1. MEETING OF THE PAYMENT SYSTEMS MARKET EXPERT GROUP (PSMEG) Study on the impact of Directive 2009/110/EC on the taking up, pursuit and prudential supervision of the business of electronic money institutions 28 April 2015

2. This material is an intellectual property of VVA-Valdani Vicari & Associati S.r.l. It cannot be used and/or reproduced without specific authorization page 1 Agenda  Introduction to the study  Overall findings  Specific findings  Market analysis  Definitions and scope  Consistency  Market access and prudential rules  Recommendations

3. This material is an intellectual property of VVA-Valdani Vicari & Associati S.r.l. It cannot be used and/or reproduced without specific authorization page 2 Agenda  Introduction to the study  Overall findings  Specific findings  Market analysis  Definitions and scope  Consistency  Market access and prudential rules  Recommendations

4. This material is an intellectual property of VVA-Valdani Vicari & Associati S.r.l. It cannot be used and/or reproduced without specific authorization page 3 Study introduction Study background  Study on the impact of Directive 2009/110/EC on the taking up, pursuit and prudential supervision of the business of electronic money institutions  Commissioned by European Commission’s DG FISMA (previously DG MARKT)  Carried out by VVA in collaboration with PaySys  Timeline: January 2014 – October 2014 Overall purpose  Feed into the report assessing the economic and legal implementation and impact of the Directive  Contribute to the potential revisions of the EMD2

5. This material is an intellectual property of VVA-Valdani Vicari & Associati S.r.l. It cannot be used and/or reproduced without specific authorization page 4 Study introduction Scope  EU27 (excludes Croatia)  Covers time period since the introduction of the Directive in September 2009  Particular focus on time period since the transposition deadline on 30th April 2011 Objectives  Gather data on whether the revised Directive has helped to increase the take up of new, innovative and secure electronic money services in Europe  Examine to what extent the Directive has helped to provide market access to new companies and foster real and effective competition on the market  Assess to what extent the Directive has promoted lower prices for consumers, improved service performance and consumer protection  Gather data on practical and financial costs and benefits subsequent to implementation and application of the EMD

6. This material is an intellectual property of VVA-Valdani Vicari & Associati S.r.l. It cannot be used and/or reproduced without specific authorization page 5 Evaluation criteria  Effectiveness of the Directive, namely its impact on market structure, market entry and innovation, cross-border e-money activities, soundness of e- money institutions, prices and services provided, and user confidence  Efficiency of the Directive, concerning in particular the costs to e-money institutions  Relevance of the Directive’s scope and exemptions  Consistency with the latest Payment Services Directive and anti-money laundering provisions

7. This material is an intellectual property of VVA-Valdani Vicari & Associati S.r.l. It cannot be used and/or reproduced without specific authorization page 6 Study approach Research approach  Collect data on the e-money market  Assess implementation through interviews with competent authorities  Assess impact on consumers by consulting consumer associations  Assess impact on industry through interviews with e-money issuers  Examine specific markets in more detail using case studies(DK, FR, DE, IT, LU, MT, NL, UK)  Final validation workshop

8. This material is an intellectual property of VVA-Valdani Vicari & Associati S.r.l. It cannot be used and/or reproduced without specific authorization page 7 Agenda  Introduction to the study  Overall findings  Specific findings  Market analysis  Definitions and scope  Consistency  Market access and prudential rules  Recommendations

9. This material is an intellectual property of VVA-Valdani Vicari & Associati S.r.l. It cannot be used and/or reproduced without specific authorization page 8 Overall findings Overall stakeholder assessment is positive:  Lower capital requirements  Improved clarity compared to EMD1  Evidence of increased market activity  However, it is unclear to what extent the market activity can be directly attributed to the Directive Current challenges:  Inconsistencies in national transposition and implementation of the Directive. Particularly in regard the national application of the anti-money Laundering provisions and limited network exemption  Lack of clarity with regard to services falling within the scope of the Directive

10. This material is an intellectual property of VVA-Valdani Vicari & Associati S.r.l. It cannot be used and/or reproduced without specific authorization page 9 Agenda  Introduction to the study  Overall findings  Specific findings  Market analysis  Definitions and scope  Consistency  Market access and prudential rules  Recommendations

11. This material is an intellectual property of VVA-Valdani Vicari & Associati S.r.l. It cannot be used and/or reproduced without specific authorization page 10 Specific findings – Market Analysis  177 EMIs with more licenses under way  Most concentrated in the UK, with some countries in the EU having little experience with e-money licenses Source : Own analysis based on national registers. Status as of July 2014.

