Introduction and Supervisory and Civil Law

E-money token: re-regulation/demarcation

E-money tokens are being partially re-regulated -These are crypto tokens that are intended to serve as a medium of exchange and are denominated in a fiat currency -Crypto tokens (payment tokens) that constitute e-money within the meaning of the EMD (i.e., fulfill payment functions) are not covered by MiCA -E-money tokens can be classified as significant issues under MiCA; in this case, issuers are subject to stricter requirements

EFTA

European Free Trade Association -FL -CH -Norway -Iceland

Special contract law

-E-money issuers may only issue e-money at the nominal value of the amount of money received (Art 44 para 1 EGG) -Prohibition of trading and investment (MiFID II, CRD IV); value of e-money must not fluctuate (see Falkenhahn case) -E-money issuers must reimburse customers at any time upon request of the monetary value of the e-money they hold at par value without charging any additional fees (Art 44 para 2 EGG) -Specific information obligations of issuers on redemption conditions (Art 44 para 3 EGG) -Issuer may not charge a fee for issuing e-money -Charges for loading are not permitted; other provisions may apply to the scope of application of the ZDG (e.g., personalized payment instruments) -Issuers may charge a reasonable fee for redemption if this has been agreed and redemption takes place as a result of termination by the customer or after one year of the contract (Art 44 para 4 et seq EGG); only applies to consumers -Legal prohibition of interest (given that e-money institution cannot invest money and gain money on an interest making) (Art 45 EGG) **If provisions not met, acceptance of deposits constitutes a banking transaction requiring a separate license

Special liability provisions in EGG

-Electronic money institutions are liable for the conduct of their employees, agents, employees of branches or entities to which activities are outsourced; Art 15 para 1 EGG -Electronic money institution shall take reasonable precautions to ensure that the requirements of this Act are also met in outsourcing; Art 15 para 2 EGG -In the event of e-money secrecy, customers have a right of action before the regional court (Art 18(1), Art 46 EGG)

Claims on/against the electronic money issuer (EGG/EMD)

-Interpreted under civil law (ABGB) (i.e., a civil claim against the e-money issuer by the customer) -Presupposes contractual agreement of e-money issuer and customer

Delimitations/interfaces in context of accepted by persons other than the electronic money issuer

-Issuance of personalized payment instruments (e.g., credit card) falls under ZDG (Art. 2 Para. 2 Lit. h, Art. 4 Para. 1 No. 49 ZDG) **EGG covers issuance of non-personalized small-value investments (CHF 150; Art. 52 ZDG) -Deposit/withdrawal business (incl. identification of the account holder) falls under ZDG (Art. 2 Para. 2 Lit. a, b in connection with Art. 4 Para. 1 No. 5, 12 ZDG) -Digital payment transactions are covered by the ZDG (Art. 2 Para. 2 Lit. f, Art. 4 Para. 1 No. 45 ZDG) *Exception for "limited networks," "technical support services," and digital transactions via communication services > CHF 300/month, cf. Art. 2Para. 2 EGG, 3 Para. 1 Bst g, f, and I ZDG)

Art 5 para 2 lit b EGG addresses requirements for the granting of credit by electronic money institutions which are

-Lending activities are ancillary services and are only granted in connection with the execution of payment transactions (i.e., can only be granted to customers (not general public), distinguished by recipient having a contract in place with the issuer) -Repayment within 12 months (longer would constitute a deposit/banking business) -Credit is not granted from funds received or held in connection with the issue of electronic money (i.e., cannot come from the funds of customers) -The e-money institution's own funds are proportionate to the total amount of loans granted

Art 5 para 2 EGG deals with secondary activities capable of being carried out in FL (with authorization as e-money institution) such as

-Lending in connection with payment services (payment instruments, payment business) -Provision of payment services (e.g., issuing credit cards) (cf. Art 2 para 2 lit a-h ZDG) -Operation of payment/billing systems (e.g., transferring e-money units to other account holders) (Art 4 para 1 No 53 ZDG) -Provision of operational services and closely related ancillary services (e.g., advertising, IT) -Other business activities (authorizations/notifications are governed by other legal acts)

Scope of authorization as an electronic money institution

-Main activity (granted with FL license): Commercial issuance of electronic money in FL (Art 5 para 1 EGG) -Local scope: domestic **After notification (Art 23 EGG): EEA

