Court dismisses FCA appeal on ipagoo and finds no trust in e-money regulations

The Court of Appeal has handed down its judgement on the administration of ipagoo LLP, an e-money institution. The Court dismissed the FCA’s appeal on whether the UK’s Electronic Money Regulations create a statutory trust, as well as the administrators’ cross-appeal on the extent of the asset pool.

The Court found:

1. The EMRs do not impose a statutory trust in relation to funds received from e-money holders.
2. It is not necessary to impose a statutory trust to fulfil the requirements of the EU’s Electronic Money Directive or Payment Services Directive.
3. The asset pool should include funds which have not been properly safeguarded.

The decision is a setback for the FCA which had argued that the construction of a trust in the legislation was necessary to ensure a high level of consumer protection for e-money holders. However, the Court's wide interpretation of the “asset pool” on insolvency to include funds that were not properly safeguarded leads to an outcome which is not unlike a trust. E-money holders may not hold a proprietary interest in the relevant funds but they could still benefit from rights over the firm’s assets in priority to other creditors.