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OLUJOKè E. AKINDEMOWO[∗]
The benefits and risks of the introduction of the use of electronic money products are a matter of concern for financial system regulators, and have sparked an international debate on the need for, method and extent of electronic money regulation. Three divergent approaches have been adopted in the United States, the European Union, and Australia to this question. The differences in approach stem from the different priorities accorded identified objectives, as well as the effect of unique national influences. Policy similarities may however be strengthened as a result of trends towards globalisation or international congruence.
A variety of digital stored value products, collectively referred to as 'electronic money' (e-money), have developed over the last few years and are a cause of concern of financial system regulators. The evolving products are presently distinguished by two types: Stored Value Cards (SVCs) and Network Money. Both are intended to function as substitutes for cash.[1]
Both forms of e-money share similarities - the transacting or access device is a computer in both cases - a microprocessor embedded in a plastic card in the case of SVCs and ordinary computers - desktops, notebooks, palmtops commonly available to the public in the case of network money. Both forms also represent prepaid value for use with merchants and other recipients. A central processing module or clearing unit may be involved in the processing of the transaction. Design and implementation features of each type are however very distinct. SVCs are essentially presently hardware based, while network money is software based. Configuration specifics such as the time between prepayment of value and its conversion to digital form, or which party is in effective control of value earmarked for digital conversion before value, have significantly different consequences and raise different issues. Though they are presently regarded as distinct products, the emergence of products offering the features or strengths of both types cannot be far off.[2]
The question of how the risks the use of such products pose may be minimised while the benefits of their use is maximised is one with which regulators are presently grappling. It is relevant that the widespread implementation of such systems is regarded by some as inevitable and merely a matter of time, and that this has provided the context for a vital debate on how such systems should be regulated, if indeed they should be regulated at all.
Different responses to this question have become evident in the policies that are developing and are being implemented in different jurisdictions. This article identifies some of the objectives that presently underlie regulatory approaches adopted in Australia, the European Union, and the United States. The influences shaping developing policy in these jurisdictions become more evident in the light of such objectives, and these may further provide hints as to likely directions of future policy.
The following are commonly expressed or may be discerned as e-money regulatory objectives:
Ensuring and protecting the soundness and stability of the financial system through the control or supervision of the associated payment systems, is an objective that can be quickly identified. This accomplishment of this objective is targeted in a variety of ways. The management of risks commonly identified as possessing the potential to destabilise the financial system – and of these, those arising in relation to the operation of electronic money systems, is one method. The redefining of monetary aggregates to include stored value in circulation, is another while the deliberate targeting of all provider participants in electronic money services with the aim of subjecting them to comprehensive, centralised controls, is yet another.[3]
Consumer protection is an objective cited in support of regulation.[4] The stability of the financial system is understood to be closely related to the public confidence in payment products and the payments system as a whole remaining steady. It has also been observed that consumer acceptance is a major determinant of the success of a product regardless of its technical excellence. Anything having the ability to detrimentally affect consumer confidence is accordingly deemed worthy of regulation whether the inability of a value issuer to meet payment claims, repeated consumer fraud, or the problematic operation of systems with the potential for knock-on systemwide reputation losses. Such regulation may be formal, as in the form of legislation, or informal, as in voluntary industry codes of conduct.
Regulation is also advocated as a means of encouraging innovation and the development of payments systems. The argument is that the order, certainty, and security thus conveyed to the payments arena will engender an environment within which such developments will flourish. The counter argument to this view is that regulation will hamper or quench such development.
The enabling of fair competition between participants in the payments system is another clear objective. The facilitation of the development of 'a level playing field' is one commonly found in financial system reviews, and regulatory proposals. The benefits of a free market within which market forces are permitted to determine issues are also sometimes extolled in this context, though it may be qualified by the observation that there are issues such as consumer protection, which the market, being primarily concerned with profit, will not determine appropriately.[5]
The introduction of regulatory controls is also often advocated on the basis that it will provide legal certainty. Issues such as whether the issue of digital stored value constitutes the taking of deposits or prohibited issuances of currency, whether it is subject to 'money transmitter' provisions, or whether industry codes of conduct apply are examples of such areas of uncertainty.
