.3.6

Certain procedural provisions apply to an application for a small e-money issuer certificate as they apply to an application for a Part IV permission.

27/04/2002

ELM 8.3.7

The application must give the address of a place in the United Kingdom for service on the applicant of any notice or other document which is required or authorised to be served on him under the Act.

27/04/2002

ELM 8.3.8

The application must be made in the manner directed by the FSA (see ELM 8.5.1 D) and contain any information which the FSA reasonably requires. The FSA may require further information to enable it to determine the application.

27/04/2002

ELM 8.3.9

The application for a small e-money issuer certificate must be determined by the FSA within six months from when it receives the completed application or, if the application is incomplete, within 12 months. The applicant may withdraw his application by written notice. The FSA must give the applicant written notice of the grant of the application or a warning notice if it proposes to refuse the application. Guidance on the decision making procedures is given in DEC 2 (Statutory notice procedure: warning notice and decision notice procedure).

ELM 8.3.10

An applicant who is aggrieved by the determination of the application may refer the matter to the Tribunal (see (The Tribunal)).

27/04/2002
Future version of ELM 8.3.10 after 28/08/2007

Criminal offences relating to status

ELM 8.3.11

Article 9I of the Regulated Activities Order (False claims to be a certified person) provides that a person who is not a small e-money issuer is to be treated as guilty of an offence under section 24 of the Act (False claims to be authorised or exempt) if he describes himself (in whatever terms) as a small e-money issuer. It is also an offence for such a person to behave, or otherwise hold himself out, in a manner which indicates that he is a small e-money issuer.

27/04/2002

ELM 8.3.12

ENF 15 (Prosecution of criminal offences) and DEC 4.6 (Decisions to apply to the civil courts and to prosecute criminal offences) contain guidance on the FSA's policy and procedures relating to the exercise of its powers to prosecute criminal offences, including offences under section 24 of the Act.

27/04/2002
Future version of ELM 8.3.12 after 28/08/2007

ELM 8.3.13

See also ELM 8.7.18 G to ELM 8.7.20 G (Criminal offences relating to the provision of information).

27/04/2002

The Financial Services Compensation Scheme

ELM 8.3.14

No claim under the compensation scheme may be made against a small e-money issuer since the scheme pays compensation only in respect of claims made in connection with regulated activities (section 213 of the Act (The compensation scheme)).

27/04/2002

The FSA's public register

ELM 8.3.15

The FSA's public register maintained under section 347 of the Act (The record of authorised persons etc.) includes every small e-money issuer.

27/04/2002

ELM 8.4

The conditions for giving a small e-money issuer certificate

01/12/2004

Who may apply?

ELM 8.4.1

Only a body corporate, or a partnership, which has its head office in the United Kingdom may make an application for a small e-money issuer certificate. A sole trader may not apply.

27/04/2002

ELM 8.4.2

A full credit institution may not apply for a small e-money issuer certificate. If a bank or building society wishes to carry on the regulated activity of issuing e-money within the territorial scope of the Act, it will have to apply for permission to do so.

27/04/2002

The conditions

ELM 8.4.3

The FSA must give a small e-money issuer certificate to a person eligible to apply (see ELM 8.4.1 G and ELM 8.4.2 G) if it appears to it that any one or more of three paragraphs, set out in article 9C of the Regulated Activities Order (Persons certified as small issuers etc.), apply. This section gives guidance on those paragraphs but refers to them as 'conditions'. Similarly, where the Regulated Activities Order refers to a person to which a small e-money issuer certificate is given as a 'certified person', ELM refers to 'small e-money issuer'.

27/04/2002

ELM 8.4.4

The three conditions in article 9C of the Regulated Activities Order (Persons certified as small issuers etc.) are designed to restrict the certificate to small or local schemes. The first and second conditions follow, almost exactly, the corresponding provisions of the E-Money Directive. The third condition follows the E-Money Directive, but also adds some guidelines.

27/04/2002

ELM 8.4.5

In each of the conditions, references to amounts in euro include references to equivalent amounts in sterling.

27/04/2002

The first condition

ELM 8.4.6

The first condition applies if:

(1) the applicant does not issue e-money except on terms that the electronic device on which the monetary value is stored is subject to a maximum storage amount of not more than 150 euro; and
(2) the applicant's total liabilities with respect to issuing e-money do not (or will not) usually exceed 5 million euro and do not (or will not) ever exceed 6 million euro.

