Royal Decree 778/2012 of 4 May on the legal regime of electronic money institutions (Modified by Royal Decree 256/2013)

Royal Decree 778/2012, of 4 May, on the legal regime of electronic money institutions. Ministry of Economy and Competitiveness "BOE" No. 108, of 5 May 2012 Reference: BOE-A-2012-5993

INDEX

Preamble ................................................................ 4 CHAPTER I. Legal regime for the creation of electronic money institutions .................. 7 Article 1. Authorization and registration regime for electronic money institutions. ............ 7 Article 2. Authorization applications. .......................................... 8 Article 3. Maintenance of authorization. ...................................... 10 Article 4. Authorization for the establishment in Spain of branches of electronic money institutions authorized or domiciled in a State not a member of the European Union........... 10 Article 5. Registers of the Bank of Spain. ....................................... 11 Article 6. Modification of Articles of Association. ................................... 12 Article 7. Expansion of activities. ........................................... 12 Article 8. Structural modifications of electronic money institutions.................... 13 Article 9. Use of reserved designation, organizational measures, and transparency. ......... 13 CHAPTER II. Cross-border activity of electronic money institutions ...................... 13 Article 10. Application for the exercise of the right of establishment and free provision of services in a Member State of the European Union by Spanish electronic money institutions. .......... 13 Article 11. Operation in Spain by electronic money institutions authorized in another Member State of the European Union............................................... 14 Article 12. Application for the exercise of the right of establishment and free provision of services in a State not a member of the European Union by Spanish electronic money institutions. ........ 15 Article 13. Creation or acquisition of holdings in electronic money institutions of a State not a member of the European Union............................................. 15 CONSOLIDATED LEGISLATION Page 1

CHAPTER III. Regime of agents and delegation of operational functions ...................... 16 Article 14. Agents and distributors. ........................................... 16 Article 15. Outsourcing of functions. ........................................ 16 CHAPTER IV. Guarantee requirements and own funds requirements........................ 18 Article 16. Guarantee requirements. ............................................ 18 Article 17. Own funds................................................. 19 Article 18. Calculation of own funds requirements............................ 19 Article 19. Adoption of measures to return to compliance with rules relating to own funds. ............................................................ 20 Article 20. Application of results in case of non-compliance with rules relating to own funds. ............................................................ 20 CHAPTER V. Hybrid electronic money institutions and duty to establish a separate electronic money institution ......................................................... 21 Article 21. Hybrid electronic money institutions. ................................. 21 Article 22. Duty to establish a separate electronic money institution. .............. 22 CHAPTER VI. Other provisions relating to the legal regime for the issuance of electronic money and the provision of payment services by electronic money institutions .................... 22 Article 23. Exceptions relating to limited networks and providers of electronic communications networks or services.................................................. 22 Article 24. Payment accounts. ................................................ 22 CHAPTER VII. Supervisory and sanctioning regime for electronic money institutions ............ 23 Article 25. Information on the capital structure of electronic money institutions. ....... 23 Article 26. Professional secrecy. .............................................. 23 Article 27. Sanctioning regime. ............................................. 23 Article 28. Information obligations regarding conduct. ......................... 24 Article 29. Supervision and cooperation with competent authorities of other Member States. .... 24 Transitional Provisions ...................................................... 25 Single Transitional Provision. Transitional regime for electronic money institutions authorized pursuant to Article 21 of Law 44/2002, of 22 November, on measures for the reform of the financial system. ........................................................... 25 Repealing Provisions ..................................................... 25 Single Repealing Provision. Repeal of legislation.................................. 25 Final Provisions ......................................................... 25 First Final Provision. Competence title. ..................................... 25 OFFICIAL STATE GAZETTE CONSOLIDATED LEGISLATION Page 2

Second Final Provision. Incorporation of European Union Law. ................... 25 Third Final Provision. Empowerment of the Bank of Spain. ............................. 25 Fourth Final Provision. Entry into force. ........................................ 26 OFFICIAL STATE GAZETTE CONSOLIDATED LEGISLATION Page 3