In the European context, requirements of the Common Market such as the elimination of trade barriers among member states, have made the harmonisation of members a fundamental requirement. Given that the process of harmonisation has been typically effected by the promulgation of EU Directives specifying minimal standards and requirements for translation into national law, the elimination of such uncertainty becomes a significant argument in favour of regulations aspiring towards such an objective.
The global nature of the payment systems market must be embraced by proposed products because competition for market share will not be restricted to national markets but played out in the international arena. The elimination of legal obstacles to international access, by means of regulation for example, is likely to be an increasingly important strategy in THE assurance of systems viability.[6]
The adoption of regulations perceived as excessively restrictive will conversely discourage investors from setting up or otherwise investing in systems within that jurisdiction – as a result of regulatory arbitrage, such providers will be attracted to jurisdictions with less restrictive regulations. Congruency in the policies and regulations of nations wishing to be major players in the emerging international electronic money market may discourage such regulatory arbitrage.
Arguments for regulation based on the desire to provide a level playing field are often supported by the observation that the failure to regulate newer participants in the industry, who being neither banks nor Non-bank Financial Institutions (NBFIs) are not covered by existing banking regulations, is unfair. The financial institutions being subject to regulatory requirements such as minimum capital or disclosure requirements, it is argued, are thus subject to competitive disadvantages in comparison with the newer entrants who are not so regulated. Policies mandating that only financial institutions be permitted to issue digital stored value, or that all entities participating in the provision of such services be subject to the same core restrictions, have however been criticised as being blatant measures aimed at preserving status quo. According to this counter argument, the former perspective does not take into account the significant advantages financial institutions, particularly banks, have against newer entrants.[7] Such recommendations are thus regarded by some as being thinly disguised measures aimed at the preservation of the traditionally central role of banks in payment systems, or at least, the consolidation of their present position to avoid further undermining of their influence within payment systems.[8]
Some analyses of the nature of electronic money also betray a presumption that financial institutions must play a part in its issue or settlement.[9]
Although electronic money systems are intended to function as the equivalent of cash, they differ from cash in terms of the significant erosion of control over spending power which they represent. Unlike cash which is an anonymous store of value available for spending at the whim of the holder, electronic money may be susceptible to central tracking, blacklisting and being rendered invalid at the whim of a system controller. That electronic money, in common with other digital data, represents power able to be harnessed for great good or evil is a fact that is not lost on regulatory authorities – they are presently grappling with the issues involved in the monitoring and pre-empting of the use of electronic money for criminal purposes such as money laundering and illicit movements of currency.
Different approaches have been adopted in three jurisdictions: European Union, the United States and Australia. This is despite the fact that most of the aims previously noted feature in the electronic money regulatory policy objectives of each jurisdiction:
Detailed, prescriptive legislative provisions have been proposed for the regulation of non-bank electronic money issuers (NBEMIs). The European Commission's Proposal for a Directive on the taking up, pursuit of and prudential supervision of the business of electronic money institutions is a proposal for legislative restriction that will apply to NBEMIs only. It includes initial capital and ongoing own funds requirements, limitations on business activities and investments in, and supervision by competent authorities no less than twice a year.[10]
Electronic money is defined as monetary value as represented as a claim on the issuer which is (i) stored on an electronic device; (ii) issued on receipt of funds of an amount not less in value than the monetary value issued; (iii) accepted as means of payment by undertakings other than the issuer.[11]
It is intended that NBEMIs shall not be able to provide credit under any circumstances, and that the redeemability of electronic money made a compulsory option for bearers of electronic stored value.[12] It is expressly provided that the receipt of funds will not constitute a deposit if they are immediately exchanged for electronic money, and stated further that the receipt of funds received from the public in exchange for electronic money that results in a credit balance left on account with the issuing institution shall constitute a deposit.[13]
In light of the prevailing view in this jurisdiction that the issue of electronic money should be limited to credit institutions only, the carrying on of the business of electronic money issuance is expressly prohibited to institutions other than credit institutions. The proposal is however accompanied by separate proposal for the amendment of the definition of credit institution to include electronic money issuers.[14]
Pursuant to the recommendations of the Wallis Inquiry, a legislative package aimed at improving competition and efficiency, and preserving the integrity, security and fairness of the Australian financial system was passed in 1998. The role of the Reserve Bank in regulating the payments system was also strengthened and made more accountable, but the regulation of the payments system for the first time was separated from the prudential regulation of banks in order that the increasing number of non-bank participants competing in the payments system might be effectively regulated. The Payment Systems (Regulation) Act 1998 espouses consumer protection as an objective although this is approached by identifying the development of efficient and safe payment systems, a benefit to both customers and providers, the consequence of the supervisory regime provided therein.
