Interest income earned on customer e-money float: entitlement and recognition

E-money issuers commonly place safeguarded customer float in interest-bearing bank accounts; whether the issuer or the customer is legally and contractually entitled to that investment income determines whether it is recognized as the issuer's own income or must be passed through (in full or in part) to customers or a regulator, which is a question of contractual and regulatory analysis rather than of accounting policy choice alone; recognizing all float interest as own income without confirming entitlement can materially overstate revenue and create an undisclosed liability to customers.

Does the e-money license, customer terms, or local regulation specify who is entitled to interest earned on safeguarded float? Is there any obligation, explicit or constructive (e.g., arising from marketing promises or past practice), to pass through a portion of the investment income to customers? Is the float and its income tracked separately from general corporate treasury interest to support clean disclosure?

1) Obtain and review the e-money license conditions, customer terms and conditions, and any marketing materials for explicit or implied statements about entitlement to float interest income. 2) Determine whether any explicit contractual pass-through obligation exists (e.g., a stated percentage shared with customers). 3) Assess whether a constructive obligation has arisen from historical practice or marketing promises, even without an explicit contractual clause, applying IAS 37 principles. 4) Where full entitlement is confirmed, recognize the interest income as the issuer's own income at the effective rate earned. 5) Where a pass-through obligation (explicit or constructive) exists, recognize a liability for the amount owed rather than income, remeasuring it as the underlying float and interest rate change. 6) Keep float interest income/liability tracking separate from general corporate treasury interest to support clean disclosure.

Where a pass-through obligation exists, measure the liability based on the contractual or regulatory formula (e.g., a stated percentage of interest earned); where full entitlement exists, recognize interest income at the effective rate earned on the underlying deposit or instrument; reassess the entitlement conclusion whenever license terms, customer T&Cs, or marketing practice change.

Disclose: the policy for entitlement to float investment income and its legal/contractual basis; any pass-through arrangements with customers or regulatory requirements and the resulting liability; float-related interest income presented separately from transaction-based revenue; and any constructive obligation identified from marketing or historical practice.

• Recognizing all float interest income as the issuer'
• s own revenue without confirming legal entitlement under the license and customer terms
• overlooking a constructive obligation created by marketing or historical practice of sharing interest with customers
• commingling float interest with general treasury interest income without separate tracking
• failing to update the entitlement conclusion after a license renewal or regulatory rule change
• assuming silence in the license terms defaults to full issuer entitlement without considering customer-facing communications.