finance - law library · c money remittance; c execution of payment transactions where the consent...
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F I N A N C E - L A W L I B R A R Y
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Contents
1. Introduction..................................................................................................................................................................................4
2. Jurisdictions................................................................................................................................................................................5
3. Regulated activities............................................................................................................................................................7
4. International regulation of payment institutions, electronicmoney issuers and cryptocurrency operators.............................................................................10
Payment services and electronic money issuers.........................................................................................10
Virtual alternative currencies (cryptocurrency).................................................................................................11
5. Arrangement of payment business in certain jurisdictions.........................................13
5.1 European Union countries.......................................................................................................................................13
Payment Services Directive 2007/64/EC.............................................................................................................15
E-Money Directive 2009/110/EC............................................................................................................................16
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1. Introduction
This document is prepared for a wide range
of people interested in the arrangement
and conduct of activities to provide
payment services, issuance of electronic money
and transactions with cryptocurrency in dif ferent
jurisdictions with a relevant legal and regulatory
framework.
The purpose of this paper is to briefly acquaint the
readers with the most important information on the
issues listed above, including:
c Jurisdictions with comprehensive legal regulation
of payment services;
c Regulated activities;
c Existing law and other regulations in payment
services, circulation of electronic money and
cryptocurrency;
c Regulatory authorities;
c Organizational issues of companies registration
and licensing of activities;
c Reporting and taxation;
c Fulfillment of requirements in combating the
legalization of income from illegal activities.
The document contains no professional legal advice
and is an informational brochure only. All the given
numerical values, including capital requirements,
state duties, tax rates, etc., are valid as of the time
of preparation of these materials.
Jurisdictions with comprehensive legal regulation of payment services
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2. Jurisdictions
Jurisdictions suitable for arrangement of
business in provision of payment services and
electronic money issue can be divided into
the following categories:
c Recognized Global Financial Centers;
c Countries actively developing payment
services industry;
c Offshore Financial Centers, and
c Others
The recognized Global Financial Centers with
comprehensive laws regulating payment institutions
and e-money issuers include, in particular:
c UK;
c Hong Kong;
c Singapore and some others
Switzerland can be reasonably added to this list
as well, but this jurisdiction is characterized by the
absence of a special legal framework regulating
payment services and electronic money issue.
The only legal act directly related to payment
services provided by non-bank institutions is the
Act on combating the legalization of income from
illegal activities. Beyond complying with the AML
standards, non-banks are free to provide payment
services without the need to comply with any other
regulatory requirement except for certain restrictions
such as on the maximum amount stored in accounts
offered by non-bank prepaid services providers.
There are a number of countries, in particular,
countries in Southern and Eastern Europe, which are
actively developing their payment services industry
on the basis of detailed legislation of the European
Union, namely:
c Malta;
c Cyprus;
c Czech Republic;
c Estonia
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The traditional offshore jurisdictions with an
appropriate legislative framework include:
c Antigua and Barbuda
c Anguilla
c The Bahamas
c Belize
c British Virgin Islands
c The Cayman Islands
c Gibraltar
c The Isle of Man
c St Kitts and Nevis
Other jurisdictions can include jurisdictions having
relevant legislation with dif ferent degrees of
elaboration, but which are not popular for various
reasons, such as Latvia, Thailand, Kenya, Tanzania,
Uganda, Rwanda, Burundi, and others.
Antigua and BarbudaAnguilla
Gibraltar
The Isle of Man
St Kitts
and Nevis
The Bahamas
The Cayman Islands British Virgin Islands
Belize
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3. Regulated activities
Before we list the main types of regulated
activities, it is reasonable to define its
subjects.
In general, payment institutions and institutions
issuing electronic money can be defined as non-
banks that provide services for making payments
in relatively small amounts, yet their main activity is
not related to raising funds of the population through
deposits and credits on the account of the funds
attracted in such manner.
Relevant legislation of each jurisdiction has its own
list of activities subject to regulation. In general,
the legislation on payment institutions and e-money
issuers covers activities associated with the most
common payment instruments, namely:
c Credit and debit cards;
c Cashless transfers;
c Payment requirements (direct debit);
c Checks;
c Transfers without opening an account;
c Electronic money.
