1. E-money and financial crime: EU requirements and the UK’s risk-based approach Hannah Lynes, Financial Crime Policy Unit, UK Financial Services Authority Ankara, Turkey, 19-20 March 2007

2. Contents FSA – who we are What is e-money? EU and UK legal framework UK risk-based approach E-money and money laundering risk ID requirements for e-money Key messages

3. Financial Services Authority UK’s major financial regulator statutory objectives –Market confidence –Public awareness –Protection of consumers –Reduction of financial crime

4. Principles of Good Regulation Efficiency and economy Role of management Proportionality Innovation International character Competition

5. What is e-money? “Monetary value, as represented by a claim on the issuer, which is: a)stored on an electronic device; b)issued on receipt of funds; and c)accepted as a means of payment by persons other than the issuer.”

6. EU requirements Electronic Money Directives 2000 –No 2000/46/EC –No 2000/28/EC Money Laundering Directive 2001 Money Laundering Directive 2005 Payments Regulation 2006

7. UK AML Framework PoCA ML Regulations FSA Handbook JMLSG Guidance

8. Joint Money Laundering Steering Group –17 trade associations (financial services) –Producing guidance since 1990 Guidance approved by HM Treasury Courts and FSA take into account

9. The UK’s risk-based approach Legal framework – subject to EU parameters Proportionate supervision Principles-based regulation Senior management responsibility

10. Why be risk-based or principles-based? Risk-based Proportionate use of resources Principles-based Uses firms expertise Better for customers Harder for criminals

11. Is e-money high risk? Depends on: –The product –The firm’s systems and controls –The level of regulation

12. What affects the risk level? Value and frequency of transactions Cross-border transactions What is purchased e.g. betting, gaming Funding of purses using cash No upfront ID Non face-to-face Outsourcing of AML controls

13. What affects the risk level? (continued) Size of customer base Size of acceptance network Ability of non-verified 3 rd parties to use the product Multiple cards or accounts per consumer Cash refunds for purchases

14. Mitigating the risk Product design Systems and controls –ID checks –Transaction monitoring –Suspicious transaction reporting –Ability to freeze or close accounts –Money Laundering Reporting Officer –Senior management involvement –Staff training –Record keeping

15. Differentiating e-money issuers Electronic Money Directive 2000 - derogation for small e-money issuers UK –Banks and building societies (FSA) –Specialist e-money issuers (FSA) –Small e-money issuers (HM Revenue and Customs)

16. ID requirements – 3 rd ML Directive Check ID when –Establishing a business relationship –Single or linked transactions of 15000 euros or more –Suspicion of Money Laundering/Terrorist Financing (ML/TF) –Doubts about previously obtained customer ID data

17. E-money derogation ID not required if: –non-rechargeable device with purse size no more than 150 Euros –Rechargeable device with annual cumulative transaction limit of 2500 Euros Redemption limit of 1000 Euros Except where ML/TF suspected Ongoing monitoring is required

18. Payments Regulation 2006 Transfers of funds to be accompanied by complete information on the payer Transfer of funds = through a payment service provider by electronic means E-money derogation for transactions up to 1000 Euros, where Member State applies 3MLD derogation.

19. UK ID requirements for e-money UK already allows e-money issuers not to check ID in certain conditions UK will use the e-money derogations But will expect firms to take a risk-based approach JMLSG Guidance describes good practice

20. Key messages Different e-money products present different levels of risk Risk can be reduced through: –product design, –firms’ systems and controls –regulation Risk-based and principles-based regulation can be more effective and proportionate.

21. Further information European Commission –http://ec.europa.eu/internal_market/company/financial- crime/http://ec.europa.eu/internal_market/company/financial- crime/ –http://ec.europa.eu/internal_market/payments/emoney/inde x_en.htmhttp://ec.europa.eu/internal_market/payments/emoney/inde x_en.htm HM Treasury –http://www.hm-treasury.gov.ukhttp://www.hm-treasury.gov.uk Financial Services Authority –http://www.fsa.gov.ukhttp://www.fsa.gov.uk JMLSG –http://www.jmlsg.org.ukhttp://www.jmlsg.org.uk