Electronic Money Institutions: An introduction
An electronic money institution (EMI) is any person or institution, other than a bank, which issues electronic money. Electronic money is defined by the Financial Institution Rules for EMIs as ‘electronically, including magnetically, stored monetary value’. Electronic money can be stored on a physical device or stored remotely at a server through a specific account for electronic money and managed by the electronic money holder. An EMI device or instrument can only be used in limited outlets or for a specific service and this is different to a credit card which is not limited to any one outlet. For example, a travel pre-paid device that can only be used on specific methods of transport such as buses.
Licensing and Capital requirements
A company planning to establish an EMI in or from Malta must first apply in writing to the MFSA (the authority) and submit official application forms as applicable under the Financial Institutions Act (the Act). The EMI must follow the procedures and regulations as stated in the Financial Institution Rules.
EMIs are required to hold, at all times, initial capital amounting to €350,000. Pursuant to article 5a of the Act, EMIs must adopt the Own Funds Rule, and at all times are required to hold own funds. The own funds are calculated by ‘Method D’ of the Electronic Money Directive (the directive). Using this method means that own funds shall amount to at least 2% of the average outstanding electronic money. In the case where EMIs provide services and/or undertake activities that are not related to the issuance of electronic money, the own funds requirements for the activity shall be calculated in accordance with Methods A, B and C of the directive as may be directed by the authority. When the amount of outstanding electronic money is unknown in advance, the EMI shall calculate its own funds based on a representative figure assumed to be used for the issuance of electronic money. The authority may at its own discretion ask the EMI to hold up to 20% higher or 20% lower of own funds depending on risk management, internal controls and other factors.
Small Electronic Money Issuers
Article 3(7) of the act states that small EMI may follow a different set of rules regarding capital requirements and own funds in cases where the total business activities of the institution generate an average outstanding electronic money that does not exceed €2,000,000. However, to be considered a small EMI, the maximum storage amount on the payment instrument of the customer where the electronic money is stored cannot exceed €250. A small EMI is required to hold initial capital at the time of authorization. When the business activities of the EMI generate average outstanding electronic money less than €1,000,000, it shall hold initial capital equal to €50,000. When the business activities of the EMI generate average outstanding electronic money between €1,000,000 and €2,000,000, it shall hold initial capital of €100,000. Small EMIs must maintain at all times own funds, equal to or in excess of the applicable initial capital requirement.