Electronic storage (or magnetic) (EMD/EGG)

-Monetary value to be stored electronically or magnetically on the payment instrument itself -EMD/EGG do not contain any technical requirements (thus also applicable to decentralized business models ("e-money tokens")) -Examples are: wallets, smartphone applications, account-based server systems (payment accounts), hard drives and USB sticks, prepaid cards (vouchers) **Can only be disposed of in electronic form

Accepted by persons other than the electronic money issuer (EMD/EGG)

-No legal acceptance requirement -Contractual arrangements by the issuer with natural or legal persons (other than the issuer) that issued e-money will be accepted as a means of payment -Open "circle of recipients" (at least two "others") leads to a multifunctional multi-party payment system (Three parties: issuer, acceptor, customer) -Exception for "limited networks" (two parties), cf. Art. 2 Para. 2 Lit. a EGG, Art. 3 Para. 1 Lit. g ZDG (e.g., corporate group)

Distinguish regulatory requirements for CASPs

-Provision of crypto asset services ( in FL VT service providers) will be regulated -Only legal entities that are established in the EEA and have received a corresponding permit pay provide these services -The permit is to be valid for the entire EEA (passporting) - offers a decisive advantage compared to the currently applicable individual national regulations, which can be examined separately by the companies and only with a lot of effort -In addition to capital requirements depending on the type of service, there are requirements fo rate management (professional suitability, reliability, sufficient time); the shareholders of the service providers must also have sufficient reliability -The service providers also make regulations on conflict so interest, information obligations, as well as provisions on outsourcing

Aspects of the supervision of electronic money institutions: Safeguarding requirements and Outsourcing

-Safeguarding requirements (Art 11 EGG): The funds received from clients must be adequately secured against loss/"theft"; two variants (according to Art 6 EGV/Art 20 ZDG): > Prohibition of commingling with own funds; identification obligation; safekeeping of client funds in separate accounts > Insurance policy or equivalent guarantee **Customer's right to segregation in the event of execution or insolvency (Art 20 para 4 ZDG): no investor compensation/deposit insurance -Outsourcing (Art 13 EGG): outsourcing of operational tasks subject to notification if the legal conditions are met (Details result from BankV (Art 6 EGV) **Special laws apply to outsourcing according to DDA/GDPR (covers IT tasks, legal department, and compliance) **Limit: transfer of responsibility inadmissible **Operation must not lead to undermining of company (i.e. to level of shell) **Outsourcing of important tasks is indirectly subject to approval by the FMA (right of revocation) ***Other > Obligation to keep business records for at least 10 years (Art 11 EGG) > For e-money institutions, accounting regulations according to the Banking Act apply (Art 16 EGG) > Obligation to conduct an external audit (Art 17 EGG)

Authorization procedure (supervisory law)

-Subject: commercial issuance of electronic money in FL -Application: license as an electronic money institution (Art 6 para 1 EGG) **Application documents: Cf. Art 3 para 1 EGV -Competence: FMA (Art 6 para 1 in conjunction with Art 4 EGG) **Decision period: three months -Licensing requirements (Art 7 para 1 EGG) -Commencement of activities: after receipt of license (Art 4 EGG) **Entry in electronic money register (Art 36 EGG; declarative)

Take Aways

-The EGG and EMD introduce a new "means of payment" and a separate category of financial intermediary -Issuing e-money is not a genuine banking business -Systematically, the EGG refers to a large extent to the ZDG, especially in the supervisory part -E-money represents a monetary value that is stored electronically - it is to be regarded as a derivative means of payment and does not fulfill a savings purpose -Issuance and reimbursement of electronic money must always be at par value -In addition to issuing electronic money, electronic money institutions may also provide payment services under the ZDG

Issued against payment of an amount of money (EMD/EGG)

-The form in which the customer must pay the amount of money is determined by Art. 4 Para. 1 No. 18 ZDG: cash or book money (demand deposits at banks) or electronic money **"Exchange" of cash or book money one for one into electronic money with the same nominal value; time-based step-by-step exchange required (immediate exchange) -Legally "exchange" as a title of transaction is based on an advance payment by the customer (or a third party) within the framework of the contractual relationship concluded between the customer and the issuer (not a loan as defined in subsection 985 of ABGB) -Unlike book money or cash, electronic money cannot be created originally ("derivative payment instrument") -E-money is not a legal tender (no acceptance obligations) **Exceptions are: -Prepayment by means of services/other goods (e.g., gold) -Prepayment by means of virtual currencies (Art. 2 Para. 1 of DDA) -Voucher/discount systems if "bonus points" are not direct consideration for payment by the customer, but are booked for another reason (e.g., "loyalty discount")

