The jurisdiction of the United Kingdom

Brief Description of Jurisdiction

Geographic Location

The United Kingdom of Great Britain and Northern Ireland is situated north-west of the European continent between the Atlantic Ocean and the North Sea. It has a total land area of 244,100 square kilometres, of which nearly 99% is land and the remainder inland water. From north to south it is about 1,000 kilometres long.

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The United Kingdom is made up of four separate nations: England, Scotland, Wales and Northern Ireland.

The UK is part of Europe and a member of the European Union (EU).

Parliament

The UK’s Parliament is one of the oldest in the world, having its origins in the mid-13th Century. Its principles of free elections, freedom of speech and open and equal treatment before the law continue to be fervently upheld.

Parliament consists of three parts, the House of Commons, House of Lords and the Crown and is responsible for making laws, examining the work of Government, controlling finance, protecting the individual, examining European proposals, and debating.

Legal System

The UK has an unwritten constitution. Law consists of statutes, common law and case law. The legal system is characterised by common law tradition with early Roman and modern continental influences.

EU Member State

As a Member State of the European Union, the UK is bound by the various types of European community (EC) legislation and wider policies that are based on a series of treaties since the 1950s. Almost all UK government departments are involved in EU-wide activities. The UK has 78 members of the European Parliament and there are elections every five years.

Business Environment

The UK has long had a policy of minimising bureaucracy and deregulating marketplaces in order to generate competition improve customer services and allow companies with good business models to develop and expand. The United Kingdom is currently establishing over 200,000 new businesses per annum for residents and overseas citizens.

Within the EU, the UK has the least restricted business environment, the least restricted regulated marketplace and workforce, the largest international transport system, best communications, most widely spoken language, lowest top rate of personal taxation, one of the lowest rates of corporation tax and the most cosmopolitan and culturally diverse capital.

While the UK is an attractive centre for international business it is also a knowledge centre offering world-class skills, research and development in cutting-edge technologies, telecoms, e-business, software and semiconductor development, biotechnology, industrial design, life and physical sciences. This is the place for international business, expertise and innovation.

Companies choose to move their businesses to the UK because it is an ideal location to be in. More international companies locate their European headquarters in the UK than anywhere else in Europe.

World's Leading Financial Center

The UK is the leading exporter of financial services across the world.

London is currently rated as one of the leading global financial centres. The UK’s trade surplus in financial services of $71bn in 2013, was more than twice the next largest trade surpluses recorded by the US, Luxembourg and Switzerland.

The UK has the fourth largest banking centre globally. It is also the largest centre for cross-border bank lending with 17% of the outstanding value. London is the home to over 250 foreign banks – more than the nearest rivals New York, Paris or Frankfurt.

The UK accounts for 41% of global foreign exchange trading. Twice as many US dollars are traded in the UK than in the US, and more than twice as many euros are traded in the UK than in all the euro-area countries combined.

The UK’s major trading partners include the US, EU Member States and other advanced economies, such as Switzerland, Japan, Australia and Canada followed by emerging economies, as well as trade with other international financial centres such as Hong Kong and Singapore.

London was ranked second in the March 2014 GFCI survey of international financial centres. While London and New York are long established international financial centres, new Asian centres such as Singapore and Hong Kong have evolved into well-developed regional hubs. The two latter centres have used London as a model and are based firmly on UK practices and principles.

Working with other financial centres has helped develop the international networks of UK-based firms allowing them to expand their business globally.

The UK is the leading exporter of financial services across the world.

Benefits of the UK as the World's Business and Financial Center

The UK is a jurisdiction of choice for payment service providers with 320 FCA regulated authorised payment institutions out of 532 in total in EU and more than 800 small payment institutions as of July 2014

The UK has:

  • Stability and transparency;
  • A fair and just business environment;
  • Availability of people with the talent and right skills;
  • Regulatory and supervisory coherence and flexible regulatory philosophy;
  • Government responsiveness: the best sort of government for financial services;
  • Access to international financial markets;
  • Availability of business infrastructure;
  • A simple and competitive tax rate system;
  • The best communications;
  • The largest international transport system
  • Important: When choosing a place to set up or move your business to, operational costs are a very important or, for some, even critically important factor to consider.

    Although London is the most expensive of the four leading global financial centres (London, New York, Hong Kong, Singapore) with operational costs per person there clearly much higher, it should be noted that efficiency, measured by the number of trades executed per person, is also much higher.