27/04/2002

ELM 8.4.7

As 'usually' is not defined, the application of this condition will depend on the exact facts of each case. In the FSA's view, the total liabilities should be measured over several different periods. Thus, where the total liabilities exceed 5 million euro on several occasions over a short period, the scheme is more likely to fail to meet this condition than where those occasions are spread evenly over a longer period.

27/04/2002

ELM 8.4.8

While rigid guidelines on what 'usually' means are not possible, in the FSA's view, a scheme that exceeds the limit no more than 5 days a month and 20 days a year will not necessarily breach this condition. But if the scheme exceeds either or both of those frequencies, that would call into question whether the scheme meets this condition. For this reason, the FSA will require a 'change report' if the total liabilities with respect to issuing e-money exceed 5 million euro (see ELM 8.7.3 R).

27/04/2002

The second condition

ELM 8.4.9

The second condition applies if:

(1) the condition in ELM 8.4.6 G (1) is met;
(2) the applicant's total liabilities with respect to the issuing of e-money do not (or will not) exceed 10 million euro; and
(3) e-money issued by the applicant is accepted as a means of payment only by:

(a) subsidiaries of the applicant which perform operational or other ancillary functions related to e-money issued or distributed by the applicant; or
(b) other members of the same group as the applicant (other than its subsidiaries).

27/04/2002

The third condition

ELM 8.4.10

The third condition applies if:

(1) the conditions referred to in ELM 8.4.6 G (1) and ELM 8.4.9 G (2) are met; and
(2) e-money issued by the applicant is accepted as a means of payment, in the course of business, by not more than one hundred persons where:

(a) those persons accept such e-money only at locations within the same premises or limited local area; or
(b) those persons have a close financial or business relationship with the applicant, such as a common marketing or distribution scheme.

27/04/2002

The third condition: locations

ELM 8.4.11

For the purposes of ELM 8.4.10 G (2)(a), locations are situated within the same premises or limited local area if they are situated within:

(1) a shopping centre, airport, railway station, bus station or campus of a university, polytechnic, college, school or similar educational establishment; or
(2) an area which does not exceed four square kilometres.

27/04/2002

ELM 8.4.12

ELM 8.4.11 G (1) and (2) are illustrative only and are not to be treated as limiting the scope of ELM 8.4.10 G (2)(a).

27/04/2002

ELM 8.4.13

If the e-money issued under a scheme is only accepted by businesses within the same four square kilometre area, the third condition will be met. However, if the scheme operates in two areas, each of one square kilometre, but the two areas are 100 kilometres apart, the scheme will not come within the illustrative provision referred to in ELM 8.4.11 G (2).

27/04/2002

ELM 8.4.14

If a scheme operates in an area that exceeds four square kilometres, the scheme can still meet ELM 8.4.10 G (2)(a). However, it will only do so if the area can be described as a limited local area for some reason in addition to the size of the area.

27/04/2002

ELM 8.4.15

The fact that a scheme is confined within the boundaries of a local authority is not, in the FSA's view, enough to bring it within ELM 8.4.10 G (2)(a) by itself. However, if the area covered by the scheme is defined by a local authority's boundaries, and the area's size is close to, but exceeds, four square kilometres, the combination of the size of the area and the fact that it only covers a particular local authority area may still be enough to meet ELM 8.4.10 G (2)(a).

27/04/2002

ELM 8.4.16

'Premises' includes a single building. It also includes a number of buildings on the same campus or site. It does not include premises of one institution split over several sites.

27/04/2002

The third condition: close financial or business relationship

ELM 8.4.17

If a scheme does not meet ELM 8.4.10 G (2)(a), it will still meet the third condition if the e-money issuer and the merchants who accept the e-money have a close financial or business relationship.

27/04/2002

ELM 8.4.18

Persons are not to be treated as having a close financial or business relationship with the applicant merely because they participate in arrangements for the acceptance of e-money issued by the applicant.

27/04/2002

ELM 8.4.19

If an e-money scheme that allows citizens to pay for bus or metro tickets together with a range of other things meets the third condition, it is likely to be because of the provisions referred to in ELM 8.4.10 G (2)(b) rather than ELM 8.4.10 G (2)(a).

