The European Central Bank has warned EU rule makers to show extreme caution in waiving regulatory restrictions on issuers of electronic money.
The warning comes in the lastest issue of the ECB's monthly bulletin. Electronic money is defined by the Bank as a "payment instrument whereby monetary value is electronically stored on a technical device in the posession of the customer". A distinguishing feature of electronic money transactions is that they do not necessarily involve a bank account.
Under proposed EU legislation governing electronic money institutions, national authorities may grant a waiver if the storage device cannot hold more than EUR150 and if the total amount of financial liabilities related to outstanding electronic money does not normally exceed EUR5 million and never exceeds EUR6 million. The proposed framework limits the issuance of electronic money to traditional credit institutions and to a new type of credit institution known as an electronic money institution (ELMI). ELMI's operating within closed user groups may also be exempt from the legislation.
The ECB says the new regulatory requirements satisfy most of its concerns regarding issues of monetary policy, payment systems oversight and prudential supervision, but warns "it is important that the waiving of regulatory requirements...is implemented in a restrictive manner".
The ECB calls for "prudent implementation" of the waiver in national legislation and a restrictive granting of waivers to electronic money issuers. The Bank asks for a minimum level of harmonisation to the imposition of limitations on market risks and suggests the extension of capital adequacy directives to cover ELMIs.
The ECB says electronic money has the potential to become an important element of the euro area financial system. "ECB statistics show that electronic money usage in the euro area has so far remain subdued," the Bank notes. "However, based on the experience of other payment instruments, the possibility cannot be ruled out that growth in electronic money will quicken once a critical mass has been reached."