The legislation applies to payment systems in general and is phrased in technology neutral language. It addresses potential market failures by including liquidity, collateral and capital requirements among those that may imposed on providers within a system designated by the Reserve Bank as being subject to the Act. The Act will apply in the main to non-bank providers, such as NBEMIs, because banks and non-bank financial institutions (NBFIs) are already subject to high prudential standards. Because the technology neutral language employed may apply to a variety of systems in which financial institutions play a role, it provides that the holder of stored value must be an Authorised Deposit-taking Institution (ADI), have an authority or be subject to an exemption issued by the Reserve Bank. The holding of stored value other than by such entities is an offence.[15]
The Act defines a purchased payment facility as one other than cash which is purchased by a person from another person, is able to be used as a means of making payments up to that amount and is available for use under the conditions applying to the facility, which payments are to be made by the provider of the facility or a person, (other than the user of the facility) acting under an arrangement with the provider. A holder of stored value is the person who is to make payments, that is, the provider, and not the user of the facility. The Reserve Bank is given power to impose an access regime and standards upon a payment system where it is in the public interest to do so. Consultations with interested parties prior to the imposition or variance of such access regimes has been a requirement in most cases. Participants in access regimes are subject to the direction of the Reserve Bank, as are prospective participants in access regimes.[16]
This legislative framework has the potential to be less restrictive upon NBEMIs than the EU requirements, depending on the requirements the Reserve Bank may consider appropriate as a condition of the grant of an authority to hold stored value. In the case of both authorities and exemptions to hold stored value, the Reserve Bank must be satisfied that the applicant or authorised corporation(s) involved will be able to satisfy the obligations of the stored value of the purchased payment facility. The Reserve Bank may also pronounce facilities it considers appropriate as exempt from the application of the Act. In doing so it will have regard to the number or types of people who may purchase the facility, and the restrictions, if any, that limit the number or types of people to whom payments may be made using the facility. This provides the Reserve Bank with a basis to exempt electronic money forms generally regarded to pose no or minimal systemic risk, such as single use or small closed SVC facilities.[17]
The preference in the United States is to carefully monitor and evaluate electronic money developments both nationally and internationally while refraining from the enactment of legislation to regulate the issue of electronic money for the time being.[18]
It is considered that the enactment of such legislation at this early stage in the development of the technology would be premature, particularly since it is extremely difficult to predict the direction innovation may take.[19]
This willingness to adopt this 'wait and see' approach, which is significantly less restrictive than the two previously considered, is informed by several insights. A high degree of faith in the regulatory abilities of market forces to determine, for example, who will participate or which products or providers will succeed in the industry is an important pillar of this policy position. Competitive forces, and the efficient functioning of measures protecting fair competition in the market, are therefore relied upon.[20]
There is also confidence in the will and initiative of the private sector to develop solutions to identified issues for concern. This has been the case in some instances in the past, and it is believed that there will be strong incentives for them to do so in the case of electronic money. It is pertinent to note here that the US Federal Reserve has stated that it has no present plans to issue electronic money.[21]
There is an apparent policy to attend to the issues raised directly by the provider/consumer relationship separately. Disclosure regimes for the benefits of consumers, the allocation of liability in case of fraud or malfunction, and similar matters are covered for the purposes of earlier payment forms such as electronic fund transfers (EFTs) in the Electronic Fund Transfer Act 1978 and its companion Regulation E. It is generally believed that these provisions do not apply in general to electronic money, but may if amended to reflect the needs of the newer form of electronic payments.[22]
It has been generally concluded that the issues arising from the use of electronic money do not as yet pose significant threats. It has been observed, for example, that the monetary policy implications are presently negligible, and that the current development and uses of electronic money are so embryonic that they are unlikely to be of much use to criminal elements though will be keep under close observation.[23]
In addition to this, measures to identify the systemic risks posed by the operation of such systems are being taken, and effective risk management techniques being investigated and implemented.[24]
