The EMA history timeline and the early days: In the 1990s, a range of electronic purses and new payment products were developed and deployed, mainly by the existing payment providers, banks. They were largely intended to replace physical coins and bank notes, and the expectation was of rapid adoption. The European Monetary Institute (EMI), the predecessor of the European Central Bank, considered the market and suggested that issuance of these products in the EU should be confined to deposit-taking institutions, that is banks. The EMI published its report in 1994.

This report did not set the scene for long, however, and soon discussion began among European member states, bank supervisors and central banks on the merits of widening the scope of issuance to other types of financial institutions. This led to the creation of a ‘narrow bank’ type of regime, where a new type of credit institution would be created that would have a smaller capital requirement, and whose activities would be confined to the issuing of e-money. The first Electronic Money Directive (EMD) was adopted in September 2000.

E-money was defined widely, so that various technical models could be accommodated, ranging from digital coins to prepaid online accounts and to prepaid cards. The common features were pre-payment, use of the product to make payments to third parties, and their electronic nature.

New e-money issuers could set up electronic money institutions, recognised as a type of credit institution. They would have to comply with prudential obligations including capital requirements, protection of float funds and the adoption of appropriate internal controls. There were also conduct of business or consumer type protections, such as a right to redemption of the e-money at any time.

2000-2004: the implementation of the EMD in member states, and particularly in the UK, brought interested parties together, and a working group was set up to coordinate industry responses to the UK HM Treasury and Financial Services Authority (FSA). This coalesced over time, and the Electronic Money Association was formed in 2001. The work of this early group and the engagement of the UK HM Treasury and FSA with industry helped create a detailed rule and guidance document that resolved many operational issues for would-be issuers.

This resulted in a disproportionate number of applications for authorisation in the UK compared with other member states, where there was more limited engagement. The first e-money institution to receive authorisation was set up by German entrepreneurs, a firm now known as Skrill, previously Moneybookers. This was closely followed by a number of others including PayPal Europe, which was authorised as an e-money issuer in the UK before its adoption of banking status in Luxembourg.

A key development during this time related to the adoption by the EMA and UK government approval of a means of postponing customer due diligence for e-money products until a threshold had been reached or the risk merited early due diligence. This approach was later adopted into the Third Money Laundering Directive and was described as Simplified Due Diligence (SDD). It removed barriers to adoption of these new products, and applied due diligence at a point when the risk merited the process.

The EMA also engaged with other European member state regulators during this time and cooperated with similar trade associations in Europe.

2005-2006: the Third Money Laundering Directive was adopted, paving the way to the adoption of the SDD approach across the EU. The EMA held its first international conference in Brussels, and this focused on the revision of the E-Money Directive that was due under the terms of the first directive. At the same time it became clear that the European Commission would widen the scope of payment services provision by non-banks to include all other payment services. It would simultaneously use this opportunity to create a unified conduct of business regime for all payment services, irrespective of the types of product offered or the nature of the payment service provider. This latter initiative was designed in part to hasten the development of the Single Euro Payment Area (SEPA). The Directive created a new type of financial institution that could offer all payment services other than e-money, and these were known as Payment Institutions.

2007-2008: the Payment Services Directive was adopted by the European Parliament, to be implemented in member states by November 2009. This set out the uniform service levels that would need to be implemented by the payments industry as a whole, and the authorisation requirements for potential payment institutions. The UK led the way in consulting on how the Directive would be implemented, and drafted detailed guidelines on how provisions would be implemented. This paid dividends, with the UK leading the EEA in the number of authorised payment institutions and small payment institutions meeting the partial exemption criteria. Although most applicants sought to offer money remittance services, a good few adopted innovative business models and focused on profitable niches where competition was needed. Paul Townsend, co-founder of Envoy Services Ltd, was elected as the new EMA chairman, and coincidentally, Envoy Services was the first payment institution to be authorised under the new Directive.

2009-2010: The Payment Services Directive was adopted in most member states and the biggest non bank payment service providers, such as those providing money remittance services benefited from authorisation in a single jurisdiction and passporting into the remaining member states. This would later be seen as changing the ability of member state regulators to oversee the operations of many payment providers. It would put pressure on reliance on home member state regulatory obligations.

It also introduced a series of exemptions from payment regulation for products such as gift cards, payment products limited by geographic location and those used for a limited range of products and services. Other exemptions enabled mobile network operators to facilitate payments for digital goods and some bill payment businesses to continue their businesses.

The second E-Money Directive (2EMD) was adopted in 2009 and this considerably lowered the initial capital needed to set up a issuing business. It also widened the scope of services that an issuer could undertake to include all payment services. The EMA organised its third conference in London and took the opportunity to review the impact of the newly introduced legislation, and to track developments in payments regulation globally.

2011-2012: The second E-Money Directive was implemented in the UK, and the European Commission published its Green Paper on Payments, setting out a broad range of reforming measures seeking to broaden competition and to introduce new means of operating payment products. It also focused on multilateral interchange fees and set out proposals for regulation. Some of the new ideas included regulating ‘overlay payment providers’ as well as those undertaking ‘data aggregation’, enabling access to bank account balances to any regulated payment service provider and encouraging interoperability.

The EMA organised its fourth conference on the evolution of e-money and payment institutions (new opportunities and new challenges) in Brussels. In 2012 the EMA addressed itself to the newly published FATF Forty and the work that being undertaken on new payment products and services. The EMA engaged with the FATF as well as with the European Commission who were preparing to revise the current money laundering directive.