Trusts and electronic money institutions

In processing electronic payments and issuing electronic money in the form of pre-paid cards, AWL had to safeguard customer monies either segregating them or by putting in place insurance or guarantee arrangements to the value of the funds held as required under the Payment Services Regulations 2017 (PSR) and Electronic Money Regulations 2011 (EMR). AWL chose the segregation method.

The liquidator’s investigations revealed significant breaches of the segregation obligations and sought directions on whether, and if so on what terms and when, a trust may have arisen in respect of money held by AWL at the date of liquidation. The EMR and PSR provide that on liquidation ‘relevant funds’ that have been segregated form an ‘asset pool’ that is then distributed to ‘electronic money holders’ and ‘payment service users’ in priority to other creditors. Neither of the regulations cover what assets should comprise the asset pool where there has been a failure to segregate, or how claims to the asset pool should be ascertained in that situation.

The judge had concluded that:

  • Taking into account all of the regulations that a statutory trust arose, an essential characteristic of a trust being that the company was prohibited from using the funds for their own purposes.
  • The trust arose on receipt of the funds by the company over all funds that were or should have been segregated by the company.
  • The asset pool should be distributed among the beneficiaries on a pari passu basis.

However, between the hearing of this application and circulating the judgment in draft, the High Court handed down judgment in Re ipagoo LLP, a company also authorised to issue electronic money. In that case the same issue had arisen about the existence of a trust under the EMR and the judge concluded that no statutory trust arose. The Insolvency and Companies Court Judge having reached a different conclusion, was bound to follow the decision of the higher court and did so.

The FCA has applied for permission to appeal the decision in Re ipagoo LLP.

Shane Crooks, Emma Sayers and Malcolm Cohen (as Joint liquidators of Allied Wallet Limited) [2022] EWHC 402(Ch)

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