It is believed, in any case, that premature regulation will divert, hinder or extinguish innovation and vigorous development in the field, and that it would be a strategic miscalculation to hobble the ability of US enterprises to compete nationally and internationally in what has been described as 'the best market the world has known just as it is emerging'.[25]
It is clear that the approaches preferred in each of these jurisdictions are markedly different. These preferential differences are explained in part by the fact that varying combinations of the following influences apply according to the unique conditions of each jurisdiction:
The question of whether electronic money satisfies the definition of money is one that is appropriately explored elsewhere.[26]
However it is pertinent to note that there have been official determinations (and re-determinations) on the related issue of whether stored value products constitute 'deposits' for the purposes of banking regulations. While the answers to these questions have been 'not for now, though it may in time, and 'no' respectively,[27]
the redefinition of money aggregates has been forecast.[28]
The utilisation of systemic and other risks as arguments for the regulation of electronic money also reveal an, at least implicit, presumption that electronic money will function as money and should be regulated as such.[29] Estimates as to when stored value will function as money, commonly predicated on electronic money systems achieving a significantly larger share of the market than at present, vary but generally indicate long time lines.[30]
In comparison to the US, with its long established payments system spread over contained and familiar territory, the EU is in a state of flux as processes set in motion decades ago to achieve a borderless cohesive internal market of distinct member states are only just fully coming to fruition. The Euro is still to be fully implemented and the processes chosen to this end, have implications for the stability of the EU, at least in the short term. Specific, restrictive regulations, imbued with the potential to encourage greater stability, are thus perceived as highly desirable.
A need for centralised control is a crucial assumption present in most arguments in favour of the regulation of electronic money, indeed, this is taken for granted as an elementary base of economic and monetary theory. Analogies from the so called ‘free banking era’ in the United States, and other similar historical events have been drawn in the context of discussions considering the application of minimal or formal regulations to electronic money by influential commentators such as Alan Greenspan, governor of the US Federal Reserve. While he has been careful to qualify such analogies as being limited in sphere, there are certainly other commentators willing to go as far as to challenge the presumption that the control of a central bank is necessary and crucial to the stable and efficient functioning of any financial system.[31]
A presumption more commonly encountered however, is the confidence put in the ability of market forces to determine and settle issues within a free market.[32] This presumption has played a strong role in arguments against the regulation of electronic money.
It is taken for granted by some that it is inevitable that not all electronic money systems, whether those in operation today or those yet to evolve, will succeed. This presumption is used both to argue for the timely formulation of regulations able to pre-empt the systemic, credit and reputational risks and consumer dangers this would pose, as well as to caution against the formulation of overly prescriptive regulations based on the technology of today. In arguments of the latter type, such failures are regarded as a necessary process in the evolution of the technology, as the lessons learned from such failures shall contribute to the improvements in future offerings.
It is presumed by many commentators that electronic money, if not in its present form, certainly in a future configuration of digital stored value, will eventually replace cash. There have of course been comparisons and insights drawn from the US financial system in the 1970s. The word then was that electronic fund transfers (EFTs) were about to replace cash, yet it has not occurred thirty years later. With hindsight most commentators are now reluctant to provide guesstimates other than those expressed in terms of what will occur ‘sooner’ or ‘later’. It is of course possible that history will repeat itself, and cash and other paper based payment instruments continue to account for a large percentage of consumer transactions as at present.
Time is also discussed in the context of when will be the optimum time for the introduction of regulations. Those in favour of regulation argue that it must be introduced now to avoid as much harm as possible from the possible risks as well as pre-empting acquiescence or similar rights. It is also argued that the early implementation of regulatory requirements will result in cost effect developmental directions whereas later introductions may result in needless compliance expenses. The counter argument however is that wrong timing resulting in premature regulation would be destructive if not disastrous.
