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Compliance Advice for e-Money Services and Providers
The Financial Conduct Authority (FCA) regulates the activities of electronic money institutions (EMIs) in accordance with the Electronic money Regulations 2011 (EMRs).
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An exemption applies for credit institutions, banks and building societies, credit unions and municipal banks which are instead required to apply for a Part 4A permission under the Financial Services and Markets Act 2000.
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E-money providers also need to comply with the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017.
Many e-money institutions start off with an e-money licence rather than applying for full banking permissions as it can be a complex, time consuming and costly process to launch a bank.
Competition in the banking sector is fierce and there are high regulatory cost implications but in terms of the capital and liquidity requirements as well as governance and compliance.
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For these reasons e-money providers look to EMI regulatory status to benefit from:
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Regulatory flexibility at lower cost – combined with consumer credit permissions EMI status can offer a cheaper and easier route to market
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Speed to market – FCA banking applications can take a long time to obtain whereas e-money licences, if correctly prepared, can be much quicker
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Lower capital requirement – banks have to hold significant capital from outset, usually millions whereas EMIs are required to hold initial capital of €350,000
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Additionally, prior to the Brexit situation e-money providers were able to issue e-money in other EEA states.
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Compliance Advice for e-Money Services and Providers
An EMI licence can also set a firm in good stead for banking permissions in future, having a proven well run financial regulated business can help to demonstrate to the regulators the ability to carry out well run, stable and compliant business in the UK.
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There are two types of EMI: small EMI and authorised EMI (AEMI). If your e-money business is not likely to generate more than €5 million immediately before registration you can apply to register as a small EMI. And, you can provide unrelated payment services (i.e. those unrelated directly to the e-money activity).
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If your business doesn’t qualify as a small EMI you will need to apply to be an authorised EMI.
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Small EMIs have a less intrusive application process than AEMIs and a lighter touch approach to regulation. However, they are still subject to the FCA’s regulatory regime and the rules contained within the Payment Services Regulations 2017 (PSRs) and the Electronic Money Regulations 2011 (EMRs).
E-money issuers are a priority for the FCA as the sector continues to rapidly evolve with more and more new firms entering the marketplace where the number of consumers and businesses using their services continues to increase.
The key areas for e-money businesses to focus on are:
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Safeguarding customers’ funds
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Maintaining sufficient financial resources
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Combating financial crime
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Creating clear, fair and not misleading financial promotions and communications
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Robust governance and oversight
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Accurate, timely and adequate records management and reporting
For all your e-money regulatory needs, contact complianceadvice.co.uk for advice, guidance and solutions today.
We can help with all your FCA e-money requirements.