Blockchain tokens that are issued by the emitter in exchange for money and that can be exchanged back to a legal tender and that are accepted as a means of payment by others than the issuer can be e-money from a regulatory perspective. But what are the advantages of blockchain based e-money and who would be legally allowed to provide it?
Who would be Allowed to Offer Blockchain Based E-Money?
Within the European Union the issuing of e-money requires the emitter to be licensed as an e-money institution. These licenses are issued by the banking regulator of the country in which the service is originally provided. Once the license is acquired in one of the EU-countries it can then be “exported” via the so called EU-Passporting process and be used in all the other EU member states without the need of another approval and licensing process. The EU-Passporting procedure is a relatively simple notification process that is initiated by the banking regulator of the originally licensing member state upon application of the e-money institution. Next to licensed e-money institutions banks with a full banking license and certain government institutions are also allowed to issue e-money.
What are the Advantages of Crypto Based E-Money?
The most exiting feature of blockchain based e-money would be that fully digitalized units of value could be transferred directly between the users. The physical handover of an electronic or magnetic data carrier from the buyer to the seller would be as obsolete as the involvement of the issuing e-money institution in the transaction. Documentation and confirmation of transactions would be processed on the blockchain itself. The double spending problem would not occur with blockchain based e-money because the ownership of a value unit would be forgery-proof documented within the blockchain itself and therefore blockchain based e-money could circulate fully automated and digitally.
What Services would Crypto E-Money Institutions be Allowed to Offer?
E-Money institutions are not limited to the issuing and re-exchange of e-money. The permission to issue e-money and conduct an exchange business with it additionally enables e-money institutions to provide other interesting activities which usually require a separate permission. Next to the e-money business a crypto e-money institute could additionally offer e.g. fiat payment accounts and money remittance. Furthermore, licensed crypto e-money institutions could, within strict regulations and boundaries, even grant credits to customers, as long as the credit is related to a payment process. Even foreign exchange transactions would be possible, as long as they are related to the e-money business of the company.
What are the Requirements for an E-Money Institute to Get BaFin Approved?
As shown above blockchain based e-money institutes could have access to numerus business models that can connect traditional payment activities with the crypto world. But there are also regulatory requirements that have to be fulfilled in order to acquire the necessary e-money license. To name a few, a sustainable business model, sufficient and adequate security precautions, two fit and proper directors and at least 350.000 euros as starting capital will have to be shown to BaFin. FIN LAW supports its clients from the project planning phase to the preparation and submission of the license application and represents them vis-a-vis BaFin in the permission process.
Atty. Lutz Auffenberg, LL.M. (London)