End of supervision

-Three cases 1. Voluntary withdrawal (same procedure as for official deletion) 2. Official withdrawal (Art 20, 22 EGG) > Leads to deletion of company from commercial register; can officer for following: - Violation of licensing requirements or other legal obligations (e.g., lending for longer than 12 months, non-customers) - order to restore lawful status fails; threat to stability of payment system 3. Official cancellation (Art 19, 22 EGG) > Leads to cancellation of company; can occur for following reasons: - Business activity not commenced or continued - Bankruptcy opened with legal effect **Liquidation proceedings follow the requirements of the Insolvency Regulation

FL E-Money Issuers (Art. 3 para. 1 lit. c EGG)

1. E-money institutions (authorization required under EGG) including branches: > Those are intermediaries (legal persons) that are not already authorized to issue electronic money under other laws > Cf Art. 3 para 1 lit a EGG: legal persons authorized to issue electronic money in EEA 2. Banks (subject to authorization under Banking Act) 3. FL Post (subject to Postal Act legal license under Art. 14 Post Act; currently being amended) 4. Country of FL (national administration) and municipalities/associations of municipalities

EEA E-Money Issuers (Art. 24 EGG; Art. 30b et seq Banking Act)

1. EEA Money Institutions (notification requirement under EGG) > Freedom to provide services and freedom of establishment (branches) > Only within the scope of a valid EEA authorization 2. EEA Credit Institutions (notification requirement under Banking Act) > As above 3. EEA Postal Institutions (subject to Postal Act) > Notification of procedure not regulated in EGG (also not in PostG; to be administered in direct application of EC Directive or Directive 2013/36/EU) > E-money business subject to mutual recognition in the EEA (Annex 1 No. 15 Directive 2013/36/EU); not significant in practice 4. ECB and other central banks in the EEA but not in SNB (Swiss National Bank)

E-money (according to Art 3, Para 1, Lit b EGG)

Any electronically or magnetically stored monetary value in the form of a claim on the electronic money issuer, which is issued against payment of an amount of money in order to carry out payment transactions therewith within the meaning of Article 4(1) (54) of the Payment Services Act and which is also accepted by persons other than the electronic money issuer **The exchange of fiat currency into e-units

Civil law

Applies to customers -Scope: > Special provisions of article 15, 18 44 ff EGG (different personal scope of application) > Art 15, 18 EGG only apply to electronic money institutions (comparable provisions in other laws (e.g., Art 14 BankG)) > Art 44 ff EGG applies to all e-money issuers

E-money issuer vs. e-money institution

Issuer: banks, post office, country of FL, and e-money institutions (companies licensed to offer e-money services to the public) Institution: a type of issuer which takes advantage of issuer abilities (and the only issuer subject to EGG)

Relevant legal basis in FL

**Primarily EGG and ZDG (and TVTG if blockchain involved) -E-Money Act (EGG), LGBI 2011.151 -Payment Services Act (ZDG), LGBI 2019.213 (applicable via reference made in EGG) **Lays down regulations that apply when an e-money institution is offering payment services to the public -E-Money Ordinance (EGV), LGBI 2011.158 -Payment Services Ordinance, LGBI 2019.233 -Blockchain Act (TVTG), LGBI 2019.301 **EGG does not apply in this case

Outlook (MiCA)

**Related to e-money units/tokens in a couple of years

Overview of central regulatory topics (2nd EMD and EGG)

-Authorization procedure (incorporated by reference from PSD 2 and ZDG) -Authorization and registration -Calculation of own funds -Safeguard requirements (no mixing own funds and trustee funds) -Agents and liability -Supervision -Special provision on initial capital and own funds and activities -Own title to issue and redeem e-money