In particular, the Directive of the European
Parliament and the European Council 2007/64/
EC concerning payment services defines regulated
activities and activities of payment institutions,
which are not subject to its provisions.
Thus, according to Directive 2007/64/EC, payment
services include:
c Services enabling cash to be placed on a
payment account as well as all the operations
required for operating a payment account
(an account held in the name of one or more
payment service users which is used for the
execution of payment transactions)
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c Services enabling cash withdrawals from a
payment account as well as all the operations
required for operating a payment account
c Execution of payment transactions, including
transfers of funds on a payment account with the
user’s payment service provider or with another
payment service provider:
c execution of direct debits, including one-off
direct debits;
c execution of payment transactions through
a payment card or a similar device;
c execution of credit transfers, including
standing orders
c Execution of payment transactions where the
funds are covered by a credit line for a payment
service user:
c execution of direct debits, including one-off
direct debits,
c execution of payment transactions through
a payment card or a similar device,
c execution of credit transfers, including
standing orders
c Issuing and/or acquiring of payment instruments;
c Money remittance;
c Execution of payment transactions where
the consent of the payer to execute a
payment transaction is given by means of any
telecommunication, digital or IT device and the
payment is made to the telecommunication, IT
system or network operator, acting only as an
intermediary between the payment service user
and the supplier of the goods and services.
Activities that are not covered by Directive 2007/64/
EC include, among others:
c Payment transactions consisting of the non-
professional cash collection and delivery within
the framework of a nonprofit or charitable
activity;
c Money exchange business, that is to say, cash-
to-cash operations, where the funds are not held
on a payment account;
c Services based on instruments that can be used
to acquire goods or services only in the premises
used by the issuer or under a commercial
agreement with the issuer either within a limited
network of service providers or for a limited
range of goods or services;
c Payment transactions carried out between
payment service providers, their agents or
branches for their own account;
c Payment transactions between a parent
undertaking and its subsidiary or between
subsidiaries of the same parent undertaking,
without any intermediary intervention by
a payment service provider other than an
undertaking belonging to the same group
The Directive of the European Parliament and the European Council 2007/64/EC concerning payment services defines regulated activities and activities of payment institutions, which are not subject to its provisions
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At the same time, the Law of the Cayman Islands
concerning services related to money circulation
dated 2010, lists the following regulated services:
c money transmission;
c cheque cashing;
c currency exchange;
c the issuance, sale or redemption of money
orders or traveller’s cheques; and
c such other services as the Governor in Cabinet
may specify by notice published in the Gazette
The Decree on Regulated Activities of 2011,
as amended in 2013, which was issued in the
development of the Isle of Man Financial Services
Act of 2008, applies to the following services related
to the transfer of funds:
c Operation of a bureau de change.
c Provision and execution of payment services
directly.
c Provision and execution of payment services as
agent.
c Provision of cheque cashing services.
c Issue of electronic money.
Hereinafter, the regulated activities will be specified
in the relevant sections of a particular jurisdiction.
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4. International regulation of payment institutions, electronic money issuers and cryptocurrency operators
Payment services and electronic money issuers
Legislation, which should be studied in
order to arrange payment business, can be
conventionally classified as follows:
c Laws and other regulations governing, in
particular, registration of companies, requirements
to founders, directors, capital, accounting and
reporting, auditing, disclosure, etc.(Company Law
Directive 2009/101 / EC, Malta’s Companies Act
1995, The Isle of Man Companies Act 2006, etc.);
c Laws and other regulations governing the taxation
of legal entities (UK’s Corporation Tax Act 2010,
Malta’s Income Tax Act, etc.);
c Laws and other regulations directly governing
payment institutions and activities in the provision
of payment services, such as laws/regulations/
directives on payment services/transfer of funds
(Payment Services Directive 2007/64/EC, The
Cayman Islands Money Services Law, 2010, etc.);
c Laws and other regulations on combating the
legalization of income from illegal activities (3rd
Anti-Money Laundering Directive 2005/60/EC,
UK’s Money Laundering Regulations 2007, BVI’s
Proceeds of Criminal Conduct Act, 1997 and
Anti-money Laundering and Terrorist Financing
Code of Practice, 2008, etc.);
c Laws and other regulations governing certain
types of transactions such as wire transfers by
payment orders/requirements, cross-border
payments, etc. (Regulation (EU) No 260/2012 (the
SEPA Regulation), Regulation (EC) No 2560/2001
on cross-border payments in euro, Regulation
(EU) 2015/751 on interchange fees for card-
based payment transactions, etc.);
c Laws and other regulations ensuring information
security and preventing theft of funds
c Laws protecting the rights of consumers.
