In an era of rapid digital financial innovation, the precise definition of electronic money (e-money) is crucial for regulatory clarity.
In an era of rapid digital financial innovation, the precise definition of electronic money (e-money) is crucial for regulatory clarity.
The European Banking Authority (EBA), referencing the Court of Justice of the European Union (CJEU) ruling in case C-661/22, recently provided guidance on when digital monetary value qualifies as e-money. This ruling sheds light on essential conditions that must be met for a financial instrument to be classified as electronic money under EU law.
According to the E-Money Directive (EMD2), electronic money is defined as:
“Electronically, including magnetically, stored monetary value as represented by a claim on the issuer which is issued on receipt of funds for the purpose of making payment transactions... and which is accepted by a natural or legal person other than the electronic money issuer.”
While this definition may seem straightforward, its application is not always clear-cut. The CJEU ruling clarifies key aspects that differentiate e-money from other digital payment instruments.
One of the most significant insights from the ruling is found in paragraph 47, where the Court states that e-money is “a monetary asset separate from the funds received.” This distinction is critical—e-money is not simply a digital representation of existing funds but rather a new, separate monetary unit that must meet specific criteria.
Paragraph 48 further establishes that the issuance of e-money requires:
This means that simply holding funds digitally does not automatically make them e-money; they must be issued in a distinct format recognized as such by both the issuer and the user.
Acceptance by parties other than the issuer is another crucial criterion for an instrument to be considered e-money. In paragraph 49, the Court states that e-money must be transferable and voluntarily accepted as a separate monetary asset. This goes beyond merely receiving funds; rather, it involves:
In the case in question, merchants were paid in scriptural money rather than electronic money, which means the transaction did not meet the legal standard for e-money acceptance. Simply put, if an entity is only facilitating payments rather than issuing a separate digital monetary asset, it does not constitute e-money.
Another key aspect clarified in the ruling is whether merchants or payees need to have a contractual agreement with the e-money issuer. Recital 18 of EMD2 emphasizes that e-money must be redeemable to maintain consumer confidence. Article 11 of EMD2 further establishes that redemption rights must be outlined in a contractual agreement between the e-money issuer and both holders and acceptors of e-money.
Thus, for someone to be considered an “acceptor” of e-money (rather than just a recipient of funds), they must have a direct contractual arrangement with the e-money issuer. If no such contract exists, the transaction fails to meet the definition of e-money acceptance under EU law.
For financial institutions, payment service providers, and fintech innovators, this ruling underscores the need for meticulous structuring of digital payment models. Compliance with e-money regulations is not merely about terminology; it’s about meeting well-defined legal criteria to ensure legitimacy and stability in the digital financial ecosystem.