27/04/2002

ELM 8.5

Application for a small e-money issuer certificate

01/12/2004

ELM 8.5.1

(1) An applicant for a small e-money issuer certificate, except in so far as the FSA may direct in an individual case, must apply in writing in the manner directed, and with the information required, on the form provided by the FSA.
(2) The application for a small e-money issuer certificate must be:

(a) given to a member of, or addressed for the attention of, the Authorisation Enquiries department of the FSA; and
(b) delivered to the FSA by one of the methods in (3).

(3) The application may be delivered by:

(a) post to the address in (4); or
(b) leaving the application at the address in (4) and obtaining a date-stamped receipt; or
(c) hand delivery to a member of the Authorisation Enquiries department.

(4) The address for applications is: The Financial Services Authority, 25 The North Colonnade, Canary Wharf, London E14 5HS.
(5) Until the application has been determined, an applicant which submits an application for a small e-money issuer certificate must inform the FSA of any significant change to the information given in the application immediately it becomes aware of the change.

27/04/2002

ELM 8.5.2

There is no application fee, or subsequent fee, for a small e-money issuer certificate.

27/04/2002

ELM 8.5.3

The application form is available on www.fsa.gov.uk or from the Authorisation Enquiries department of the FSA. To contact the department:

(1) telephone on 020 7066 1000; or
(2) write to the Authorisation Enquiries department at the address in ELM 8.5.1 D (4); or
(3) email to AuthorisationEnquiries@fsa.gov.uk.

27/04/2002

ELM 8.5.4

If the application is granted, the applicant will be given a certificate in the form of the one shown in ELM 8 Annex 1 GG.

27/04/2002

ELM 8.6

Revocation of a small e-money issuer certificate

01/12/2004

Revocation on the FSA's own initiative

ELM 8.6.1

The FSA may revoke a small e-money issuer certificate if:

(1) it appears to it that the small e-money issuer does not meet the relevant conditions, or has failed to meet the relevant conditions at any time since the small e-money certificate issuer certificate was given; or
(2) the small e-money issuer has contravened any rule or requirement to which he is subject as a result of the provisions in ELM 8.7 (Provision of information).

27/04/2002

ELM 8.6.2

For the purposes of ELM 8.6.1 G (1), the small e-money issuer meets 'the relevant conditions' at any time if, at that time, the conditions referred to in ELM 8.4.6 G, ELM 8.4.9 G or ELM 8.4.10 G apply. In this chapter, the relevant conditions (the phrase used in the Regulated Activities Order) are referred to as 'the conditions referred to in ELM 8.4'.

27/04/2002

Revocation for failure to meet the conditions referred to in ELM 8.4

ELM 8.6.3

When determining whether it is appropriate to use the power referred to in ELM 8.6.1 G (1), the FSA will take account of all the relevant circumstances of the case. The FSA may consider that it is not appropriate to revoke where, for example, the failure to meet the conditions:

(1) was inadvertent;
(2) lasted for a short period only; and
(3) was not serious in nature.

27/04/2002

Revocation for contravention of a rule or requirement

ELM 8.6.4

In determining whether to revoke a small e-money issuer certificate under the power referred to in ELM 8.6.1 G (2), the FSA will consider all the relevant circumstances, including the nature and seriousness of the contravention or failure to provide information or produce documents. Amongst other factors, the FSA may consider:

(1) whether there is information which suggests the contravention or failure was deliberate or reckless;
(2) the length of any delay in providing a report, document or other required information;
(3) the seriousness of any factual inaccuracies or other deficiencies in the information provided to the FSA;
(4) whether the small e-money issuer has previously failed to comply with a rule or requirement;
(5) the record of its compliance with the conditions referred to in ELM 8.4.

27/04/2002

Procedure

ELM 8.6.5

If the FSA proposes to revoke a small e-money issuer certificate otherwise than at the request of the small e-money issuer, it must give him a warning notice (see DEC 2.2 (Warning notice procedure)). Similarly, if it decides to revoke the certificate, it must give him a decision notice (see DEC 2.3 (Decision notice procedure)).

27/04/2002
Future version of ELM 8.6.5 after 28/08/2007

ELM 8.6.6

A small e-money issuer who is aggrieved at the decision to revoke the small e-money issuer certificate may refer the matter to the Tribunal (see DEC 5.1 (The Tribunal)).

27/04/2002
Future version of ELM 8.6.6 after 28/08/2007

Revocation on request

ELM 8.6.7

A small e-money issuer may apply to the FSA for his certificate to be revoked. The FSA must then revoke it and give the small e-money issuer written notice that it has done so.

