Financial Services & Regulation
Unfortunately, there is currently no clear distinction between the legal definitions of “EMI Agents” and “EMI Distributors” in the applicable EU legislation(s) being, primarily:
- The Directive (EU) 2015/2366 of 25 November 2015 on payment services in the internal market (known as the “PSD2”);
- The Directive 2009/110/EC of 16 September 2009 on the taking up, pursuit and prudential supervision of the business of electronic money institutions (known as “EMD2”); as well a
- Directive (EU) 2015/849 of 20 May 2015 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing (known as the “AMLD”).
Similarly, to date, there is no specific case-law that has looked at the interpretation of the concepts of agents and distributors of EMIs and PIs. As a result, it is strongly advisable for each case to be examined and analysed on its own facts in order to establish the status of the particular relationship in question as well as to identify the resulting liabilities and obligations of each party involved (eg for the principal EMI as well as for the entity acting as its agent/distributor). It is important to be noted at this point that the European Banking Authority itself directs the Competent Authorities across the region to perform a case-by-case assessment taking into account the specific facts of each case when examining such arrangements.
Special consideration must thus been given, amongst others, (i) to the specific services to be provided under a professional relationship with an EMI; (ii) the jurisdiction of the principal EMI; as well as (iii) the jurisdiction(s) in which the contemplated services will be provided. By not taking into account the specific contemplated services (and the specific factual context), there is always a risk of facing regulatory barriers in the future as well as hefty penalties during the provision of specific services. In light of the above, our team summarises below some key aspects of the distinction between the legal concepts of EMI Agents and EMI Distributors.
EMI Agent vs EMI Distributor: High Level comments on the distinction
A. Definitions of the Legal Terms:
Ai. The definition of the term “EMI Agent”:
The definition of the word “agent” in this context is given by Article 4(38) of PSD2, which provides that an “agent” is either a natural or legal person who acts on behalf of a PI (or an EMI) in providing payment services. In other words, an EMI Agent under PSD2 is, by definition, a person who acts on behalf of an EMI in providing one or more of the regulated payment services set out in Annex I of PSD2. An agent must thus comply with the requirements in Article 19 of PSD2 and be registered by the principal EMI with the regulator.
Aii. The definition of the term “EMI Distributor”:
On the other hand, the term “distributor” is unfortunately not explicitly defined within this context. Article 3(4) of EMD2 provides, however, an indirect definition of EMI Distributors. As a result, the term ‘EMI Distributor’ refers to any person entitled to carry out distribution and/or redemption of e-money on behalf of an authorised EMI.
Recital 10 of EMD2 also briefly refers to distributors and states that: ‘It is recognised that electronic money institutions distribute electronic money, including by selling or reselling electronic money products to the public, providing a means of distributing electronic money to customers or of redeeming electronic money on the request of customers or of topping up customers’ electronic money, through natural or legal persons on their behalf, according to the requirements of their respective business models’.
Hence ‘EMI Distributors’ are not entitled to issue e-money or carry out regulated payment services on the principal EMI’s behalf (but only to distribute and/or redeem e-money on its behalf). As a result, unlike for agents, there is also no requirement under EMD2 for PIs/EMIs to register distributors with the national competent authority (the principal EMI must merely notify the regulator that the distributor is being used rather than register it).
B. More on the Distinction:
Bi. The EMI Agent:
The aforementioned definition in the PSD2 implies that an EMI Agent is an authorised agent of an EMI that is allowed to provide regulated payment services. EMI Agents are relying on the authorisation of the principal EMI and in fact resell the services of such principal through their own facilities.
To shed some further light in the concept of an EMI Agent and on the relationship between a principal EMI and its “agent”, we hereunder set out the legal definition of the word “agency:
“Agency: A relationship under which the law recognises a person as having the power to create or alter legal rights, duties or relationships of another person, the principal. The agent facilitates contracts between the principal and a third party (the customer) by introducing the third party, soliciting orders from the third party or by concluding contracts with the third party on behalf of the principal. An agent usually benefits from the relationship by receiving a commission from the supplier. An agent does not contract with customers in his own right and he therefore generally has no liability to them.”
In practice, EMI Agents can only resell/promote the regulated services of the principal EMI for which the principal EMI is authorized by its regulator and in thecase of passporting notification involving an agent this information is transferred to the relevant competent authorities in the other relevant jurisdictions. In both cases, the EMI Agents are not allowed to perform new payment services for which their principal EMI was not registered. If the EMI Agent wishes to perform any other regulated services, this must be authorised by the principal EMI (which must have appropriate authorisation itself) or the EMI Agent must itself obtain a required authorisation from a competent authority.
Finally, it must be noted that it must always be apparent/clear to the end-users/clients of the services that the EMI Agent is acting on behalf of the principal EMI rather than in its own right. The end-user must be aware of the relationship of the EMI Agent with the principal EMI and the scope of activities that can be undertaken.
Bii. The EMI Distributor:
As noted above, unlike the EMI Agents, the EMI Distributors cannot provide regulated payment services of the principal EMI through their facilities and as a result there is no requirement to register EMI Distributors with regulators. It is thus very important to confirm whether a contractual relationship with an EMI gives rise to a status of an EMI Agent or of an EMI Distributor.
According to EBA as well as to different authorities in the region (including the FCA) “a person who simply loads or redeems e-money on behalf of an EMI would, in principle, be considered to be an EMI Distributor”. Similarly, authorities in the region have stated explicitly that while EMIs are not permitted to issue electronic money through EMI distributors, they are permitted to provide the payment services, “directly related to the distribution and redemption of e-money through distributors”.
Hence, as noted above, it is very important to examine each case on its own facts to clarify the status of each relationship. For example, it might be the case that the mere issuance of payment cards is considered by the relevant authorities to be linked to the provision of e-money services (hence only EMI Distribution relationship is generated at that stage) but the subsequent use of the top-up funds of the cards issued to generate the need for a registration as an EMI Agent.
In light of the above, we finally hereby note that becoming an EMI Agent or EMI Distributor is a great vehicle/solution to enter different EU markets quickly, but a careful consideration must be given to the particular facts of each case, including, (i) the contemplated services and their context; (ii) the requirements/regulations of the competent authorities in question; as well as (iii) the legislations of each jurisdiction involved.