CONSOLIDATED TEXT Last modification: 24 December 2019 This Royal Decree develops the regulation contained in Law 21/2011, of 26 July, on electronic money, in accordance with the empowerment established for these purposes by the twelfth final provision of said law. With the approval of this Royal Decree, the complete transposition of Directive 2009/110/EC of the European Parliament and of the Council, of 16 September 2009, on the access to the activity of electronic money institutions and its exercise, as well as on the prudential supervision of such institutions, is finalized, which amends Directives 2005/60/EC and 2006/48/EC and repeals Directive 2000/46/EC, already incorporated in its majority into the Spanish legal order through the aforementioned Law 21/2011, of 26 July.

This Royal Decree represents the last normative milestone of an economic and social reality developing in the European Union market since the appearance of the first electronic prepaid instruments, which led to the adoption of Directive 2000/46/EC of the European Parliament and of the Council, of 18 September 2000, on the access to the activity of electronic money institutions and its exercise as well as the prudential supervision of such institutions. This Directive was incorporated into our legal order through Article 21 of Law 44/2002, of 22 November, on measures for the reform of the financial system, and Royal Decree 322/2008, of 29 February, on the legal regime of electronic money institutions, which develops it. Both norms had as their main purpose to stimulate competition and open the sector of electronic money issuance to institutions other than banks and traditional credit institutions, allowing the creation of a new type of entity, electronic money institutions.

However, the experience accumulated over time and the development of the sector itself advised certain modifications to the legal regime of electronic money institutions and the issuance of electronic money, which finally materialized in the approval of Directive 2009/110/EC.

There are three fundamental objectives that can be identified in this Royal Decree, which complement those provided in the Law:

First, it helps to increase the precision of the legal regime applicable to the issuance of electronic money, clarifying its definition and the scope of application of the norm. In this way, by increasing the legal certainty of those involved in the market, access to the activity of electronic money issuance will be facilitated and competition in that sector will be stimulated.

On the other hand, the norm completes the design of a more proportionate legal regime for electronic money institutions. Indeed, the legal regime of electronic money institutions in force prior to the entry into force of Law 21/2011, of 26 July, established requirements that proved too burdensome for entities and were revealed as inadequate in relation to the risks that their activity could potentially generate.

Finally, the norm contributes to ensuring consistency between the new legal regime for payment institutions and that applicable to electronic money institutions.

The Royal Decree regulates the legal regime of electronic money institutions and also specifies certain provisions relating to the general legal regime for the activity of electronic money issuance. It consists of twenty-seven articles, distributed in seven chapters, one transitional provision, one repealing provision, and three final provisions.

Chapter I, which is integrated by nine articles, contains the legal regime for the creation of electronic money institutions.

In particular, it is pointed out, as is usual in the creation regime for other financial entities, that it corresponds to the Minister of Economy and Competitiveness to authorize the creation of electronic money institutions, prior report from the Bank of Spain and the Executive Service of the Commission for the Prevention of Money Laundering and Monetary Offenses, in aspects of their competence.

The application must also be submitted, as is usual, to the General Secretariat of the Treasury and Financial Policy, and the need for registration, as has been done hitherto, of electronic money institutions in a Special Register of the Bank of Spain is foreseen, before commencing their activity. Some particularities are also collected for the case where the electronic money institution to be authorized is controlled by another entity from a State not a member of the European Union.

Requirements to obtain and maintain the authorization of an electronic money institution are also established, which must be proven at the time of the application for the creation of the entity to merit authorization. These requirements refer both to the legal form of the electronic money institution and to its initial capital or the conditions that holders of significant participations and the administrators of the entity must meet.

This chapter also foresees the creation by the Bank of Spain of a Register of Senior Management in which the administrators and general managers of electronic money institutions must be registered. This is added to the aforementioned obligation to register the payment entities themselves before starting their activities in the Special Register of electronic money institutions created at the Bank of Spain.

