E-Money and Insolvency

E-Money and Insolvency

The Court of Appeal recently found, unanimously, that customer money received by an e-money institution (EMI) must be safeguarded under EU legislation, and therefore that it was part of a protected pool in an administration, allowing customer creditors to receive monies ahead of others. The decision affirms the High Court’s previous decision at first instance and is important for Insolvency Practitioners as it indicates how customer funds are to be treated on insolvency.

Electronic Money Regulations (EMR)

EMI’s cannot retain deposits of money or pay interest. They are governed by the Electronic Money Regulations 2011 (“the EMR”), which were implemented to give effect to the EU’s Electronic Money Directive 2009/110.

The EMR requires funds paid in by electronic money holders (“EMH”, customers of an EMI) to be safeguarded and held separately from sums received by non-electronic money holders.

Ipagoo LLP is an EMI that entered into administration in 2019. In the course of the administration, the office holders were unable to determine if the funds paid to Ipagoo by electronic money holders had been ringfenced as required. The administrators, therefore, applied to the Court for directions as to how those funds should be treated.

Decision in first instance

In July 2021, the High Court found that, despite the fact the EMR does not create a statutory trust or charge over customer funds, in circumstances where those funds should have been safeguarded but were not, an equivalent amount should be set aside from Ipagoo’s asset pool for distribution to the EMH’s.

The Financial Conduct Authority (FCA) appealed the decision that no statutory trust arises on the basis that, without the creation of such a trust, EMH’s lose the high level of protection intended under the EU Directive.

Igapoo and its administrators cross-appealed the decision, arguing that the asset pool should not be extended to relevant funds that were not properly safeguarded.

Outcome of the appeal

The Court of Appeal dismissed both appeals and confirmed the High Court’s findings that the EMR’s do not impose a statutory trust; it is not necessary to impose a statutory trust in order to fulfil the requirements of the legislation; and the asset pool available to EMH’s should include a sum equal to those funds which should have been safeguarded but were not. The impact of this is that EMH’s can benefit from a high level of protection on insolvency, even though they do not have a proprietary interest.

The Court of Appeal’s wide interpretation of “asset pool” under Regulation 24 includes not only safeguarded monies but also monies that should have been safeguarded. This means that EMH’s have priority over all other creditors, including those with security. Despite the clarification that a statutory trust does not arise, a trust-like arrangement is in practice created to allow EMH’s to have this priority.


Overall, the Court of Appeal judgment clarifies that without the presence of a statutory trust, EMH funds are prioritised on insolvency ahead of other creditors, even where appropriate safeguards have not been complied with. There remains significant uncertainty in the EMR themselves, such as what funds should be ringfenced and when. Serious non-compliance with EMR was highlighted in the judgment, and the FCA will likely be tightening up on supervision of safeguarding arrangements with EMIs.