The trends discouraging regulatory arbitrage and encouraging international congruence are the same that are motivating and giving value, in terms of potential power, to certain jurisdictions. These jurisdictions seek to formulate regulations and policy in as timely a fashion as possible, in order that their provisions may serve as a de facto international minimal standard.[33]
The degree of power or influence ‘getting in first’ produces depends on the general influence of the country concerned. Such an exercise is likely to benefit a large developed country rather than a smaller, developing one.
Given the special significance the harmonisation of laws bears in the European Union, there is likely to be a strong preference for specific legislative standards upon which efforts at harmonisation can be based. Another peculiarly EU influence relates to the fact that familiarisation with electronic money has been identified as a desirable aid towards the final introduction of the Euro. The fact that financial systems regulation in member countries often take the form of prescriptive restrictive regulations, is another.
Past mistakes may exert their influence in that the lessons learnt from them are taken into account in the formulation of current regulatory policy with the aim that those mistakes are not repeated. It is no secret that US regulators now consider the decision taken in the 1970s, to strongly regulate the then emergent payments automation technology in its infancy, to have been a mistake. The fact that the government chose Automated Clearing House (ACH) technology as the way to go forward and attempted to encourage its development by resolving uncertainties through standards, regulation and other policies is now believed to have had a role in discouraging private sector initiatives that may have resulted in the development of alternative technologies.[34]
It may be concluded on reflection that important national interests will not be well served by formal regulation. The information technology sector, and in particular, the software industry, are extremely important US income generator, and its protection is a high priority. For this reason, with the hindsight of past mistakes, the US takes the strong view that regulation will inhibit or deter innovation and healthy development of the technology. The viewpoint, that market forces quickly eliminate unsound or otherwise unsatisfactory products, is thus the option that US regulators presently consider as most likely to serve their primary objectives rather than formal regulation.
Differences in the national infrastructure, or even the physical geographical dimensions of the country may play an indirect role by affecting which options are most viable in that context. The fact that there is an established payments infrastructure permitting a wide choice of payment in the US has meant that cash and cheques have remained the most used means of payment. Credit cards which have been available in the US for more than thirty years account for only 5% of all retail transactions, though they are used more than debit cards.[35]
SVC payment trials have however consistently performed poorly in the US. Countries without such extensive or established payments infrastructures in contrast have been eager to invest in the new smart card based systems.[36]
The smaller dimensions of countries such Belgium, Denmark and Portugal may also account in part for the greater enthusiasm with which SVC payments have been received there.
Because the introduction of regulations at an early stage often affects the directions in which the regulated industry develops, the shaping of development may itself be an objective pursued. It may for example be desired to factor the interoperability of payment devices into the industry from the very beginning. There may alternatively be intention to exclude the participation of certain entities.
It is clear from the above that each jurisdiction has different objectives, or at least, a different mix of objectives. A further differentiating factor is that the same objective may be accorded a different priority because competing priorities are balanced by means of trade offs based on political, strategic, and historical considerations.
Systemic stability, for example, is an obvious objective with a high priority in all three jurisdictions. There are however differing beliefs, coloured by national conditions, as to what the most appropriate means for the accomplishment of this end, is. In the European Union, with its contextual emphasis on centralisation, harmonisation and specificity, the choice to regulate electronic money products by means of specific, restrictive formal regulation is an unsurprising one. The view that systemic stability depends on centralist banking policies is an established one internationally, and this has a special resonance within the EU. The control of the introduction and operation of electronic money systems into a context coloured by the centralised pseudo-independent national systems raises peculiar issues and stresses of its own. The on-going implementation of the Euro has also underscored the quest for systemic soundness and stability. The possible adoption of devised regulations as a formal or defacto minimum international standard is recognised as a desirous opportunity, as is the international congruence of developing regulations, within EU policy.
There is, in contrast in the United States, a prevalent confidence in the inherent stability of the national payments system. Though the maintenance of systemic soundness is a priority, it is does not have the same pressing immediacy as in Europe, hence the priority given the protection of US innovation, investments and imports in international markets, as is the encouragement of innovation and development. Aware of the subtext of some current regulatory initiatives, which is in essence a quest for supremacy, the desire to protect whatever edge the US may have in the international information economy is strong, and past lessons from underestimating the role of market regulation while overestimating the beneficial influence of government control are not forgotten. The preference for market control as the option less likely to discourage innovation or development is however qualified by observations that this may not serve consumer protection and law enforcement needs.