Articles 6, 7, and 8 are dedicated to the regime applicable to various modifications that an electronic money institution may undergo, both in its Articles of Association and in its activities, with specific provision for the case of merger. A final article specifies that the use of the designation of electronic money institution or its abbreviation must appear in the corporate name of the entity. The foregoing is completed with two sections aimed at guaranteeing that the user is aware at all times of the legal nature of the payment entity holding their payment service provider.

Chapter II regulates the cross-border activity of electronic money institutions and consists of four articles.

The first regulates the opening of branches and the free provision of services in a Member State of the European Union by Spanish electronic money institutions and establishes, in particular, the obligation to communicate to the Bank of Spain and the information that must accompany it.

The second details the communication regime to the Bank of Spain that supervisory authorities of those community electronic money institutions wishing to provide their services permanently in Spain must comply with.

In the next two articles, the regime of prior authorization by the Bank of Spain to which Spanish electronic money institutions that wish to provide payment services in a State not a member of the European Union are subject is specified, either through the opening of branches or in the free provision of services.

Chapter III is dedicated to the regime of agents and delegation of functions, each contained in one of the two articles that make up this chapter.

Regarding the regime of agents, Article 14 establishes that electronic money institutions cannot issue electronic money through agents. In the event that they provide payment services, this activity may be carried out through agents, for which the requirements provided in Royal Decree 712/2010, of 28 May, on the legal regime of payment services and payment institutions, must be met.

With regard to the delegation of functions, a prior information regime to the Bank of Spain is established for those that are essential, while communication will be made after the delegation in case that the functions affected by this delegation are not essential. This regime is completed with a series of provisions aimed at guaranteeing that the delegation of essential operational functions does not result in a decrease in their quality or internal control, or to the detriment of the responsibilities and obligations of electronic money institutions regarding users.

The guarantee requirements and own funds requirements are regulated in the five articles that make up Chapter IV of the proposed norm.

The need for electronic money institutions to safeguard the funds of their users for the issuance of electronic money and the execution of payment operations requires that these entities have one of the two guarantee methods established in Law 21/2011, of 26 July, the details of which are specified in the proposed norm. Regarding the first method, the safe and low-risk assets in which the funds referred to in Article 10.1.a) of Law 16/2009, of 13 November, on payment services, may be invested are detailed. With respect to the second method, the conditions that the insurance policy or comparable guarantee must meet are specified.

On the other hand, the calculation method that payment institutions must apply to determine their own funds requirements is detailed. Generally, it will be the sum of two amounts: 1. In the case of provision of payment services not linked to the issuance of electronic money, the amount provided in payment services regulations as own funds for payment service institutions; and 2. With respect to the activity of electronic money issuance, 2% of the average electronic money in circulation.

Furthermore, Chapter IV contains a series of provisions aimed at guaranteeing the return to compliance with rules relating to own funds, in case that an entity presents a deficit of own funds compared to those required. First, an obligation to inform the Bank of Spain is established, which must be accompanied by a program to return to compliance. Likewise, an obligation to submit the application of results to the prior authorization of the Bank of Spain is established.

Chapter V introduces the concept of hybrid electronic money institutions, defined as those electronic money institutions that carry out, in addition to the issuance of electronic money and the provision of payment services, any other economic activity. Some aspects of the norm are adapted for their special application to these entities, especially regarding some requirements both to exercise the activity and for the purposes of the application, the Register of Senior Management, supervision, and accounting.

Finally, this chapter details the procedure by virtue of which the Bank of Spain may require a hybrid electronic money institution to establish a separate electronic money institution, when the carrying out of other economic activities distinct from the issuance of electronic money and the provision of payment services may affect its financial solidity or the capacity of the authorities to perform their supervisory function.

Chapter VI collects additional aspects relating to the legal regime for the issuance of electronic money, on the one hand, and the provision of payment services by electronic money institutions, on the other.

An exception to the application of the regulatory norm for the issuance of electronic money is established. The monetary value stored in instruments whose use is limited to the establishments of the issuer or within a limited network of providers is not subject to this norm.

