In this article, we will look at the procedure to become an electronic money institution (EMI), in the UK. In the UK, The Financial Conduct Authority is the financial regulator for regulating electronic money institutions. If you wish to become an electronic money institution in the UK then you must prepare and submit an electronic money institution application in the UK to the Financial Conduct Authority. Below we will look at the process of becoming an electronic money institution in the UK as well as discussing the key requirements.
The UK regulator – Financial Conduct Authority
The Financial Conduct Authority in the UK regulates electronic money institutions in the UK.
If you wish to become an electronic money institution in the UK and provide electronic money, such as prepaid cards or electronic wallets, you will be required to prepare and submit an application to the Financial Conduct Authority for the Electronic Money Institution license.
EMI E-money license options
You have two options with regards to becoming an electronic money institution in the UK.
Option 1 – Small electronic money institution license
Key features of becoming a small electronic money institution in the UK:
- Application fee of £1,000,
- Cannot issue more than €5m e-money and €3m in turnover for payment services, per month,
- Cannot passport into Europe.
Option 2 – Authorised electronic money institution license
Key features of becoming an authorised electronic money institution in the UK:
- Application fee of £5,000,
- No turnover restrictions in issuing e-money,
- Able to passport into Europe.
Definition of E-money
As per Article 2(2) of Directive 2009/110/EC, “e-money” means “electronically, including magnetically, stored monetary value as represented by a claim on the issuer which is issued on receipt of funds for the purpose of making payment transaction, and which is accepted by someone other than the electronic money issuer”. Prepaid cards and electronic wallets are examples of electronic money.
Timescales – how long it takes to obtain the electronic money institution in the UK?
Depending on who you talk to, you will hear different timeframes with regards to the time it will take to obtain the electronic money institution in the UK. The truth is that this will depend on the completeness and strength of your license application. It is essential that you provide all the required information in your application at the time of submission. Equally, it is important that the information you provide is comprehensive and complete. Provided that you have a well-completed application, you should allow 4-5 months from the date of submitting your application to the FCA case officer to consider your application.
Key issues to consider
- Mind and Management
Regulation 6 of the E-Money Regulations 2011 (EMRs) and Regulation 5 of the Payment Services Regulations 2017 (PSRs) require firms to incorporate in the UK. This means that your head office and registered office must be in the UK. You will require a physical office as virtual offices will not be accepted.
The FCA has provided the following guidance on the mind and management requirements:
1. You must have more directors in the UK than overseas.
2. Your board meetings must be held in the UK.
3. The day to day decision making must be made in the UK
4. You may have an overseas director in your UK company
5. Your CEO must reside in the UK
6. Your MLRO (money laundering reporting officer) and ideally your compliance officer must reside in the UK. You may wish to contract some services back to your group/overseas office as long as the day to day decision-making of the UK company is conducted in the UK and the company is genuinely being controlled here.
7. If you outsource any functions, you must ensure that this is done so with executed contractual agreements in place.
Segregating client funds
You will be required to segregate client funds. You also have the option to obtain an insurance policy, however, the number of insurance products in the market for electronic money institutions are limited and so the popular option is to obtain a bank account in order to segregate client funds. This is usually an area where such businesses struggle due to, again, fairly limited options in the market and knowing who to approach and how to approach them. We are seeing a number of challenger banks targeting this area and able to help clients by making introductions.
Important information and documents you must submit in your E-money license application
The FCA will expect to see the following information as part of your electronic money institution license application:
- Details and structure of your company,
- Your programme of operations,
- A regulatory business plan,
- Details about your organisation structure,
- Evidence of your initial capital,
- Your measures to safeguard client funds,
- Details of your compliance and governance arrangements,
- Your procedure to manage security incidents and customer complaints,
- Details of your business continuity arrangements,
- Your policy on providing access to sensitive payment data,
- Security policy,
- Your AML/CTF internal controls policy,
- Details of your shareholders (holding more than 10%),
- Details of your management team, and,
- Details of any outsourcing arrangements.
Cost calculation of obtaining the electronic money institution license in the UK
Initial capital requirement – EUR 350,000 (for authorised EMI only)
FCA fee - £5,000 (one-off)
Office rent (based in London) - £18,000 (per year)
Annual FCA fee - £1,776 (on average)
Next Steps
Buckingham Capital Consulting is an international consulting firm, specialising in payment services, electronic money, banking and investment services. We are able to advise you on the best course of action and strategy based upon your business plan and financial product or service. We can you with licencing, compliance, operational setup and related services, including, obtaining banking facilities. For more information, visit our website on www.buckinghamcapitalconsulting.com