E-money Distributor

An e-money distributor is an individual or company appointed by an electronic money institution (EMI) to place the EMI's electronic money with customers and to buy it back from them, always acting for the EMI rather than on its own account. Common examples are retailers that sell prepaid cards, vouchers or wallet top-ups at the counter, and businesses that let customers cash out e-money balances. The distributor does not issue e-money itself, and it is not permitted to provide payment services; the customer's claim on the funds remains a claim against the EMI.

The concept comes from European Union law and is mirrored in the United Kingdom's post-Brexit regime. It allows EMIs to reach customers through physical and online channels without each point of sale needing its own license.

The second Electronic Money Directive (2009/110/EC) allows electronic money institutions to distribute and redeem electronic money through natural or legal persons acting on their behalf, while expressly preventing them from issuing e-money through such persons. In the United Kingdom the Electronic Money Regulations 2011 contain equivalent provisions. Both authorized EMIs and the smaller, lightly regulated small electronic money institutions may use distributors.

The difference between a distributor and an EMI agent is the activity performed. Distributing and redeeming e-money, meaning selling it to customers and paying it out on request, is distribution. Providing payment services, such as executing transfers or acquiring card transactions, on the EMI's behalf requires an agent, which is subject to the same registration process as a payment services agent of a payment institution.

The practical consequences are significant. Agents must generally be registered with the regulator before they act, with checks on their directors and their anti-money laundering controls. Distributors are usually subject to lighter formalities, and in the UK an EMI is not generally required to register a distributor in the same way as an agent, although the EMI must still oversee its distributors and may need to notify the regulator in certain cases, such as when a distributor is used to provide services in another country. Because the boundary is functional, a firm described as a distributor that in fact carries out payment services is acting as an unregistered agent.

• Liability. The EMI remains fully responsible for the acts of its distributors in relation to its e-money, as it would be for its own.
• Safeguarding. Funds received by a distributor in exchange for e-money are relevant funds that must be protected under the EMI's safeguarding arrangements, so the EMI needs controls over how quickly the distributor passes them on.
• Anti-money laundering. The EMI's AML program must cover the distribution channel, including limits on anonymous prepaid products, training and monitoring for misuse.
• Outsourcing and oversight. Contracts should set out the distributor's duties, audit rights and termination provisions, and the EMI should be able to show the regulator how it monitors performance.

Within the European Economic Area, an EMI that wishes to distribute e-money in another member state through a distributor uses the passporting process, notifying its home regulator, which informs the host state. Since Brexit, UK EMIs no longer have passporting rights into the EEA and vice versa. Regulators also watch for distribution arrangements that create a significant presence in a host country without proper authorization.

Distribution resembles the use of retail outlets in US prepaid programs, where sellers of prepaid access are covered by FinCEN's rules, but the legal structures differ. In UK investment and insurance regulation, an appointed representative acts under a principal firm's authorization, a model that is wider in scope than e-money distribution. In crypto markets, issuers of e-money tokens under the EU's MiCA regulation must themselves be credit institutions or EMIs, and questions about who may distribute such tokens raise similar issues of liability and safeguarding.