The recent full scale review of the Australian financial system by the Wallis Committee produced recommendations for change to enable the system to adequately respond to what had in effect been a paradigm shift in the functioning of financial markets. A major objective in achieving this has been identified as the putting into place of a regulatory framework that will promote efficiency and competition in the payments system without compromising financial stability. The prevalent view is presently that market control alone is insufficient in the absence of regulation, despite financial markets relying heavily on the maintenance of free and competitive markets.[37] The chosen option has thus been to regulate, with the focus being on the realignment and streamlining of regulation to make more efficient and competitive, in contrast to the trend towards deregulation of previous years. Regulation is thus regarded as a prerequisite of systemic soundness, but only to the extent that there is a perceived market failure, and it can be demonstrated that the benefits of regulation will outweigh its costs.[38]
In relation to electronic money, this has meant that consumer protection has been identified as another important objective. The protection of value outstanding on stored value products by means of regulation, particularly in open systems, is seen as a means of bolstering the safety and integrity of the payments system. The consumer confidence that this would encourage would also have a beneficial effect on system development, as the latter is likely to be adversely impacted by the reputation risk that would result from the failure of an unsupervised issuer.
There are some similarities in the policies adopted in all three jurisdictions, and this is not surprising. It is interesting to observe that among the several considerations affecting the choice and influence of policy objectives, money analogies of both an explicit and unacknowledged order are a policy influence common to all three jurisdictions. The implicit principle that systemic soundness and prudential responsibility issues are appropriately considered separately from consumer protection concerns arising directly from the provider/consumer relationship is another. In the two jurisdictions where formal regulations have been or are to be adopted, they are particularly directed at NBEMIs, partly to level the competitive playing field. The weight accorded these common objectives or influences differs according to jurisdiction, particularly the conditions and priorities that are specific to each, and the overall results are clearly distinct – a laissez faire approach in the US, a restrictive prescriptive approach in the EU, and a flexible tailored approach in Australia. The differences between the regulatory approaches become less curious when they are viewed in the context of the peculiar characteristics, priorities, and political agendas of each jurisdiction. The emerging conditions and exceptions to requirements upon which electronic money issuance will be permitted in practice in all three jurisdictions cannot be authoritatively predicted now. It is possible however that jurisdictional similarities may increase, encouraged by trends towards international congruence, as this will exert an at least indirect influence on the development of policy. The extent to which wholly national objectives and priorities are surrendered, explicitly or implicitly, in light of such trends towards globalisation and congruence will be a matter to be monitored with interest in the ensuing years.
[∗] School of Law, College of Law and Business, University of Western Sydney;
o.akindemowo@uws.edu.au; http://www.uws.edu.au/vip/oakindem. Acknowledgment is made of a UWS (Nepean) Seed Grant which made a significant portion of the research underlying this article possible.
[1] Also called Electronic Purses or Hardware Money, and Digital Cash or Software Money respectively. For an explanation of the general workings of each type of system see A. Furche & G. Wrightson, Computer Money, (Heildeburg, Dpunkt, 1996).
[2] Bank for International Settlements, Committee on Payment and Settlement Systems (BIS/CPSS) & the Group of Computer Experts of the Central Banks of the Group of Ten Countries, Security of Electronic Money, (Basle, CPSS, 1996) pp. 5-10, also Griggs, I, Critique of the Report on Prepaid Cards. http://www.iang.org/papers/ 1994_critique.html Some SVC products such as Mondex™ envisage the storage of the subject stored value on a computer hard drive.
[3] Office of the Comptroller of the Currency (OCC), Stored Value Cards, http://www.occ.treas.gov/ftp/bulletin/96-48.txt, also BIS/CPSS et al, Security of Electronic Money , Basle, CPSSS, 1996).
[4] Lee, B and Longe-Akindemowo, O, Regulatory Issues in E-Money: A Legal-Economics Approach, Netnomics Vol 1 Issue 1 2000 p. 53.
[5] Wallis Committee, Final Report on the Financial System Inquiry, (Canberra , Australian Treasury, 1997) – see for example the Overview & Chapter 9: http://www.treasury.gov.au/public.
