This document is prepared for a wide range of people interested in the arrangement and conduct of activities to provide payment services, issuance of electronic money and transactions with cryptocurrency in different jurisdictions with a relevant legal and regulatory framework.
The purpose of this paper is to briefly acquaint the readers with the most important information on the issues listed above, including:
The document contains no professional legal advice and is an informational brochure only. All the given numerical values, including capital requirements, state duties, tax rates, etc., are valid as of the time of preparation of these materials.
Jurisdictions suitable for arrangement of business in provision of payment services and electronic money issue can be divided into the following categories:
The recognized Global Financial Centers with comprehensive laws regulating payment institutions and e-money issuers include, in particular:
Switzerland can be reasonably added to this list as well, but this jurisdiction is characterized by the absence of a special legal framework regulating payment services and electronic money issue. The only legal act directly related to payment services provided by non-bank institutions is the Act on combating the legalization of income from illegal activities. Beyond complying with the AML standards, non-banks are free to provide payment services without the need to comply with any other regulatory requirement except for certain restrictions such as on the maximum amount stored in accounts offered by non-bank prepaid services providers.
There are a number of countries, in particular, countries in Southern and Eastern Europe, which are actively developing their payment services industry on the basis of detailed legislation of the European Union, namely:
The traditional offshore jurisdictions with an appropriate legislative framework include:
Before we list the main types of regulated activities, it is reasonable to define its subjects.
In general, payment institutions and institutions issuing electronic money can be defined as non-banks that provide services for making payments in relatively small amounts, yet their main activity is not related to raising funds of the population through deposits and credits on the account of the funds attracted in such manner.
Relevant legislation of each jurisdiction has its own list of activities subject to regulation. In general, the legislation on payment institutions and e-money issuers covers activities associated with the most common payment instruments, namely:
In particular, the Directive of the European Parliament and the European Council 2007/64/EC concerning payment services defines regulated activities and activities of payment institutions, which are not subject to its provisions.
Thus, according to Directive 2007/64/EC, payment services include:
Activities that are not covered by Directive 2007/64/EC include, among others:
At the same time, the Law of the Cayman Islands concerning services related to money circulation dated 2010, lists the following regulated services:
The Decree on Regulated Activities of 2011, as amended in 2013, which was issued in the development of the Isle of Man Financial Services Act of 2008, applies to the following services related to the transfer of funds:
Hereinafter, the regulated activities will be specified in the relevant sections of a particular jurisdiction.
International regulation of payment institutions, electronic money issuers and cryptocurrency operators
Payment services and electronic money issuers
Legislation, which should be studied in order to arrange payment business, can be conventionally classified as follows:
Virtual alternative currencies (cryptocurrency)
A special case in the international regulation of electronic money is currently represented by cryptocurrency or virtual alternative means of payment such as Bitcoin.
Government regulation has for a long time been a grey area for Bitcoin, both in the United States and elsewhere. Although there have been a number of disparate government reports either simply talking about Bitcoin or providing a regulatory opinion on some aspect of Bitcoin exchange, to date we have not seen anything close to a conclusive statement on digital currencies from any government organization in any country in the world.
The problem is a difficult one; nearly all laws to date that attempted to regulate online payments of any form have all assumed a central issuer, and in the case of Bitcoin it could be just as easily argued that everyone is an issuer or that no one is.
The US government has moved to clarify its regulatory stance on virtual currencies such as bitcoin, confirming that while users are not classified as money services businesses (MSBs) subject to its rules, exchanges and administrators are.
The guidance notice issued on 19 March 2013 by the Treasury's Financial Crimes Enforcement Network (FinCEN) distinguishes different types of electronic money, namely:
and the main actors:
In the guidance notice, the Treasury's Financial Crimes Enforcement Network (FinCEN) confirms that users of bitcoins, Amazon Coins and other virtual currencies, i.e. those “who use virtual currencies to buy and sell goods and services”, are not MSBs under the Bank Secrecy Act and so do not fall under registration, reporting, and recordkeeping regulations.
However, exchangers - those "engaged as a business in the exchange of virtual currency for real currency, funds, or other virtual currency" - and administrators - those "engaged as a business in issuing (putting into circulation) a virtual currency" - are considered MSBs and have to be licensed.
Arrangement of payment business in certain jurisdictions