27/04/2002

ELM 8.6.8

An application for a small e-money issuer certificate to be revoked must be made on the form for this purpose (which may be obtained from the Authorisation Enquiries department of the FSA) in the manner directed in ELM 8.5.1 D.

27/04/2002

ELM 8.6.9

An application for revocation may be associated with an application for a Part IV permission to carry on the regulated activity of issuing e-money (or for a variation of an existing permission to add that activity). If so, the revocation will, if the small e-money issuer requests it on making the application, be conditional on the granting of the application.

27/04/2002

ELM 8.7

Provision of information

01/12/2004

Periodic reports

ELM 8.7.1

A small e-money issuer must:

(1) complete a Form ELM-SI (see ELM 8 Annex 2 R) as at the end of each financial year and half financial year; and
(2) within 10 business days of that date, deliver it to the FSA in the manner indicated in the form.

27/04/2002
Future version of ELM 8.7.1 after 31/08/2008

Change reports

ELM 8.7.2

If none of the conditions referred to in ELM 8.4 continue to apply to a small e-money issuer, it must, within two business days of the change occurring:

(1) complete a Form ELM-SI; and
(2) deliver it to the FSA in the manner indicated in the form.

27/04/2002
Future version of ELM 8.7.2 after 31/08/2008

ELM 8.7.3

(1) If the total liabilities of a small e-money issuer with respect to issuing e-money exceed 5 million euro, it must, within two business days of the excess occurring:

(a) complete a Form ELM-SI; and
(b) deliver it to the FSA in the manner indicated in the form.

(2) ELM 8.7.3 R (1) applies only if neither of the conditions referred to in ELM 8.4.9 G and ELM 8.4.10 G (that is the second and third conditions) apply to the small e-money issuer.

27/04/2002
Future version of ELM 8.7.3 after 31/08/2008

FORM ELM-SI

ELM 8.7.4

Form ELM-SI may be obtained from the Authorisation Enquiries department of the FSA. For details on how to contact the department, see ELM 8.5 (Application for a small e-money issuer).

27/04/2002

ELM 8.7.5

Form ELM-SI is set out at ELM 8 Annex 2 RR.

27/04/2002

Other powers

ELM 8.7.6

The FSA may also, by notice in writing given to a small e-money issuer, require him to provide specified information (or information of a specified description) or produce specified documents (or documents of a specified description).

27/04/2002

ELM 8.7.7

The information or documents referred to in ELM 8.7.6 G must be reasonably required by the FSA for the purpose of determining whether the small e-money issuer meets, or has met, any one or more of the conditions referred to in ELM 8.4.

27/04/2002

ELM 8.7.8

The following sections in the Act apply to a requirement referred to in ELM 8.7.6 G (see article 9G(9) of the Regulated Activities Order) (Obtaining information from certified persons etc.):

(1) section 175 (Information and documents: supplemental provisions);
(2) section 176 (Entry of premises under warrant), the reference in section 176(3)(a) to an authorised person being read as a reference to a small e-money issuer; and
(3) section 177 (Offences).

27/04/2002

ELM 8.7.9

The information or documents. referred to in ELM 8.7.6 G must be provided or produced before the end of the reasonable period, and at the place, specified by the FSA. The FSA may require the information to be provided in such form as it may reasonably require. The FSA may require the information to be verified, and the document authenticated, in such manner as it may reasonably require (see article 9G(6) of the Regulated Activities Order and section 165 of the Act (Obtaining information from certified persons etc.). The FSA may use the power to require information and documents from small e-money issuers in support of its enforcement functions.

27/04/2002
Future version of ELM 8.7.9 after 06/08/2010

ELM 8.7.10

The FSA may by notice in writing to a small e-money issuer require him to provide a report by a skilled person on any matter about which the FSA has required or could require the provision of information or production of documents under the powers referred to in ELM 8.7.8 G and ELM 8.7.9 G.

27/04/2002

ELM 8.7.11

The FSA may appoint one or more competent persons to carry out an investigation if it appears to it that there are circumstances suggesting that a small e-money issuer may not meet any of the conditions referred to in ELM 8.4. The FSA may also use this power if the small e-money issuer may not have met any of these conditions at any time since the small e-money issuer certificate was given. ENF 2 (Information gathering and investigation powers) contains guidance on the FSA's policies relating to the use of its investigation powers.

