Digital forms of money including central bank digital currencies, privately issued stable currencies and e-money continue to evolve and find new ways to become an increasingly integral part of people's daily lives. E-money is basically a representation of fiat currency guaranteed by the issuer.

Customers convert regular money into e-money, which can be used to make payments via a cell phone app, either between individuals or companies, easily and with immediate effect. Unlike other recently developed forms of digital money, such as stable currencies, e-money has been around for some time and its customer base continues to grow rapidly.

And unlike most stable currencies from private issuers, e-money operates within a regulated framework.

For regulators and supervisors charged with protecting consumers and ensuring a level playing field for all financial intermediaries, keeping pace with new developments can be challenging. Regulators and supervisors must examine how to better protect consumers from the failure of (potentially systemic) e-money issuers, including preventing the loss of their funds.

With the growing importance of e-money issuers, a robust and comprehensive framework for regulation and protection of client funds is essential.

Issuers must be subject to appropriate prudential regulatory requirements. For example, they must establish operational risk management and governance systems to identify and limit risks. They must also be prohibited from engaging in retail lending activities. And, to protect less experienced consumers than bank customers, rules should be established to regulate how issuers report fees, protect consumer data and handle complaints.

One of the most important regulatory measures identified by the IMF is that, to protect customers' money, all e-money issuers must implement mechanisms to safeguard and segregate those funds.

Issuers must maintain a secure reserve of liquid funds that is equivalent to the amounts of consumer balances, and that is kept separate from the issuer's own funds. This is a fundamental safeguard against misuse of funds and should, in principle, allow for the recovery of such funds in the event of an issuer's bankruptcy.

Translated by: A.M