    Legal and Regulatory Framework

    Legal System

    The English legal system is historically derived from what is known as the common law.

    Scotland, England and Wales, and Northern Ireland are largely separate jurisdictions for legal purposes. Scotland has a mixed common law and civil law system whereas England and Wales and Northern Ireland have a common law system.

    The rules governing civil and criminal law have evolved from three sources:

  • Legislation - which includes statutes / Acts of Parliament. Legislation is approved by the Queen before it becomes law.
  • Common law – made by judges. It has evolved over centuries from the judgment of cases appearing before the courts. These judgments set precedents against which future cases are judged.  There are also specialist tribunals (for example, for tax) but decisions of tribunals are not generally binding on other tribunals so have limited precedential value. They prove useful for understanding how the law may be interpreted.
  • European Community law which is binding in all UK legal systems.
  • The interpretation of legislation made by Parliament is for the courts when they hear cases. When conflicts arise between common law and legislation, these are dealt with by the courts, with legislation taking priority over case law. Parliament is held to be sovereign. Where EC law conflicts with national law, the UK courts are required to apply the EC law or to interpret national law to fit in with EC law.

    Financial Services Regulatory Framework

    The providers of financial services in the UK, whether based in the UK or abroad, are heavily regulated by a combination of UK and EC law.

    The legislative framework for the payment services sector in the UK includes the following basic laws:

  • Financial Services and Markets Act 2000
  • Financial Services Act 2012
  • The Payment Services Regulations 2009
  • The Payment Services Regulations 2012
  • The Electronic Money Regulations 2011
  • Regulation (EC) No 1781/2006/EC of the European Parliament and of the Council of 15 November 2006 on information on the payer accompanying transfers of funds
  • Companies Act 2006
  • Counter-Terrorism Act 2008
  • Money Laundering Regulations 2007
  • Proceeds of Crime Act 2002
  • Terrorism Act 2000
  • The FCA Handbook (for FCA regulated firms)
  • The Financial Services Act 2012

    The Financial Services Act 2012 provides a new statutory framework for regulation of financial services in the UK.  The Financial Services Act 2012 implements significant changes to the UK financial regulation framework by amending the relevant provisions of the Financial Services and Markets Act 2000 (FSMA).

    It replaces the Financial Services Authority (FSA) by the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA) with the Bank of England having overall responsibility for financial stability and creates a new Financial Policy Committee (FPC) of the Bank of England.

    Under this Act the Bank of England has overall responsibility for financial stability and is also the appropriate regulator for recognised clearing houses with the power to direct a UK clearing house in certain circumstances.

    The Financial Policy Committee (FPC) is primarily charged with assisting the Bank of England in achieving its financial stability objective and has powers of recommendation and direction (to the FCA or the PRA) to address systemic risk.

    The Prudential Regulation Authority (PRA) is a subsidiary of the Bank of England responsible for the prudential regulation of deposit takers, insurers and major investment firms.

    The Financial Conduct Authority (FCA) replaces the FSA and is responsible for conduct regulation and also for the prudential regulation of non-PRA firms (i.e. smaller investment firms, exchanges and other financial services providers).

    The Payment Services Regulations 2009

    These Regulations implement Directive 2007/64/EC of the European Parliament and of the Council on payment systems in the internal market.

    The Regulations establish an authorisation regime for certain providers of payment services (broadly, those which are neither credit institutions nor e-money institutions, such as money remitters and mobile phone operators).

    The Payment Services Regulations 2009 (PSRs):