27/04/2002
Future version of ELM 8.7.11 after 28/08/2007

Accurate and complete reports

ELM 8.7.12

A small e-money issuer must take reasonable steps to ensure that all information it gives to the FSA on its activities relating to e-money is:

(1) factually accurate or, in the case of estimates and judgements, fairly and properly based after appropriate enquiries have been made by the small e-money issuer; and
(2) complete, in that it should include anything of which the FSA would reasonably expect notice.

27/04/2002

Correcting information which has been provided

ELM 8.7.13

(1) If a small e-money issuer becomes aware, or has information that reasonably suggests that it has or may have provided the FSA with information which was or may have been false, misleading, incomplete or inaccurate, or has or may have changed in a material particular, it must notify the FSA immediately.
(2) The notification must include:

(a) details of the information which is or may be false, misleading, incomplete or inaccurate, or has or may have changed;
(b) an explanation why such information was or may have been provided; and
(c) the correct information;

unless ELM 8.7.14 R applies.

27/04/2002

Availability of information

ELM 8.7.14

If the information in ELM 8.7.13 R (2) cannot be submitted with the notification (because it is not immediately available), it must be submitted as soon as possible afterwards.

27/04/2002

ELM 8.7.15

The FSA may request the small e-money issuer to provide revised documentation containing the correct information, if appropriate.

27/04/2002

Unobtainable information

ELM 8.7.16

If a small e-money issuer is unable to obtain the information required by the FSA, it should inform the FSA that the scope of the information provided is, or may be, limited.

27/04/2002

Administrative and civil enforcement powers

ELM 8.7.17

Where a small e-money issuer contravenes a rule in ELM 8.7 (Provision of information), or a requirement imposed under the powers referred to in ELM 8.7.6 G to ELM 8.7.11 G, the FSA may, among its other enforcement powers:

(1) apply to the courts for an injunction (see ENF 6 (Injunctions));
(2) apply to the courts for a restitution order (see ENF 9 (Restitution and redress)); and
(3) revoke the small e-money issuer certificate (see ELM 8.6).

27/04/2002
Future version of ELM 8.7.17 after 28/08/2007

Criminal offences relating to the provision of information

ELM 8.7.18

A person who knowingly or recklessly provides the FSA with information which is false or misleading in a material particular, in purported compliance with a requirement imposed by or under the Act, commits an offence (section 398 of the Act (Misleading the Authority: residual cases)).

27/04/2002

ELM 8.7.19

An offence by a body corporate or partnership may be attributed to an officer or certain other persons (section 400 of the Act (Offences by bodies corporate etc)).

27/04/2002

ELM 8.7.20

27/04/2002
Future version of ELM 8.7.20 after 28/08/2007

ELM 8.7.21

See also ELM 8.3.11 G and ELM 8.3.12 G (Criminal offences relating to status).

27/04/2002

ELM 8 Annex 1

Small E-Money Issuer Certificate

01/12/2004

This annex consists only of one or more forms. Forms are to be found through the following address:

Small E-Money Issuer Certificate - FSA/docs/elm/elm_8_annex1g.pdf

27/04/2002

ELM 8 Annex 2

FORM ELM-SI Provision of information from a small electronic money issuer

01/12/2004

This annex consists only of one or more forms. Forms are to be found through the following address:

FORM ELM-SI Provision of information from a small electronic money issuer - FSA/docs/elm/elm_8_annex2r.pdf

27/04/2002
Future version of Small e-money issuers after 31/08/2008

Export chapter as

Transitional Provisions and Schedules

ELM TP 1

Transitional Provisions

ELM TP 1.1

Transitional Provisions

(1)

(2)

(3)

(4)

(5)

(6)

Material to which the transitional provision applies

Transitional provision

Transitional provision: dates in force

Handbook provision: coming into force

Every provision in ELM

The transitional provisions in GEN apply in relation to the provisions in ELM except that a reference to "commencement" is to be treated as a reference to "e-money issuer day" (note).

From "e-money issuer day" (note)

27 April 2002

Every provision in the Handbook which applies to an ELMI

Where a transitional provision in the Handbook refers to "commencement", in relation to an ELMI, it means "e-money issuer day" (note).

From "e-money issuer day" (note)

Varies depending on provision concerned

As for 2

Where a provision applies to an ELMI, its related transitional provision will also apply. The effect of paragraph 2 is to ensure that the transitional provision applies from "e-money issuer day" (note) (and not from the earlier date of commencement).

