In the recent Court of Appeal case of Re Ipagoo LLP, the court provided welcome clarity on the status of e-money holders’ claims under the Electronic Money Regulations 2011 (EMR). In brief, the Court of Appeal held that the EMR do not impose a statutory trust in respect of funds received from e-money holders. The court confirmed, however, that e-money holders will still enjoy priority status in respect of their e-money creditor claims (crucially) whether or not their funds have been duly segregated from the general pool of assets, as required under the EMR.
Clients of e-money institutions will take comfort from this decision given that their funds will be protected regardless of whether the firm in question has complied with the strict EMR safeguarding requirements. While this is clearly not the outcome the FCA would have liked, the fact that the Court of Appeal has confirmed that the EMR do not impose a statutory trust upon funds deposited with e-money firms should not adversely impact the protection the Regulations afford to e-money holders in practical terms.
The Court’s interpretation (and indeed, significant extension) of the “asset pool” creates a “quasi-trust” situation in any event – given that non-segregated funds which should have been safeguarded pursuant to the requirements of the Regulations will be deemed to fall within the scope of the asset pool, from which the claims of e-money holders should be met.
Whilst the Court’s extension of the asset pool concept will no doubt be welcomed by e-money holders, this is unlikely to be the case for other (non-e-money) creditors. Such creditors will be likely to see their recoveries reduced, in the event of an e-institution’s insolvency, given the need to effectively “top up” the asset pool from a firm’s general funds (where it has not complied with the safeguarding rules under the EMR).