  • require the Financial Conduct Authority (“the FCA”) to establish a register of payment service providers and sets out the procedures and conditions for registration; it also sets out the circumstances in which registration may be varied or cancelled. Those payment service providers required to be registered under the Regulations must be registered either as authorised payment institutions or as small payment institutions, depending on the value of payment transactions that they execute and whether they are seeking to establish a branch or provide services in another Member State.
  • set out the requirements to be met by authorised payment institutions and provides the mechanism for them to establish a branch or provide services in other Member States. These requirements include meeting capital requirements and safeguarding users’ funds. The institution must keep records and provide information to the FCA about accounts and outsourcing;
  • set out certain requirements to be met by authorised payment institutions and small payment institutions. It sets out the activities in which such institutions are entitled to engage and imposes conditions in respect of the granting of credit, the use of payment accounts and the provision of services through an agent;
  • provide for the responsibilities of an institution that relies on a third party for the provision of a payment service (for example, through an agent or outsourcing). Institutions have a duty to notify the FCA of any change in their circumstances relevant to the conditions of their registration;
  • set out the requirements to be met by all payment service providers (credit institutions, e-money institutions, authorised payment institutions and small payment institutions) in relation to the provision of information to payment service users. There are separate provisions for single payment service contracts and framework contracts. There are also common provisions including a prohibition on charging for certain information;
  • make provision for the rights and obligations relating to the provision of payment services. It makes provision for matters including consent to payment transactions, unauthorised or incorrectly executed payment transactions, liability for unauthorised payment transactions, refunds, execution of payment transactions, execution time and the liability of payment service providers;
  • make provision in respect of the FCA. In particular, it confers on the FCA functions in relation to the supervision and enforcement of certain provisions of the Regulations;
  • make provision in relation to access to payment systems. It prohibits restrictive rules on access to payment systems and confer functions on the Office of Fair Trading (“the OFT”) in relation to the supervision and enforcement of the prohibition;
  • provide for criminal offences. It makes it an offence for a person to provide payment services in the United Kingdom unless it is an authorised or small payment institution or one of the other permitted categories of payment service provider. There are offences relating to false claims to be a payment service provider, misleading the FCA or the OFT and the provision of information about currency conversion and charges.
  • The Electronic Money Regulations 2011

    These Regulations implement Directive 2009/110/EC of the European Parliament and of the Council of 16th September 2009 on the taking up, pursuit and prudential supervision of the business of electronic money institutions (“the Directive”)

    The Regulations establish a new authorisation regime for electronic money issuers. This replaces the regime applicable to electronic money institutions and small electronic money issuers which implemented Directive 2000/46/EC.

    The Electronic Money Regulations (EMRs):

  • require the Financial Conduct Authority (the FCA) to establish a register of electronic money institutions and sets out the procedures and conditions for registration.
  • set out the circumstances in which registration may be varied or cancelled. Bodies requiring registration must be registered either as an authorised electronic money institution or a small electronic money institution, depending on the value of electronic money that they issue, the value of payment transactions that they execute and whether they are seeking to establish a branch or provide services in another Member State;
  • set out the requirements to be met by electronic money institutions and stipulates the conditions for them to establish a branch or provide services in another Member State. These requirements include meeting capital requirements and safeguarding electronic money holders’ and payment service users’ funds. Electronic money institutions must keep records and provide information to the FCA about accounts. Authorised electronic money institutions must comply with provisions about outsourcing and about the provision of services in another EEA state;
  • set out provisions about the activities that an electronic money institution may engage in. It sets out the business activities that an institution may undertake by virtue of being registered. It set out the conditions that apply to such activities including in respect of the grant of credit, the use of payment accounts, issuing electronic money and the provision of services through an agent;
  • provide for the responsibilities of an institution that relies on a branch or a third party for operational functions such as issuance, redemption or payment services. Institutions have a duty to notify the FCA of any change in their circumstances relevant to the conditions of their registration;
  • set out the requirements to be met by all electronic money issuers when issuing and redeeming electronic money. Electronic money must be issued and redeemed at par value and issuers are not permitted to award interest on the outstanding balances. Redemption must be provided at any time upon request for a period of six years from the end of the contract. Redemption may be subject to proportionate fees to cover actual costs in certain cases;
  • confer on the FCA functions in relation to the supervision and enforcement of certain provisions of the Regulations
  • provide for criminal offences. Regulation 63 makes it an offence for a person to issue electronic money in the United Kingdom unless it is an authorised or small electronic money institution or one of the other permitted categories of electronic money issuer. There are also offences relating to false claims to be an electronic money issuer and misleading the FCA.
  • UK Government’s Position on Cryptocurrencies

    There are a number of diverging views on the benefits digital currencies can offer, and the risks they pose. Although there are a number of potential benefits that digital currencies could offer to consumers, businesses, charities and the wider economy as a method of payment, digital currency systems, as currently designed, have some inherent flaws which make them volatile and potentially unsuitable for mainstream usage. Besides, digital currencies are viewed as an enabler of crime, a matter which is high on the government’s agenda.