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Virtual alternative currencies (cryptocurrency)
A special case in the international regulation of
electronic money is currently represented by
cryptocurrency or vir tual alternative means of
payment such as Bitcoin.
Government regulation has for a long time been a
grey area for Bitcoin, both in the United States and
elsewhere. Although there have been a number of
disparate government reports either simply talking
about Bitcoin or providing a regulatory opinion
on some aspect of Bitcoin exchange, to date
we have not seen anything close to a conclusive
statement on digital currencies from any government
organization in any country in the world.
The problem is a dif ficult one; nearly all laws to date
that attempted to regulate online payments of any
form have all assumed a central issuer, and in the
case of Bitcoin it could be just as easily argued that
everyone is an issuer or that no one is.
The US government has moved to clarify its
regulatory stance on vir tual currencies such as
bitcoin, confirming that while users are not classified
as money services businesses (MSBs) subject to its
rules, exchanges and administrators are.
The guidance notice issued on 19 March 2013
by the Treasury’s Financial Crimes Enforcement
Network (FinCEN) distinguishes dif ferent types of
electronic money, namely:
c E-currencies and e-precious metals;
c Centralized vir tual currencies, i.e. a convertible
vir tual currency that has a centralized repository;
c Decentralised vir tual currencies, i.e. a
decentralised convertible vir tual currency
that has no central repository and no single
administrator, and that persons may obtain by
their own computing or manufacturing effort
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and the main actors:
c Users;
c Exchangers and
c Administrators
In the guidance notice, the Treasury’s Financial
Crimes Enforcement Network (FinCEN) confirms that
users of bitcoins, Amazon Coins and other vir tual
currencies, i.e. those “who use vir tual currencies
to buy and sell goods and services”, are not MSBs
under the Bank Secrecy Act and so do not fall
under registration, reporting, and recordkeeping
regulations.
However, exchangers - those «engaged as a
business in the exchange of vir tual currency for real
currency, funds, or other vir tual currency» - and
administrators - those «engaged as a business in
issuing (putting into circulation) a vir tual currency» -
are considered MSBs and have to be licensed.
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5. Arrangement of payment business in certain jurisdictions
5.1 European Union countries
Before proceeding to review matters related
to the arrangement of payment business in
certain countries of the European Union, it is
necessary to describe at least in general terms the
legislative process in the EU.
The EU legislation is based on the founding treaties
(primary law acts), regulations and directives (non-
legislative acts), adopted on the basis of the Treaties
and affecting, directly or indirectly, the laws of the
Member States of the European Union.
The EU legislative power is exercised by the Council
of the European Union and the European Parliament.
The European Commission has the r ight of
initiative to propose laws for adoption by the EU
co-legislators, i.e. the European Parl iament and
the Council of the EU representing EU Member
States’ governments. (The Council of the EU
is the EU institution where the Member States’
government representatives sit, i.e. the ministers
of each EU Member State with responsibil i ty
for a given policy area.) The vast majority of
European laws are adopted jointly by the European
Parl iament and the Council of the EU under the
so-called ordinary legislative procedure. This
legislative procedure gives the same weight to the
European Parl iament and the Council of the EU in
a wide range of areas.
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EU Directives lay down certain end results that
must be achieved in every EU Member State.
National authorities have to adapt their laws to
meet these goals; i.e. have to implement an EU
Directive, but are free to decide how to do so.
National implementation measures are texts officially
adopted by the authorities in an EU Member State
to incorporate the provisions of an EU Directive into
national law.
EU Regulations are the most direct form of EU law.
As soon as they are passed, they have binding legal
force throughout every EU Member State, on a par
with national laws. National governments do not
have to take action themselves to implement EU
Regulations.