[6] US Department of the Treasury, Towards Electronic Money & Banking: The Role of Government,
http://www.occ.treas.gov/emoney/emconf.htm, especially the report of the proceedings of Panel 1 on international cooperation.
[7] See European Monetary Institute Working Group on EU Payment Systems, Prepaid Cards: Report to the Council of the European Monetary Institute, May 1994.
[8] See Vartanian ,T, Statement Before the Federal Deposit Insurance Corporation concerning Stored Value Cards and Electronic Payment Systems,
(September 12 1996) http://www.ffhsj.com/bancmail/tpvtest.htm p.9 at 2.2.3.
[9] FDIC Legal Counsel, Opinion #8 at 61 Fed Reg 40490 (August 2, 1996); also Vartanian, ibid. It is also common to find the expectation that NBEMIs will have to chose between being subject to the core prudential requirements applicable to financial institutions, or entering into an arrangement with a financial institution for the provision of stored value - Payments Systems Regulation Act 1998 (Cth) Explanatory Memo p.9.
[10] European Commission, Proposal for a….Directive on the taking up, pursuit of and prudential supervision of the business of electronic money
institutions http://europa.eu.int/comm/internal_market/en/finances /general/727.htm; and Explanatory Memorandum available at http://europa.eu.int/scadplus/leg/en/lvb/124003.htm
[11] European Commission, Proposal for a….Directive on the taking up, pursuit of and prudential supervision of the business of electronic money
institutions http://europa.eu.int/comm/internal_market/en/finances /general/727.htm, Article 1 Clause 3(b).
[12] Redeemability per se shall not imply that the funds received in exchange for electronic money is a deposit. See the Council of the European Union, Common Position (EC) No 8/2000…..on adopting a Directive….on the taking up, pursuit of and prudential supervision of the business of electronic money institutions, Official Journal of the European Communities, 2000/C 26/01 (28/1/2000), [hereinafter Common Position] in recitals no 8, 9, the Explanatory Memorandum, and Article 3 of the draft directive.
[13] See Common Position, Article 2 clause 3 and Common Position Recitals clause 8.
[14] Defined in the EU First Banking Directive as 'an undertaking whose business is to receive deposits or other payable funds from the public and to grant credits for its own account'; See also Common Position, Article 1, Clause 4.
[15] See Payment Systems (Regulation) Act 1998 (Cth) ss.22, 23 & 25.
[16] See Payment Systems (Regulation) Act 1998 (Cth) ss.9 (1) and 9(2), also ss. 7, 12, 13 & 26 and 28.
[17] See ss.9, 22 & 23 of the Payment Systems (Regulation) Act 1998 (Cth).
[18] MacDonough, W, The Transformation of the Retail Payments Business: Remarks by the President of the Federal Reserve Bank of New York before the BAI Conference The National Payments System, Washington DC October 8 1996 http://www.ny.frb.org/pihome/news/speeches /sp961008.html; also US Department of the Treasury, Towards Electronic Money & Banking: The Role of Government, http://www.occ.treas.gov/ emoney/emconf.htm (Section IV summary).
[19] See the remarks by the Honourable Michael N. Castle, Chairman Subcommittee on Domestic and International Monetary Policy, at the US Treasury Conference on Electronic Money & Banking: The Role of Government, http://www.occ.treas.gov/emoney/castle.htm for a particularly graphic analogy drawn with King Canute who vainly tried to control the ocean tides.
[20] See for example the observation of MacDonough that the market may itself constitute banks the core players in the electronic money issuance business http://www.ny.frb.org/pihome/news/speeches /sp961008.html.
[21] Remarks by Chairman Alan Greenspan, at the US Treasury Conference on Electronic Money & Banking: The Role of Government, Washington DC http://www.bog.frb.fed.us/BOARDDOCS/SPEECHES/19960919.htm; see also Remarks by Governor Edward W. Kelly Jnr, at the CyberPayments 96 Conference, Dallas Texas, June 18 1996 http://www.bog.frb.fed.us /BOARDDOCS/SPEECHES/19960618.htm.