As for 2

Note For the purposes of these transitional provisions, "e-money issuer day" means:

(1)

the beginning of 27 April 2002 unless (2) applies;

(2)

in relation to an "existing issuer":

(a) the beginning of 27 October 2002; or

(b) if earlier, the beginning of the day on which the issuer is given permission to issue electronic money.

"Existing issuer" means a body corporate or partnership which, immediately before 27 April 2002:

(a) has its head office in the United Kingdom, and is carrying on by way of business in the United Kingdom the activity of issuing electronic money; or

(b) has its head office in an EEA State other than the United Kingdom, and is carrying on such an activity by way of business in the United Kingdom without contravening the law of that other EEA State.

01/12/2004
Future version of ELM TP 1 after 30/04/2011

ELM Sch 1

Record keeping requirements

01/12/2004

ELM Sch 1.1

The aim of the guidance in the following table is to give the reader a quick overall view of the relevant record keeping requirements.

It is not a complete statement of those requirements and should not be relied on as if it were.

01/12/2004

ELM Sch 1.2

Handbook reference

Subject of record

Contents of record

When record must be made

Retention period

ELM 3.5.11 R

Closely related persons

Record of steps taken to prove persons not closely related

In anticipation of taking and while persons takes advantage of ELM 3.5.10 R

Three years after the firm ceases to take advantage of ELM 3.5.10 R

ELM 6.9.7 R

Systems requirements that have to be fulfilled in order to be allowed to have customer e-money balances in excess of the purse limits

Identity of persons entitled to e-money, the amount to which entitled, identity of persons with redemption right and redemption amount

On-going as a condition of issuing e-money outside the purse limits

Not specified

01/12/2004

ELM Sch 2

Notification requirements

01/12/2004

ELM Sch 2.1

The aim of the guidance in the following table is to give the reader a quick overall view of the relevant requirements for notification and reporting.

It is not a complete statement of those requirements and should not be relied on as if it were.

01/12/2004

ELM Sch 2.2

Handbook reference

Matter to be notified

Contents of notification

Trigger event

Time allowed

ELM 2.5.5 R

Projected amounts of e-money outstandings

Revised projections under ELM 2.5.4 R

Original projections significantly incorrect

Within ten business days of need for revised projections having been established

ELM 3.5.21 R

Reportable large exposure

Pending or existing reportable large exposure not already notified

A proposal to enter into a transaction or transactions that would result in a reportable large exposure or, if not notified at the proposal stage, once a reportable large exposure exists

Immediate

ELM 4.4.5 G

Intention to launch a promotion under which the price paid by purchasers of e-money is less than its monetary value

Intention and details about the promotion

Decision to launch such a promotion

Immediate

ELM 4.4.6 G

As above

Changes in expectations and any substantial difference between expectations and actual outcome

Fact of change or difference in outcome

Immediate

ELM 8.7.1 R

Periodic reports

Form ELM-SI

End of each half financial year

Within ten business days of the end of each half financial year

ELM 8.7.2 R

Change reports

Change in conditions in ELM 8.4

Fact of change

Within two business days of the change occurring

ELM 8.7.3 R

Where small e-money issuer's total liabilities exceed 5 million euro

Form ELM-SI

Fact of excess

Within two business days of the excess occurring

ELM 8.7.13 R

Corrections to information provided

Full details, an explanation for the error and the correct information.

On small e-money issuer's becoming aware of the need to correct the information

Immediately

01/12/2004
Future version of ELM Sch 2.2 after 31/08/2008

ELM Sch 3

Fees and other required payments

01/12/2004

ELM Sch 3.1

There are no requirements for fees or other payments in ELM.

01/12/2004

ELM Sch 4

Powers exercised

01/12/2004

ELM Sch 4.1

The following powers and related provisions in or under the Act have been exercised by the FSA to make the rules in ELM:

Section 138 (General rule-making power)

Section 150(2) (Actions for damages)

Section 156 (General supplementary powers)

Article 9G(1) (Obtaining information from certified persons etc) of the Regulated Activities Order

Article 9H(1) (Rules prohibiting the issue of electronic money at a discount) of the Regulated Activities Order

01/12/2004

ELM Sch 4.2

The following powers in the Act have been exercised by the FSA to give the guidance in ELM:

Section 157(1) (Guidance)

01/12/2004

ELM Sch 4.3

The following powers and related provisions in or under the Act have been exercised by the FSA in ELM to direct or require:

Section 51 (Applications under this Part)

Article 9D(a) (Applications for certificates) of the Regulated Activities Order

Article 9F(2) (Revocation of certificate on request) of the Regulated Activities Order

01/12/2004

ELM Sch 5

Rights of action for damages

01/12/2004

ELM Sch 5.1

The table below sets out the rules in ELM contravention of which by an authorised person may be actionable under section 150 of the Act (Actions for damages) by a person who suffers loss as a result of the contravention.

