In the European Union a third form of legally recognized tender exists next to cash and book money: E-money. According to the second e-money directive of the European Union being effective as of 2009 e-money is legally defined as an 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 others than the issuer. Examples for e-money products are not only rechargeable chipcards but also and more and more frequently prepaid credit cards being connected to online accounts. The actual form of storage is irrelevant, e-money can be stored on mobile phones, computers or tablets as well as on central and decentral servers. Companies willing to commercially offer e-money to customers in Germany must obtain a prior license from BaFin as the competent regulatory authority. Once a license for the e-money business is granted in Germany it may also be used in other member states of the European Union if the company complies with the regulations of the EU-passporting procedure without any need for obtaining a second license in the host country.
The question whether e-money can be distributed via a blockchain solution in the European Union is fascinating from a regulatory point of view. The European regulators and so BaFin have stated quite early that Bitcoins and comparable blockchain units cannot be qualified as e-money in the sense of the second e-money directive 2009/110/EC due to the fact that they lack a central emitter issuing and re-exchanging the e-money, which would be necessary according to the legal definition from the directive. Legal literature consents to this argument generally without further assessment of the question. But anyhow, that telling argument with regard to bitcoins and other decentral cryptocurrencies does not automatically preclude e-money from being designed via a blockchain. If one takes a closer look, the issuance of blockchain units by a central emitter is actually possible and much more frequent than decentral open source blockchains, especially when considering that the major part of the current blockchain projects consists of companies creating blockchain as central emitters tokens via smart contracts on a blockchain such as Ethereum, EOS or Stellar. In all these cases a qualification of these tokens as e-money is legally not impossible and may under specific circumstances actually be advantageous for quite a number of business models in the payment industry. E-money is therefore generally designable on a blockchain. At the same time, the issuance of blockchain token may in individual cases qualify as e-money business, as long as a central emitter of the tokens exists.
A permission for e-money business is especially interesting, because it covers not only the issuance and re-exchange of e-money products into legal currencies but additionally allows the holder to provide payment services such as for example the payment account business, the performance of push and pull payment transactions as well as the offering of payment cards or the provision of money remittance services. Furthermore, e-money institutions are entitled to grant loans in specific cases and convert foreign exchange as long as these services are related to the e-money business or the payment services offered. The business models that can be performed with a permission for the e-money business therefore are numerous.
For a successful BaFin application for a permission for the e-money business the applicant must fulfil specific requirements. Next to the minimum starting capital of at least 350.000 euros which has to be to the free disposal of the company and free of third-party rights the e-money institution-to-be must present generally two fit and proper directors. In addition to that, a sustainable business plan has to be presented to BaFin that also shows how the applicant plans to handle business-related security risks and emergency situations and how the institution generally plans to comply with the applicable laws and regulations as for example regarding anti money laundering prevention.
Attorney Lutz Auffenberg, LL.M.
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