The European Commission has admitted that its rules on e-money have stifled the market for virtual currencies over the past eight years and has proposed a revised set of regulations that it hopes will stimulate demand.
The Commission's new rules will more clearly define what e-money is, create a new regulatory regime and declare that mobile phone-based e-money can be cashed in at any time.
"During the review process, stakeholders expressed concerns that the current directive lacks legal certainty due to an unclear definition of e-money and scope of the directive," said a report on the research the Commission conducted into what was wrong with the current legislation.
That research also discovered that new services would be created if regulation was extended to mobile phone and voucher companies, and if regulated companies could carry out other functions as well as issuing e-money.
"Under the [current rules], 'hybrid institutions' such as telecom operators and retailers have to split up their business in different legal entities which can be costly and inefficient," it said.
In a statement announcing the changes, the Commission admitted that 2000's Electronic Money Directive had stunted the growth of the market.
"Some of [the Directive's] provisions have hindered the take-up of the electronic money market, hampering technological innovation," it said. "Figures on the limited number of fully licensed electronic money institutions (20 electronic money institutions and 127 entities operating under a waiver) or on the low volume of electronic money issued (currently the total amount of electronic money in the EU amounts to EUR 1 billion in comparison with more then 600 billion of cash), demonstrate that electronic money has not yet really taken off in most of the Member States."
The Commission has proposed the repealing of the Directive and the creation of a replacement. The proposed new Directive includes a lowering of the amount of capital that a new e-money provider must have from €1 million to €125,000. This is designed to encourage smaller providers to enter the market.
It will also connect regulation of e-money to the regulation of other payments. The changes will align the entitlements to have some regulation waived by member states with the equivalent rules in the Payment Services Directive, and will ensure that other elements of regulation are in line with those in the Payment Services Directive.
“The e-money industry has significant untapped growth potential," said Internal Markets Commissioner Charlie McCreevy. "I believe that the new rules will accelerate the up-take of electronic money in Europe. These modern rules will foster competition and innovation, while ensuring market confidence and a high level of protection for consumers. This will be an important contribution to our broad objective of creating a Single Market for electronic payments."
The Commission's proposal will be discussed by the European Parliament and members states, represented on the Council of Ministers.