Central Bank Responses and Regulatory Framework of E-Money: A Comparative Review of Central Bank Practices

E-money is still very much in its infancy stage in most SEACEN countries, in spite of the fact that it has gained more acceptance in Europe. Among the SEACEN member countries, 5 countries have started e-money schemes while 2 countries have products that are very similar to e-money. Although the growth of e-money in some countries is quite impressive, the volume of e-money is still insignificant. As a consequence, the development of e-money is not expected to pose serious systemic risks or have much impact on central banking functions in the near future. Consequently, many central banks have not taken any serious actions but have rather closely monitored its development. Like the product itself, the regulation of e-money is still at the early stage and is evolving. Regulatory authorities have a choice concerning the timing of the introduction of any possible regulatory measures. Two different regulatory approaches in term of timing have been adopted ¨C the early approach as adopted by European countries, or a more relaxed ¡®wait and see¡¯ approach as adopted in the United States. One may argue that establishing a comprehensive framework at an early stage would risk stifling innovation. However, others argue that there may be risks that the overall cost of regulation will be significantly higher if there are a substantial delay in implementing measures that ultimately prove necessary. Harmonising minimum rules to ensure that institutions issuing e-money are stable and sound would promote confidence amongst business and consumers as well. With regard to the regulatory framework, most SEACEN member countries stress the importance of having new draft legislations since the existing regulations are not adequate to regulate e-money. Designing an appropriate regulatory framework for e-money schemes involve many aspects including system design and security, financial integrity of the issuers, consumer protection, and promotion of competition and innovation. The European countries recommend several minimum requirements for the framework for the issuance of e-money, namely (i) E-money issuers are subject to prudential supervision, (ii) solid and transparent legal arrangements, (iii) adequate technical, organisational and procedural safeguards, (iv) protection against criminal abuse, (v) monetary statistics reporting, (vi) redeemability of e-money into central bank money at par and (vii) possibility of reserve requirements. Further issues are interoperability between different systems and putting in place appropriate guarantees, insurance or loss-sharing schemes.