[22] Particularly because they are not considered to be 'deposits' per se, and do not necessarily require a deposit account - see Office of the Comptroller of the Currency (OCC), Stored Value Systems, Information for Bankers (occ 96-48) http://www.occ.treas.gov/ftp/bulletin/96-48.txt, also FDIC Legal Counsel, Opinion #8 at 61 Fed Reg 40490 (August 2, 1996) and Vartanian, T, Statement Before the Federal Deposit Insurance Corporation, http://www.ffhsj.com/bancmail/tpvtest.htm.
[23] See Patrikis E, Internet Banking and Payment: Regulatory Issues - A US Perspective, presented at the Regulating Commercial Activity on the Internet Conference, St Paul de Vence, France January 22-24 1997 http://www.ny.frb.org/pihome/news/speeches/ep970124.htm, also see Kelly, Remarks by Governor Edward W. Kelly Jnr, CyberPayments 96, http://www.bog.frb.fed.us/BOARDDOCS/SPEECHES/19960618.htm.
[24] OCC, Stored Value Cards http://www.occ.treas.gov/ftp/bulletin/96-48.txt.
[25] See Kelly’s remarks at http://www.bog.frb.fed.us/BOARDDOCS /SPEECHES/19960618.htm, also Castle at http://www.occ.treas.gov/ emoney/castle.htm.
[26] See Akindemowo, O, The Fading Rustle, Chink and Jingle: Electronic Value and the Concept of Money, University of NSW Law Journal Vol 21 (No 2) at 466 http://www.austlii.edu.au/au/other/unswlj/thematic /1998 /vol21no2/akindemowo.html; also Akindemowo,O, Information Technology Law in Australia, Sydney, LBC/Thomson (1999) pp.123-131; and Alan, T & Beatty, A, The Law of Payment Systems, Sydney, Butterworths 2000 pp.53-56.
[27] See for example FDIC Legal Counsel, Opinion #8 at 61 Fed Reg 40490, OCC, Stored Value Cards, http://www.occ.treas.gov/ftp/bulletin/96-48.txt, also the European Commission, Explanatory Memorandum on the Commission Proposal for a….Directive on the taking up… of the business of electronic money at
http://europa.eu.int/scadplus/leg/en/lvb/124003.htm, as well as the immediately preceding references.
[28] See Kelly’s remarks http://www.bog.frb.fed.us/BOARDDOCS /SPEECHES/19960618.htm on including SVCs in monetary aggregates.
[29] Ibid.
[30] See for example Greenspan at
http://www.bog.frb.fed.us/BOARDDOCS /SPEECHES/19960919.htm, Kelly at Ibid., McDonough at
http://www.ny.frb.org/pihome/news/speeches/sp961008.html, also the Congressional Budget Office Study on SVCs (1998) at http://minneapolisfed.org/sylloge/cbo2.htm.
[31] See for example Is Free Banking More Prone to Failures than Regulated Banking? http://www.cato.org/pubs/journal/cj16n1-3.html, also The Cato Institute: Public Policy Analysis: Limited Government, Free Markets http://www.cato.org/.
[32] It has even been suggested that banks may be given the opportunity to be the primary issuers of electronic money by market forces even without government intervention see McDonough supra.
[33] For European Commission, Explanatory Memorandum on the Commission Proposal for a….Directive on… the business of electronic money institutions at http://europa.eu.int/ scadplus/leg/en/lvb/124003.htm.
[34] See example Greenspan at http://www.bog.frb.fed.us/BOARDDOCS /SPEECHES/19960919.htm and Kelly at http://www.bog.frb.fed.us/ BOARDDOCS/SPEECHES/19960618.htm.
[35] Furst,K. Lang, W and Nolle, D, Technological Innovation in Banking and Payments: Industry Trends and Implications for Banks, Quarterly Journal, Vol 17, No.3, September 1988 pp.23-25 (addendum to Kamih.achi at http://www.occ.treas.gov/emoney/kami6-11.htm).
[36] See Castle, at http://www.occ.treas.gov/emoney/castle.htm.
[37] See for example the comments of Jeffrey Carmichael, Chairman, APRA: Australia's New Regulatory Model, Speech to Forex 1998, Asia Pacific Conference ACI Assembly 27 November 1998.
[38] Ibid., also the Wallis Committee Final Report (Overview).
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