Small-scale electronic money issuers

Companies intending to issue electronic money must either be entered in the register of small-scale electronic money issuers or obtain authorization to operate as an electronic money institution.

Typical electronic money issuers include companies such as GOPAY s.r.o., IKORUNA Payment Systems, SE, Le Cheque Déjeuner s.r.o. and Prepaid Solutions a.s.

Registration or authorization is granted by the Czech National Bank (the “CNB”) and entitles the entity concerned to issue electronic money and provide the payment services specified in Act No. 284/2009 Coll., on Payment Services (the “Payment Services Act”).

This article provides basic information on payment services and electronic money, who qualifies as a small-scale electronic money issuer and, in particular, the basic requirements for registration with the CNB.

What are payment services under the Payment Services Act?

Section 3(1) of the Payment Services Act defines payment services as:

1. service enabling cash deposit on a payment account held by provider,
2. service enabling cash withdrawal from a payment account held by provider,
3. transfer of funds from a payment account, ordered by the payer, payee or payer through the payee, where the provider does not provide the transferred funds to the user as credit,
4. transfer of financial means from a payment account, ordered by the payer, beneficiary or payer through beneficiary, if the provider provides the transferred financial means as credit to the user,
5. issuing and administering payment instruments and devices designed to accept payment instruments,
6. transferring funds where neither the payer nor the payee uses a payment account maintained by the provider (money remittance),
7. execution of a payment transaction by a provider of electronic communications services, where the payer gives consent to the transaction through an electronic communications device.

What is electronic money?

Section 4 of the Payment Services Act defines electronic money, for regulatory purposes, as monetary value that:

1. represent a claim against the issuer,
2. are stored electronically (in the sense of any electronic medium into which is electronic money directly stored and also electronic systems, where electronic money is stored on an account, to which the possessor has remote access),
3. are issued against acceptance of financial means for the purpose of providing payment transactions (in other words – electronic money represents prepaid product, it is the same principle as in the case of for example a debit card) and
4. are accepted by other persons than the issuer (for example if company which issues prepaid cards, with which its employees pay for food and drinks in the company cantina it does not issue electronic money).

Who are small-scale electronic money issuers?

A small-scale electronic money issuer (the “Issuer”) is defined in Section 53(1) of the Payment Services Act as a legal entity entitled, by virtue of its entry in the register of small-scale electronic money issuers, to issue electronic money and provide payment services related to electronic money.

The Issuer may issue electronic money only if the average amount of electronic money that it has issued and that has been in circulation in the Czech Republic during the preceding six months does not exceed EUR 5,000,000. If the Issuer also provides payment services unrelated to electronic money, it is subject to the same limit as a small-scale payment service provider: the monthly average value of payment transactions executed in the Czech Republic during the preceding 12 months may not exceed EUR 3,000,000.

As of March 30, 2016, the CNB had registered eight such Issuers.

What activities may a small-scale electronic money issuer perform?

The Issuer may perform the activities specified in Section 46(2) of the Payment Services Act:

• issue electronic money,
• provide payment services related to electronic money,
• provide payment services which are not related to electronic money and are stated in his registration of small-scale electronic money issuer,
• provide activities related to the activities mentioned in the previous three points, including granting credit,
• operate a payment system, except for a payment system with settlement finality.

What are the requirements for registration as a small-scale electronic money issuer?

Registration of the Issuer is governed by the Payment Services Act and implementing Decree No. 141/2011 Coll.¹

To be registered successfully, the applicant must apply for entry in the register of small-scale electronic money issuers and satisfy the following requirements under Section 54 of the Payment Services Act and the implementing decree,² as amended by Decree No. 233/2014 Coll.³ with effect from December 1, 2014:

• be a legal entity
• have his registered seat in a member country, in which he really carries on his business and a branch in the Czech Republic
• submit his business plan⁴, which is in accordance with the conditions stipulated by law in § 53 paragraphs 2 and 3 of ZoPS
• secure financial means, against which were issued electronic money or which were entrusted to him by the users to perform the payment transaction,
• ensure that none of his senior officers have been condemned for a criminal offence against property, an economic criminal offence or a criminal offence in connection with financing of terrorism,
• ensure that there are no facts which would consist of an impediment to engage in trade in accordance with the law regulating the business in trade,
• submit evidence of authorization to conduct business,
• submit his certificate of no criminal records issued by the foreign country of the applicant and also certificates of no criminal records and questionnaires for every senior officer,
• enclose a description of the method of performing individual payment services and all activities associated, the selected method of protecting monetary funds and rules for the investments of funds.

If the applicant into the register of small-scale electronic money issuers is registered in the Register of Trades, it is deemed that there are no facts which would consist of an impediment to engage in trade in accordance with the law regulating the business in trade.

If the applicant meets all the above requirements, the CNB will enter it in the register of small-scale electronic money issuers within one month after receiving the application and will issue a certificate within the same period.

If the applicant does not demonstrate that it meets the registration requirements, or if there are doubts about the accuracy or completeness of the information in the application, the CNB will initiate administrative proceedings within one month after receiving the application. If compliance with the requirements is not established in those proceedings, the CNB will reject the application.

In a case when the Issuer decides to extend the scope of the payment services, which are not related to electronic money and to which his registration applies, he has to submit his business plan, which has to be based on real economic calculations and in accordance with the conditions stipulated by law in § 53 paragraph 2 a 3 ZoPS³, in the same manner as new applicants.

¹ Decree No. 141/2011 Coll., on the pursuit of business of payment institutions, electronic money institutions, small-scale payment service providers and small-scale electronic money issuers.

² Decree No. 141/2011 Coll., on the pursuit of business of payment institutions, electronic money institutions, small-scale payment service providers and small-scale electronic money issuers.

³ Decree 233/2014 Sb., which amends decree No. 141/2011 Coll., on the pursuit of business of payment institutions, electronic money institutions, small-scale payment service providers and small-scale electronic money issuers, as amended by decree No. 31/2014 Coll.

⁴ In accordance with Decree No. 141/2011 Coll., on the pursuit of business of payment institutions, electronic money institutions, small-scale payment service providers and small-scale electronic money issuers, a business plan means the applicant’s genuinely intended business plan for the first three accounting periods, prepared in the format of financial statements under accounting law, supported by realistic economic calculations and accompanied by commentary containing:

1. intentions of the applicant regarding the scope and volume of provided payment services or issued electronic money and other activities based on the law and description of planned method how to achieve them, including characteristic of target group of clients and commercial network of the applicant,
2. baselines and preconditions upon which the business plan is based along with justification of interconnectedness of the quantitative data of the plan and feasibility of the results of the planned activities.