On a Secret Mission: Payment Agents and E-money Agents in German Regulatory Law

Payment Agents | PayTechLaw

As is often the case with people like James Bond, agents in payments law are difficult to come by. This area of law is obscure and more difficult to understand. In addition to this, particularities in German law make it less harmonized and even more difficult to comprehend. Now, it is time to blow their cover and shed some light on the different types of agents under German payment law: Payment Agents and E-Money Agents.

Payment Agents

Pursuant to Sec. 1 para. 9 German Payment Services Supervision Act (“ZAG”), payment agents are natural or legal persons who act on behalf of an institute as an independent business person providing payment services. This definition is based on Art. 4 para. 38 PSD2, the only difference being that the German law adds the feature “independent business person”. Payment agents need to be independent from the institute. Accordingly, a branch may not be a payment agent.

Payment agents may act for payment institutes or e-money institutes. The institutes remain fully liable for any acts of the agents. In practice, this means that if a payment agent is at fault when carrying out a payment service, the customer may assert their rights against the payment institute directly.

Payment Agents have to disclose that they act on behalf of a payment institute. They do not require a license. In contrast, commission agents who also carry out payment services act in their own name but for the account of a third person. Such commission agents require a payment license.

Payment agents need to be registered with the home member state. Some examples: a French payment institute needs to register any German payment agent in France. A German e-money institute needs to register its Polish payment agents with BaFin.

Most importantly, Payment Agents are obliged persons pursuant to Sec. 2 para. 1 No. 4 German Anti-Money Laundering Act (“GWG”), which means that they have to fulfill AML obligations.

So far, this should be pretty similar to other jurisdictions. However, German payment law has its additional brand of agent:

E-Money Agents

Pursuant to Sec. 1 para. 10 ZAG e-money agents are natural or legal persons who act on behalf of an e-money institute as an independent business person by distributing or redeeming e-money. Thus, where an agent acts for an e-money institute and is entrusted with the distribution or redemption of e-money, this agent is not deemed a payment agent but an e-money agent. Working on behalf of an e-money institute is part of the definition and agents working for other types of e-money issuers will not be deemed e-money agents under German law.

The 2nd e-money directive (Directive 2009/110/EC) does provide the possibility that e-money institutes employ agents for the distribution and redemption of e-money but the directive does not call them e-money agents.

In cases where somebody distributes e-money not on behalf of an e-money institute but in its own name (e.g. reseller, distributor), the person is not an e-money agent but may require either a license to operate as a financial institute or payment institute as the case may be.

BaFin needs to be notified of any e-money agents that an e-money institute uses.

Pursuant to Sec. 2 para. 1 No. 4 GWG, e-money agents are like payment agents obliged to carry out general AML obligations.

The activities of an e-money agent are limited to the distribution and redemption of e-money. Distribution of e-money needs to be distinguished from the issuance of e-money. The latter may never be carried out by an agent. Distribution is for instance the selling of already loaded pre-paid cards. In the past, distribution has been interpreted in a very broad sense by BaFin. Any type of activity that helps with getting the e-money to the market shall be sufficient. However, the legislative notes to the new German AML law set out that “only distribution activities which are directly part of the issuance process of e-money trigger customer due diligence obligations under AML laws. These are in particular providing the e-money carrier or codes or the acceptance of cash or other funds for the issuance on behalf of the e-money institute.” Accordingly, any pure marketing activities do not trigger any AML obligations. Since AML obligations are the main reason for the existence of e-money agents, it appears logical that distribution needs to be defined as suggested in the legislative notes. In our opinion, this means limiting the activities of e-money agents to activities that are directly leading to the issuance or redemption of e-money and excluding sales promotion or activities that are preparatory or auxiliary.

The AML obligations of an e-money agent operating in Germany are defined by German AML law. This is also the case where the e-money institute is located in a different member state.

In most cases, e-money agents will also render payment services when distributing or redeeming e-money. However, they do not require a payment license. Their activities are carried out not in their own name but on behalf of the e-money institute.

Furthermore, an e-money agent may also carry out other activities for an e-money institute that are not related to the distribution or redemption of e-money. For instance, they may act on behalf of an e-money institute that also offers payment services. In this case, an e-money agent may also be a payment agent, with the consequence of needing to be registered in the e-money institute register.

So secret they are not even called agents – distribution agents for banks

Furthermore, banks may also issue e-money but they don’t have e-money agents. German payment law does not provide for agents of banks. However, AML law recognizes that there may be independent business persons that distribute and redeem e-money acting on behalf of a bank that has issued such e-money. For this reason, such independent business persons are also obliged to comply with general AML obligations under German AML laws. Oddly enough, they are not called agents and don’t feature anywhere else but in the GWG. A truly secret class of agents.


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