In Section 5.1, the key interest in view of the
purpose of this document (arrangement of activities
of payment institutions and e-money issuers) is
focused on the following supranational regulations,
embedded in the domestic legal systems of the EU
Member States:
c Directive 2007/64/EC on Payment Services in
the Internal Market (Payment Services Directive)
c Directive 2009/110/EC on the Taking up, Pursuit
and Prudential Supervision of the Business of
Electronic Money Institutions
c Directive 2005/60/EC on the Prevention of the
Use of the Financial System for the Purpose of
Money Laundering and Terrorist Financing
c Regulation (EU) No 260/2012 Establishing
Technical and Business Requirements for Credit
Transfers and Direct Debits in Euro (the SEPA
Regulation)
c Regulation (EC) No 924/2009 on Cross-border
Payments in the Community
c Regulation (EC) No 2560/2001 on Cross-border
Payments in Euro
c Regulation (EU) 2015/751 on Interchange Fees
for Card-based Payment Transactions
Before proceeding to the matters of establishment
of the payment business in particular jurisdictions
of the European Union, it is necessary to say a few
words about the two basic directives: 2007/64/
EC concerning payment services, and 2009/110/
EC concerning electronic money issuers and
supervision over their compliance with mandatory
standards.
It should immediately be noted that both directives
are currently being revised.
The EU legislation is based on the founding treaties (primary law acts), regulations and directives (non-legislative acts), adopted on the basis of the Treaties and affecting, directly or indirectly, the laws of the Member States of the European Union.
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Payment Services Directive 2007/64/EC
The aim of the Payment Services Directive
(PSD) is to enhance efficiency, competition
and innovation in the European payments
market by integrating national payment markets. It
is part of the EU’s drive to create a single internal
market in retail payment services. It was passed in
2007 and has to be implemented in each Member
State by 1st November 2009.
The PSD has three principal components:
c a prudential authorisation regime for payment
service providers that are not banks or e-money
issuers;
c harmonised conduct of business rules which
apply to all providers of payment services; and
c provisions aimed at opening up access to
payment systems throughout the EU.
The main scope of the Payment Services Directive is
payment service providers (PSP). When a particular
service provider aims to offer what constitutes a
payment service under the scope of the directive—
and its applicable national implementations by the EU
Member States—this service provider will as a PSP
therefore become subjected to specific regulation.Я
The PSD impacts on banks, e-money issuers, money
transfer operators, payment collection networks, non-
bank credit card issuers, certain bill payment service
providers, mobile operators, merchant acquirers and
their agents.
More in particular, PSPs need to be granted
authorization in order to perform their tasks and
duties. Being granted such authorization is subject
to a number of requirements. For instance, PSPs
need to prove that they hold sufficient capital,
which can go up to EUR 120.000 for some of the
payment services defined in the directive’s annex.
Additionally, there are requirements regarding the
own funds of the PSP, calculated according to one
of the methods proposed by the directive, as well
as specific safeguard requirements holding that
funds of different users must be kept separate and
protected from other creditors or insured against their
value. The directive also regulates the provision of
ancillary services, agency, liability and recordkeeping
duties of payment institutions, the supervisions by
competent authorities and the exercise of the right to
establishment and freedom to provide services. The
directive also imposes transparency and information
duties on the PSP, yet also requires certain behaviour
of the user.
The Payment Services Directive also contains
provisions to limit or waive the authorization
procedure for small market players as well as
derogations for low-value payments.
The Payment Services Directive (PSD) is par t of the EU’s drive to create a single internal market in retail payment services.
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E-Money Directive 2009/110/EC
The E-money Directive is aimed at the issuers
of e-money. For the bulk of its provisions, the
E-money Directive follows the same path as
the Payment Services Directive and even directly
references this instrument, to the extent that it has
already been proposed that both frameworks be
merged. As such, the E-money Directive contains
provisions regarding mergers and takeovers, initial
capital and own funds, safeguards, complaint and
redress procedures, etc. More specific for e-money
is the provision holding that e-money must be issued
and redeemed at par value with received funds.
On the basis of these two key instruments, activities
of payment institutions and e-money issuers are
regulated in some countries of the European Union.
E-money Directive contains provisions regarding mergers and takeovers, initial capital and own funds, safeguards, complaint and redress procedures, etc.