    The government considers that while there are clear barriers to digital currencies achieving widespread use in their current form, the ‘distributed ledger’ technology that underpins digital currencies has significant future promise as an innovation in payments technology. The government wishes to foster a supportive environment for the development of legitimate businesses in the digital currency sector so that the UK can see some of the benefits of digital currencies, while also creating a hostile environment for illegal activity. At this early stage, the government’s objectives for digital currency technology and the sector more widely are as follows:

  • to provide clarity and certainty on the application of existing legislation and regulation for users, businesses and other parties dealing with digital currencies
  • to limit any opportunities for criminals or terrorists to use digital currencies for illicit activities, and to support the effective identification and prosecution of illicit activity that does take place
  • to create the right environment for legitimate digital currency entrepreneurs to flourish, including supporting the provision of banking and other financial and professional services to legitimate digital currency firms
  • to support the research, development and application of new technology, to promote competition and innovation in payment systems, financial services and other relevant sectors
  • to support monetary and financial stability in the UK, by monitoring the extent of usage of digital currencies in the UK and regularly assessing the risks posed
  • A digital currency scheme is defined as one which incorporates both a decentralised payment system and a related currency. Decentralised digital currency schemes are of particular interest because of the potential benefits of the distributed ledger technology.

    However, the government recognises that other types of digital currency scheme may pose similar types of risks to those associated with decentralised schemes. For this reason, in principle, the scope of proposals on the regulation of digital currencies should be read as inclusive of convertible centralised currencies that are run and administrated by a central entity. The government will look to develop a suitable definition as it brings forward proposals for regulation of the digital currencies sector.

    The government is committed to increasing banking competition in the interests of all customers. Encouraging greater innovation in payments, which provide the plumbing for the banking sector, is central to this. The government intends to create a world-leading environment for the development of innovative payments and financial technology. At Budget 2015, the government is announcing a package of measures to address key crime and consumer protection risks associated with digital currencies. These measures are intended create the right environment for legitimate actors to flourish, and to create a hostile environment for illicit users of digital currencies.

    The government notes that the distinctive features of digital currencies can be attractive to illegal users as well as people and businesses who like to use digital currencies for legitimate purposes. In response, the government intends to apply anti-money laundering regulation to digital currency exchanges, to support innovation and prevent criminal use. The government is committing to a full consultation on the proposed regulatory approach early in the next Parliament. The consultation will seek views and evidence on key questions including how anti-money laundering regulation should be applied to the digital currencies sector, the scope of the regulatory perimeter and the identity of the regulator.

    As part of the consultation on the proposed regulatory approach, the government will look at how to ensure that law enforcement bodies have effective skills, tools and legislation to identify and prosecute criminal activity relating to digital currencies, including the ability to seize and confiscate digital currency funds where transactions are for criminal purposes.

    The Financial Action Task Force (FATF) has noted the legitimate uses of digital currencies, and identified characteristics of digital currencies that present potential anti-money laundering and counter-terrorist financing risks. The FATF has said that it wants to progress on its initial report for a decision at the June 2015 Plenary. The UK will continue to feed into the FATF process.

    The government notes the nascent state of the technology and the surrounding industry, and recognises that users of digital currencies are potentially exposed to a number of risks. In response, the government considers that a framework for best practice standards for consumer protection is the right step to take at this stage, in order to address the risks identified but without imposing a disproportionate regulatory burden on the industry. The government intends to work with BSI (British Standards Institution) and the digital currency industry to develop pioneering voluntary standards for consumer protection.

    The government considers that digital currencies, when used legitimately, offer an innovative, alternative payment option, which competes with existing payment models and has particularly clear short-term advantages for micro-payments, overseas remittances and cross-border trade.

    The government recognises that the technology associated with digital currencies offers considerable promise, making it possible for users to transfer value (or other information) quickly, efficiently and securely, providing a permanent record of what has taken place, and without the need for a trusted third party to oversee the process. In response, the government is launching a new research initiative which will bring together the Research Councils, Alan Turing Institute and Digital Catapult with industry in order to address the research opportunities and challenges for digital currency technology, and will increase research funding in this area by £10 million to support this.

    In addition, in February 2015, the Bank of England announced it will undertake research on central bank-issued digital currencies as part of its new research agenda. This work covers the potential costs and benefits of doing so as well as the economic impact, technological requirements and necessary regulations for a central bank-run system.

    Competent Authority and its Legal Framework

    The Financial Conduct Authority (FCA) is the competent authority for most aspects of the Payment Services Directive (PSD). The UK implemented the PSD through the Payment Services Regulations 2009 (PSRs), which came into effect on 1 November 2009.

    The FCA was created under the Financial Services Act 2012, which abolished the FSA as the regulator.