12. This material is an intellectual property of VVA-Valdani Vicari & Associati S.r.l. It cannot be used and/or reproduced without specific authorization page 11 Specific findings – Market Analysis  Majority of EMIs on the market obtained their licenses since 2011  While the overall e-money use is limited, the total value and volume of e- money transactions has been on the increase, although the existing data is incomplete.  While prepaid cards and e-wallets are the dominant e-money products, EMIs provide a range of services and represent a variety of business models. Source: Own analysis based on national registers and previous ‘snapshots’. Status as of July 2014.

13. This material is an intellectual property of VVA-Valdani Vicari & Associati S.r.l. It cannot be used and/or reproduced without specific authorization page 12 Specific findings - Definitions and scope  Concepts such as agents and distributors appear to not be well understood among key stakeholders in the context of e-money.  Both businesses and regulators need additional clarity with regard to the application of the limited network exemption.  There are different interpretations of what constitutes a limited network, which poses challenges to competent authorities, but also to e-money issuers who face different outcomes across the EU.

14. This material is an intellectual property of VVA-Valdani Vicari & Associati S.r.l. It cannot be used and/or reproduced without specific authorization page 13 Specific findings - Consistency  The relationship between the EMDII and the Payment Services Directive (PSD) and the distinction between e-money and payment accounts is not always clear to the stakeholders, especially as new business models emerge.  Another challenge is the national application of Anti-Money Laundering (AML) provisions, including the thresholds for due diligence requirements and the approach to defining and regulating agents and distributors in cross-border situations.

15. This material is an intellectual property of VVA-Valdani Vicari & Associati S.r.l. It cannot be used and/or reproduced without specific authorization page 14 Specific findings - Market access and prudential rules  While the overall assessment of the Directive’s impact on the e-money market is positive, additional efforts are needed to create a level playing field for EMIs in the EU in particular with regard to differences in national transposition and implementation of the Directive.  The differences in application of the optional exemption in Article 9 (waiving some requirements for smaller EMIs) can be a potential barrier to market growth.  EMIs tend to seek authorisation in Member States where competent authorities are familiar with e-money and apply relevant provisions consistently.  Therefore, in order to encourage the development of e-money products across the EU, it is also important to further support the national competent authorities in applying the EMDII.

16. This material is an intellectual property of VVA-Valdani Vicari & Associati S.r.l. It cannot be used and/or reproduced without specific authorization page 15 Agenda  Introduction to the study  Overall findings  Specific findings  Market analysis  Definitions and scope  Consistency  Market access and prudential rules  Recommendations

17. This material is an intellectual property of VVA-Valdani Vicari & Associati S.r.l. It cannot be used and/or reproduced without specific authorization page 16 Recommendations – Short- to medium- term  Key tool for addressing current challenges in the short- to medium-term is the development of additional guidance :  Guidance on classifying products as e-money, specifying the types of products and services to be classified as e-money, in particular highlighting the differences between payment accounts and e-money accounts.  Guidance on the limited network provision targeted at competent authorities and concerning ‘closed loop’, ‘open loop’ and ‘semi-open loop’ schemes to ensure more consistent national application of the provision.  Guidance on distinction between the concept of an agent and a distributor in the context of e-money.

18. This material is an intellectual property of VVA-Valdani Vicari & Associati S.r.l. It cannot be used and/or reproduced without specific authorization page 17 Recommendations – Longer-term  Longer-term recommendations could include:  Improving the passporting notification system by providing information to host authorities on the activities of EMIs passported into their jurisdiction.  The development of an intermediate category of a ‘large limited network’ ’that would be subject to some, but not all EMDII requirements, account for specificities of gift card business models (that are not strictly closed-loop), while providing additional level of consumer protection compared to such schemes being exempt.  Maximum harmonisation of specific provisions, such as thresholds for due diligence under AML provisions and allowing EMIs across all EU Member States to register as Small EMIs under Article 9.  Finally, merging the PSD and the EMD in the long-term would contribute to simplifying EU legislation in this field.

19. This material is an intellectual property of VVA-Valdani Vicari & Associati S.r.l. It cannot be used and/or reproduced without specific authorization page 18 Contact Pawel Janowski Principal Consultant VVA-Europe Ltd www.vvaeurope.eu Tel. + 49 (0) 151 267 29334 Email p.janowski@vva.itp.janowski@vva.it VVA