Procedure to apply for the UK Payment Institution and E-money EMI license

If you wish to provide electronic money or payment services in the UK, you will need to apply for registration or authorisation with the UK financial regulator, the Financial Conduct Authority (FCA). Depending upon the services you wish to provide, you will either require become a payment institution (SPI/API) or an electronic money institution (EMI).


This article provides details of the key important steps and requirements you need to consider applying for a payment institution or electronic money institution in the UK.


In this article, we will explore:


1. FCA - the UK regulator

2. PSD 2 – the second Payment Services Directive

3. Apply to become a Small Electronic Money Institution (EMI)

4. Apply to become an Authorised Electronic Money Institution (EMI)

5. Apply to become a Small Payment Institution

6. Apply to become an Authorised Payment Institution

7. Further information on making an application




1. FCA - the UK regulator for payment services and electronic money


The Financial Conduct Authority in the UK regulates firms that provide regulated services, including, consumer credit, payment services, e-money, lending, insurance and investment services. The Financial Conduct Authority is the conduct regulator for 59,000 financial services firms and financial markets in the UK and the prudential regulator for over 18,000 of those firms.


If you wish to issue electronic money services in the UK, such as prepaid cards or electronic wallets, you will require an Authorised Electronic Money Institution license from the Financial Conduct Authority.

The FCA’s strategic objective is to ensure that the financial market is functioning effectively and efficiently.


It’s operational objections are:

- To protect consumers

- To protect the financial markets and enhance the integrity of the UK financial system

- To promote effective competition and in the best interest of the consumer.



2. PSD 2 – the Second Payment Services Directive


PSD2, or the Payment Service Directive 2, is an EU Directive (Directive 2015/2366) which sets requirements for businesses that provide payment services. It applies to banks, building societies, payment institutions, e-money institutions and their customers.

PSD2 aims to promote innovation within the payments sector. Furthermore, it aims to improve protection for consumers and make payments both safer and more secure.

The PSD2 directive came into force on 13 January 2018.


Its main objectives are to:

- Contribute to a more integrated and efficient European payments market

- Improve the level playing field for payment service providers (including new players)

- Make payments safer and more secure

- Protect consumers



3. Apply to become a Small Electronic Money Institution (EMI)


As part of your application for a small electronic money institution, you will be required to submit the following information:

- A business plan explaining your business

- Any payment services you wish to provide in addition to e-money

- your governance arrangements and internal procedures, for example, the structures you have in place to run a business effectively people responsible for e-money and payment services businesses (if applicable)

- evidence that when you start trading, your e-money business will generate a monthly average outstanding electronic money of less than €5m

- evidence that, in the 12 months preceding the application, the monthly average of payment services transactions did not exceed €3m (this assessment can be based on projections if a firm have never traded before), and

- a description of how you will safeguard the funds of e-money holders


The following conditions apply to the small EMI:

- you must ensure that you do not provide e-money or payment services outside the UK or in another EEA state. the small EMI registration is available for providing e-money and payments in the UK only.

- your e-money business must generate average monthly outstanding e-money of less than €5m. You cannot exceed this amount.

- you processed less than €3m on average in the past 12 months

- your projected amount of payments over the following 12 months will not exceed €3m

- you will not provide account initiation services (AIS) or payment initiations services (PIS)



4. Apply to become an Authorised Electronic Money Institution (EMI)


The FCA’s definition of electronic money is a monetary value stored electronically, which is issued on receipt of funds and used for making payment transactions and accepted by a person other than its issuer. For example, the monetary value stored on a prepaid card, a personal computer or a plastic card that uses a magnetic stripe.


In order to apply to become an authorised EMI, you will need to provide certain information as part of your application, including your business plan, details of payment services you wish to provide, your compliance and governance arrangements, details of how you will safeguard your user funds, details on how you will meet the initial capital requirement, and details of your people, including shareholders and those responsible for the management of the business.


When you submit your application, it will be acknowledged within 7 days. A case officer is then assigned to your application. If you have provided all the required information, the process will take 3 months. However, if the application is incomplete, it can take longer to process your application.



5. Apply to become a Small Payment Institution


In order to become an SPI, you must meet the following 9 conditions:

- the directors and managers must be of good repute with appropriate skills to provide payment services

- the average monthly payment transactions in the preceding 12 months must not exceed €3m

- if the applicant has not been providing payment services or has been providing payment services for less than 12 months, the projected average monthly payment transactions must not exceed €3m

- the managers must not have been convicted of money laundering, terrorist financing or other financial crimes

- the head office and registered office must be in the UK

- the firm must comply with the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations (2017)

- if the applicant is a partnership, an unincorporated association or a corporation, anyone having a qualifying holding must be fit and proper for the sound and prudent conduct of a small PI, and

- if the applicant is a corporation with close links to another person, the links mustn’t be likely to prevent the FCA’s effective supervision of the business.