Aspects of the supervision of electronic money institutions

-Business model and business plan (as per license) -Legal supervision by FMA (Art 35 para 1 EGG) **Cf. Art 35 para 2 EGG on competences -Dual supervision: Audit by recognized audit office within the scope of Art 39 para 1 EGG **Minor deficiencies discovered in the course of the audit are to be remedied by the institution on an ad hoc basis, otherwise reported to the FMA (Art 40 para 2 EGG) **Serious deficiencies must be reported independently (Art 40 para 3 EGG; no breach of confidentiality obligations) -Initial capital/equity: at least CHF 350,000 (fully paid in; Art 8 para 2 EGG; cf. para 1 art cit on composition) **Calculation: Art 18 f ZDG (Art 4 EGV, at individual institution level) ***In the case of consolidation, CRR requirements apply ***Must be permanently available to management; value may no fall below it ***Distinguish from: specific own funds requirement according to Art 10 EGG (concerns ongoing operations and certain business models)

MiCA Overview

-Cf Regulation on Markets in Crypto-assets (MiCA, COM 2020, 593) is to come into force in 2024 (at EU level; EEA-approach still open) -Regulation regulates transparency and disclosure requirements for issuing and trading crypto assets -Contains regulations for the licensing and supervision of providers/issuers of crypto assets (so called "CASPs", Crypto Asset Service Providers) -Regulation regulates the operation, organization, and management of issuers of asset-referenced tokens as well as e-money tokens and service providers in the field of crypto assets -Furthermore, the regulation establishes consumer protection provisions regarding the issuance, trading, exchange, and custody of crypto assets -Also contains measures to prevent market abuse

Carry out payment transactions (EMD/EGG)

-Cf. Art. 4 Para 1. No. 54 of ZDG: "Provision, transfer or withdrawal of a sum of money initiated by the payer" -Deposits by customers (e.g., "loading" a card) are to be separated from this

Consequences of claims on/against the electronic money issuer

-Corresponding mutual duties of conduct ex contractu (from a contract) -Electronic money issuer must issue electronic money in exchange for payment of a sum of money -In return for a sum of money, the customer receives a payment (i.e., "money" in the form of electronic money (cash surrogate)) -Payment is made by transferring "credit" to another "store" -The e-money issuer must keep "monetary units" available 24/7

Monetary value (EMD/EGG)

-Corresponds to the book money claim against the issuing entity (i.e., issuer) **In connection with the calculation of own funds to be held by electronic money institutions, this is offset by the issuer's financial liabilities arising from electronic money -Corresponds to the "credit balance" of the electronic money holder with the electronic money institution -Must be prepaid

Legal recourse

-Customers can claim breach of contractual or legal obligations of the e-money issuer (under civil law) before the regional court by means of declamatory action/claim for damages (Art 46 EGG) -As a rule, the court proceedings must be preceded by an attempt at a conciliation before the conciliation board (Art 47 EGG)

Relevant legal basis in EU/EEA

-Directive 2009/110/EC (2nd E-Money Directive [EMD]) -Directive 2015/2366/EU (PSD 2; applicable via reference made in 2nd EMD) **PSD (Payment Services Directive) addresses things like issuing credit cards

History

-E-money historically intended as a supplement to banking transactions (effectuation of electronic retail payments; Directive 2000/46/EC) -Only typified as an independent financial service in 2009, leading to creation of an independent category of institution with independent duties of conduct (2nd EMD) -Closely linked to payment institutions in "supervisory pyramid" (PSD 2) **Electronic money institutions also authorized to provide certain payment services

Cf

Confer = Compare

National Agents (Cf. Art. 3 Para. 1 lit. e EGG)

Persons providing payment services on behalf of an electronic money institution in FL or the EEA (subject to notification; Art 14, 24 EGG) > Scope: distribution (including sale, resale, provision of a distributed channel) or re-exchange of e-money; not issuance > Independent traders which are attributed to e-money institution > Legally independent intermediaries or commercial agents **Agents must disclose representation **General rules on representation to ABGB apply **EEA agents are subject to notification obligation (Art. 26 EGG)

New rules for e-money tokens

MiCA provides for the following barriers to issuance of e-money tokens: -Issuance in the EEA only by authorized credit institutions and e-money institutions (application to postal services, etc. unclear) -Introduction of prospectors requirement: for the issuance of e-money tokens, a white paper must be prepared and notified to the competent authority -EMD and national transposition laws largely applicable (e.g., prohibition of interest) **These regulations do not apply if e-money tokens are only distributed to professional investors and can only be held by such investors if the issued amount of e-money tokens does not exceed EUR 5,000,000 over a period of 12 months