If a "Yes" appears in the column headed "For private person?", the rule may be actionable by a "private person" under section 150 (or, in certain circumstances, his fiduciary or representative). A "Yes" in the column headed "Removed?" indicates that the FSA has removed the right of action under section 150(2) of the Act. If so, a reference to the rule in which it is removed is also given.

The column headed "For other person?" indicates whether the rule is actionable by a person other than a private person (or his fiduciary or representative). If so, an indication of the type of person by whom the rule is actionable is given.

01/12/2004

ELM Sch 5.2

Chapter/Appendix

Section/Annex

Paragraph

Rights of action under section 150

For private person?

Removed?

For other person

All rules in ELM 6

Yes

All rules in ELM 8

Yes (note)

All other rules in ELM

Yes, ELM 1.6.1 R

Note: the effect of article 9G(3) of the Regulated Activities Order is that the rules in ELM 8.7 are also actionable against a small e-money issuer (which is not an authorised person).

01/12/2004

ELM Sch 6

Rules that can be waived

01/12/2004

ELM Sch 6.1

The rules in may be waived by the FSA under section 148 of the Act (Modification or waiver of rules).

Article 9G(2) of the Regulated Activities Order provides that section 148 of the Act applies in relation to rules made under article 9G(1) (Obtaining information from certified persons etc.) as if references in that section to an authorised person were references to a certified person (referred to in ELM as a small e-money issuer).

Article 9H(2) of the Regulated Activities Order provides that section 148 of the Act applies in relation to rules made under article 9H(1) (Rules prohibiting the issue of electronic money at a discount).

01/12/2004

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ELM Electronic Money

Used in

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Application,contents, purpose and general

Application

Application of different chapters of ELM (except for an incoming EEA firm or an incoming Treaty firm)

Incoming EEA firms and incoming Treaty firms

Firms established outside the EEA

Distance marketing activities

Contents and purpose

Restriction on issuing e-money

Meaning of e-money and application of financial promotion

Distance contracts: cancellation

Right to cancel

Cancellation period

Failure to give information on cancellation rights

Exercising the right to cancel

Application of other parts of the Handbook to ELMIs

Application of other parts of the Handbook to ELMIs

Actions for damages

Initial and continuing own funds requirements

Application

Purpose

Base capital requirements

Calculation of initial capital and own funds

Calculation of initial capital and own funds

Ordinary share capital

Reserves

Net profits

Partnership capital

Intangible assets

Losses

Subordinated debt capital: requirements for both upper and lower tier two capital

Subordinated debt capital: additional requirements for lower tier two capital

Subordinated debt capital: additional requirements for upper tier two capital

Material holdings

Limits on components of own funds

Adjustments to own funds

Credit institutions and material holdings

Exclusion from own funds

Continuing capital requirement

Obligation to meet own funds requirement

Calculation of own funds requirement

Newly authorised ELMI without a six month average

Management of the e-money float

Application

Purpose

Asset-liability management

Liquid assets

Test for liquidity

Establishment of the e-money float

Foreign exchange risk

Calculation of FX exposure

FX exposure limits

Large exposure risk

Large exposure limits

General rules for calculation of exposures

Exclusions

Calculation of large e-money float exposure

Treatment of guarantees and collateral

Notifying the FSA of reportable large exposures

Factors to consider when deciding whether to incur an exposure

Liquidity and interest rate risk

Derivatives

Limitationson activities

Application

Purpose

Restriction to issuing e-money and related activities

Restriction on activities

Restriction on giving credit

Restriction on interest

Restriction on holdings in other undertakings

Prohibition on issue of e-money at a discount

Systemsand controls; Rules for making calculations

Application

Purpose

Business to be directed by at least two individuals

Systems and controls: e-money firms

Organisation and internal control mechanisms

Application,
contents, purpose and general

Limitations
on activities

Systems
and controls; Rules for making calculations

Redemption, information requirements
and purse limits