- The applicant must not provide AIS (account initiation services) or PIS (payment initiation services)



6. Apply to become an Authorised Payment Institution (API)



Definition of payment service provider


According to the Financial Condition Authority, the definition of a payment service provider is any of the following when they carry out a payment service:


(a) an authorised payment institution;

(b) a small payment institution;

(c) a registered account information service provider;

(d) an EEA authorised payment institution;

(e) an EEA registered account information service provider,

(f) a credit institution;

(g) an electronic money issuer;

(h) the Post Office Limited;

(i) the Bank of England, the European Central Bank and the national central banks of the EEA States other than the United Kingdom, other than when acting in their capacity as a monetary authority or carrying out other functions of a public nature; and

(j) government departments and local authorities, other than when carrying out functions of a public nature.

(k) any person with access to a regulated payment system who provides services to consumers or businesses who are not participants in a regulated payment system, for the purposes of enabling the transfer of funds using that regulated payment system.

(l) any person with access to an IFR card payment system who acts as an acquirer or card issuer for the purposes of enabling the transfer of funds under the rules of that IFR card payment system.



What are payment services?


Schedule 1 of the Payment Services Regulations (PSR 2017) provides a list of eight payment services. These are:

1. Services enabling cash to be placed on a payment account as well as all the operations required for operating a payment account.

2. Services enabling cash withdrawals from a payment account as well as all the operations required for operating a payment account.

3. Execution of payment transactions, including transfers of funds on a payment account with the user’s payment service provider or with another payment service provider. This includes execution of direct debits, payment transactions through a payment card and credit transfers.

4. Execution of payment transactions where the funds are covered by a credit line for a payment service user. This includes execution of direct debits, execution of payment transactions through a payment card or a similar, and execution of credit transfers, including standing orders.

5. Issuing of payment instruments and/or acquiring of payment transactions. An example of this being merchant acquiring.

6. Money remittance. For example, cross-border money transfer.

​7. Payment initiation services. Under this model, a initiator I.e. as a payment service provider under the payment institution licence, you can, subject to the user's consent, take or initiate a payment directly from the user's bank account and transfer the amount directly to the merchant's bank account, removing the Visa and Mastercard networks in the payment process.

8. Account information services. Under this permission, subject to the user's consent your consent is able to provide access to your accounts and view information such as balances, transactions, standing orders and Direct Debits for a given period of time.



Conditions to become an Authorised Payment Institution (API)


The FCA has stipulated the following 12 conditions a firm must meet before applying:

- that you are a body corporate e.g., limited company or partnership

- that you must carry on or will carry on some of your payment services business in the UK

- you have robust governance arrangements and internal procedures and control mechanisms

- you have a business plan

- you have taken adequate measures to safeguard payment service user funds through either safeguarding or an insurance policy

- if you provide payment initiation services (PIS) or account initiation services AIS you hold adequate indemnity cover

- directors and managers must be of good repute with appropriate skills to provide payment services

- the managers must not have been convicted of money laundering, terrorist financing or other financial crimes

- that your head office and registered office be in the UK

- you must comply with the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017

- anyone having a qualifying holding (10% or more shares in the company) must be fit and proper, and

- if the applicant has close links to another person, the links mustn’t be likely to prevent the FCA’s effective supervision of the business



Information you are required to submit when applying for an Authorised Payment Institution


- the payment services business you want to provide

- your governance arrangements and internal procedures (for example, the structures you have in place to run the business effectively)

- the initial capital at the level required by the regulations to start your business

- your plans for obtaining a safeguarding account or insurance arrangements

- details of the people responsible for payment services

- any agents acting on your behalf (if applicable)

- people with qualifying holdings (holding 10% or more shares of the capital or voting rights

- your procedure for incident reporting, managing sensitive payment data, business continuity arrangements, principles and definitions used when collecting statistical data

- your security policy

- information about the control mechanisms to meet your obligations under the Money Laundering Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017



7. Further information on making an application



 Contact Us
Email: info@buckinghamcapitalconsulting.co.uk
 
Telephone: 0207 866 2512 
International: 442078662512
Skype: BCC54321 
  • Facebook
  • Twitter
  • YouTube
  • Pinterest
  • Instagram

Buckingham Capital Consulting Ltd  |   One Kingdom Street, London, W2 6BD  |  Telephone: 0800 689 0501  |   Email: Info@buckinghamcapitalconsulting.co.uk

Registered in England and Wales registration number: 08744241

 

Copyright 2013 - 2020 Buckingham Capital Consulting Ltd