Last year we have discussed the prospects for Republika Srpska to regulate for the first time the issuance and the use of electronic money. The wait is over – the National Assembly has passed the Electronic Money Act (“E-Money Act“) which will begin to apply in June 2024. We discuss in this newsletter the key concepts of the new e-money legislation.
What is E-Money? Exemptions from the licensing requirements
The first part of the definition of electronic money (“e-money”) largely follows the EU E-Money Directive 2009/110/EC (EMD2):
“e-money means electronically, including magnetically, stored monetary value as represented by a claim on the issuer which is issued on receipt of funds for the purpose of making payment transactions, and which is accepted by a natural or legal person other than the electronic money issuer”.
In the second part of the definition, the E-Money Act clarifies (or attempts to clarify) that “a digital representation of a currency which is not issued or whose value is not guaranteed by a central bank or other public authority, and which does not have the legal status of money or currency” is not considered “e-money”. The legislative intent was probably to draw a distinction between “e-money” and crypto-assets and in that way avoid the application of E-the Money Act to the latter. Republika Srpska does not have a law dedicated specifically to crypto-assets.
Furthermore, the E-Money Act contains a list of exemptions from its scope, mirroring to some extent the EU approach, but with a number of important distinctions and some unclarities. The E-Money Act, including its licensing requirements, does not apply:
- to the monetary value stored on instruments that can be used only in a limited way and that meet one of the following conditions:
(i) they allow the electronic money holder to purchase goods or services only in the premises of the electronic money issuer, or within a limited network of service providers under the agreement with the issuer, or for a limited range of goods or services;
(ii) they are issued by the Ministry of Finance or other public bodies in connection with the specific social services;
- to the monetary value used for a payment transaction executed by the operator of an electronic communication network or for a service provided together with the electronic communication services for the user of that network or service, provided that the user has transferred the funds to the service provider in advance and that:
(a) the funds are used to purchase digital content and voice-based services (e.g., music and other digital downloads), regardless of the device used for the purchase or consumption of the digital content, which digital content and voice-based services are charged to the user together with the electronic communication service (NB: network operators or service providers that rely on this exemption are still required to notify the regulator about the value of transactions executed); or
(b) the services are performed from or via an electronic device for donations to charity or for the purchase of the tickets (public transport, parking, etc.), which are charged to the user together with the electronic communication service,
and further provided that: (i) the value of each transaction referred to in paragraphs (a) and (b) does not exceed BAM 100 (around EUR 50); and (ii) the total value of each user’s transactions does not exceed BAM 600 (around EUR 300) per month.
The E-Money Act does not include the “added value” exemption available under EMD2[1]. Interestingly, this exemption is included in another regulation, the Payment Transaction Act, a local variant of the EU Payment Services Directive (PSD). Since there is no incorporation by reference to the E-Money Act, the scope of the exemption is somewhat unclear.
Who can issue e-money?
In addition to the traditional financial institutions such as banks and microcredit institutions headquartered in Bosnia and Herzegovina, which will be able to issue e-money under their existing licenses, the E-Money Act introduces the concept of electronic money institution (EMI). EMIs will be subject to the prudential supervision rules that are similar to those applicable to their counterparts under EMD2, including licensing, initial and ongoing minimum capital requirements, fit and proper management obligations etc. To start its business operation, an EMI must:
- obtain an e-money issuance authorisation from the RS’ Banking Agency (“Authorisation“); and then;
- register the e-money activity as its business in the business registry.
The list of required documents for obtaining an Authorisation is extensive and includes plans for e-money issuance, a three-year business plan with financial projections, descriptions of management and internal control systems, including information systems, measures to protect customers’ funds, etc.).
Non-licensed entities are not allowed to issue e-money, or conduct business or market their activities in the way that misleads or may mislead one into thinking that they are issuing e-money. It is a criminal offence under the laws of the Republika Srpska to carry out a licensable activity without the licence.
EMI as payment service provider
The E-Money Act allows EMIs to provide the following payment services:
(i) services enabling cash to be placed on a payment account;
(ii) services enabling cash withdrawals from a payment account;
(iii) execution of payment transactions, including transfers of funds on a payment account with the user’s payment service provider or with another payment service provider by way of:
(a) execution of direct debits, including one-off direct debits;
(b) execution of payment transactions through a payment card or a similar device; or
(c) execution of credit transfers, including standing orders.
Notably, other PSD payment services such as issuing or acquiring payment instruments are not included. Also, EMIs do not appear to be permitted to grant credit to their users in (or without) connection with the payment services provided.
Safeguarding users’ funds
EMIs are required to safeguard funds received in return for e-money. These funds are to be placed in a special bank account to avoid commingling with the funds of the EMI and to keep them insulated from EMI’s creditors. Unlike e-money legislations in some other jurisdictions, the E-Money Act of Republika Srpska does not allow alternative ways to safeguard the funds, such as insurance policies or bank guarantees.
E-money redemption
The holder of e-money can ask from the issuer full or partial redemption of its e-money at par at any time during the validity of the agreement on e-money issuance. Oddly, the E-Money Act further provides that, on the one hand, the e-money issuer is required to fully redeem the holder’s e-money if the request for redemption is submitted on the date, or within one year from the date, the agreement on e-money issuance ceases, whereas, on the other hand, the issuer will not be required to redeem holders’ e-money after five years from such date.
Redemption may be subject to proportionate and cost-based fees under further conditions stipulated in the law.
Supervision
The E-Money Act vests the RS’ Banking Agency with extensive authority, from issuing and revoking permits for e-money issuance, overseeing unauthorized e-money issuance to approving the management of EMIs. The RS’ Banking Agency is supposed to pass a number of implementing regulations after the E-Money Act comes into effect (i.e., after 4 July 2024) which will further regulate certain aspects of the new legislation.
[1] EMD2 does not apply to e-money used to make the payment transactions executed by means of any telecommunication, digital or IT device, where the goods or services purchased are delivered to and are to be used through a telecommunication, digital or IT device, provided that the telecommunication, digital or IT operator does not act only as an intermediary between the payment service user and the supplier of the goods and services.