On the other hand, it is established that payment accounts maintained by electronic money institutions will be subject to the limitations contained in Royal Decree 712/2010, of 28 May.

Finally, Chapter VII, which contains the last three articles of the proposed norm, collects the supervisory and sanctioning regime applicable to electronic money institutions. Both follow, in the fundamental aspects and with some adaptations, the regime applicable to credit institutions.

The duty of professional secrecy is also collected for all persons who, in the performance of a professional activity for the Bank of Spain or in the exchange of information with other authorities, have known data of a confidential nature.

A transitional provision has been introduced in the project that develops the one contained in Law 21/2011, of 26 July, which in turn proceeds from the Community Directive, which refers to those electronic money institutions that had obtained authorization by virtue of Article 21 of Law 44/2002, of 22 November, on measures for the reform of the financial system. Law 21/2011, of 26 July, does not require these entities to request a new authorization, although it requires them to demonstrate compliance with the necessary requirements for the development of this activity in accordance with the same. The project, for the purposes of such accreditation, exempts these entities from providing certain documentation, unless expressly requested.

The project additionally has a repealing provision, and concludes with three final provisions, which contain, respectively, what refers to the competence titles under which the Royal Decree is issued, the reference to the incorporation of European Union law, insofar as it completes the transposition of Directive 2009/110/EC, and its entry into force.

In virtue thereof, upon proposal of the Minister of Economy and Competitiveness, with the prior approval of the Minister of Finance and Public Administrations, in agreement with the Council of State and prior deliberation of the Council of Ministers in its meeting of 4 May 2012,

I HEREBY ORDER:

CHAPTER I Legal regime for the creation of electronic money institutions

Article 1. Authorization and registration regime for electronic money institutions.

1. Any person who intends to carry out the activity of issuing electronic money must obtain authorization as an electronic money institution prior to the provision of such services, except for those collected in Article 2.1, letters a), c), d) and e), of Law 21/2011, of 26 July, on electronic money, under the terms established in the following paragraphs and in accordance with what is provided in Article 4.1 of Law 21/2011, of 26 July.

The Bank of Spain, prior report from the Executive Service of the Commission for the Prevention of Money Laundering and Monetary Offenses in aspects of its competence, shall authorize the creation of electronic money institutions, as well as the establishment in Spain of branches of entities analogous to electronic money institutions authorized or domiciled in a State not a member of the European Union, when the information and evidence accompanying the application meet all the established requirements. The authorization will specify the activities that the electronic money institution may carry out, in accordance with the business plan presented by the entity. Authorization will only be granted to legal persons established in a Member State.

2. The authorization application must be resolved within three months following its receipt at the Bank of Spain or at the moment when the required documentation is completed. The authorization application will be understood as dismissed by administrative silence if, after the aforementioned maximum period, an express resolution has not been notified, without prejudice to the duty to issue and notify it. The denial of authorization must be motivated in accordance with what is established in Article 4.2 of Law 21/2011, of 26 June, and in this Royal Decree.

3. At the end of each quarter, the Bank of Spain will communicate to the General Secretariat of the Treasury and International Financing of the Ministry of Economy and Enterprise the following information: a) Identity of the applicant, including the proposed corporate name for the electronic money institution, the registered office, and the address of the central administration. b) Date of the authorization application, for the creation of an electronic money institution and, where applicable, the application for waiver or revocation thereof, the application for expansion of activities, as well as the application for structural modifications in which an electronic money institution intervenes and, at the appropriate time, the date of the resolution issued in the procedure, as well as its nature as granting or denying. c) The business plan that the entity intends to carry out, including, where applicable, the payment service or services that are also requested to be provided, as well as auxiliary or closely related services. d) The degree of technological-based financial innovation that the proposed business model entails with respect to market practices, as well as a description thereof, in case that the degree of innovation can be considered high, in the judgment of the Bank of Spain. For the purposes of this Royal Decree, technological-based financial innovation shall be understood as any that may give rise to new business models, applications, processes, or products with impact on the market.

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