    The FCA is responsible for promoting effective competition, ensuring that relevant markets function well, and for the conduct regulation of all financial services firms. This includes acting to prevent market abuse and ensuring that consumers get a fair deal from financial firms. The FCA operates the prudential regulation of those financial services firms not supervised by the PRA, such as asset managers, investment firms, payment services institutions, e-money institutions, providers of home finance and independent financial advisers.

    Definition of the Financial Institution and Licensed Activities

    Payment Service Providers

    The Payment Services Regulations 2009 (PSR) define a “payment service provider” as any of the following persons when they carry out payment services:

  • authorised payment institutions;
  • small payment institutions;
  • EEA authorised payment institutions;
  • credit institutions;
  • electronic money institutions;
  • the Post Office Limited;
  • the Bank of England, the European Central Bank and the national central banks of 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
  • government departments and local authorities, other than when carrying out functions of a public nature;
  • The PSR creates a new class of firms authorised or registered to provide payment services called payment institutions (PI).

    There are two types of payment institution:

  • an authorised payment institution (authorised PI) which is a UK body corporate having its head office and any registered office in the UK and which satisfies the criteria for authorisation; and
  • a small payment institution which is an entity with a head office, registered office or place of residence in the UK which executes satisfies the criteria for authorisation (including a "fit and proper" test).
  • Being a small PI is an option available to businesses whose average turnover in payment transactions does not exceed €3 million per month. The registration process is cheaper and simpler than authorisation and has no ongoing capital requirements, but there are no passporting rights for small PIs. The conduct of business requirements still apply, as does access for small PIs’ eligible customers to the FOS (Financial Ombudsman Service).

    Categories of Payment Service Provider:

    Under the PSRs payment service providers (PSPs) can be classified as follows:

  • Authorised payment institutions
  • Registered payment institutions
  • EEA authorised payment institutions
  • Other payment service providers (including banks, building societies and electronic money issuers)
  • List of Payment Services under PSRs

    The following activities, when carried out as a regular occupation or business activity, are payment services:

  • services enabling cash to be placed on a payment account and all of the operations required for operating a payment account;
  • services enabling cash withdrawals from a payment account and all of the operations required for operating a payment account;
  • the execution of the following types of payment transaction:
  • direct debits, including one-off direct debits;
  • payment transactions executed through a payment card or a similar device;
  • credit transfers, including standing orders;
  • the execution of the following types of payment transaction where the funds are covered by a credit line for the payment service user:
  • direct debits, including one-off direct debits;
  • payment transactions executed through a payment card or a similar device;
  • credit transfers, including standing orders;
  • issuing payment instruments or acquiring payment transactions;
  • money remittance;
  • the execution of payment transactions where the consent of the payer to execute the payment transaction is given by means of any telecommunication, digital or IT device and the payment is made to the telecommunication, IT system or network operator acting only as an intermediary between the payment service user and the supplier of the goods or services.
  • Payment Service

    Example

    Services enabling cash to be placed on a payment account and all of the operations required for operating a payment account.

    Payments of cash into a payment account over the counter and through an ATM.

    Services enabling cash withdrawals from a payment account and all of the operations required for operating a payment account.

    Withdrawals of cash from payment accounts, for example through an ATM or over the counter.

    Execution of the following types of payment transaction:

  • direct debits, including one-off direct debits;
  • payment transactions executed through a payment card or a similar device;
  • credit transfers, including standing orders.
  • Transfers of funds with the user’s payment service provider or with another payment service provider;

    Direct debits (including one-off direct debits). N.B. Acting as a direct debit originator would not, of itself, constitute the provision of a payment service;

    Transferring e-money;

    Credit transfers, such as standing orders, BACS or CHAPS payments.

    Execution of the following types of payment transaction where the funds are covered by a credit line for a payment service user:

  • direct debits, including one-off direct debits;
  • payment transactions through a payment card or a similar device;
  • credit transfers, including standing orders.
  • Direct debits using overdraft facilities.

    Card payments.

    Credit transfers using overdraft facilities

    Issuing payment instruments or acquiring payment transactions.

    Card issuing (other than mere technical service providers who do not come into possession of funds being transferred) and card merchant acquiring services (rather than merchants themselves).

    Money remittance.

    Money transfer / remittances that do not involve payment accounts.

    Execution of payment transactions where the consent of the payer to execute a payment transaction is given by means of any telecommunication, digital or IT device and the payment is made to the telecommunication, IT system or network operator, acting only as an intermediary between the payment service user and the supplier of the goods and services.

    Mobile or fixed phone payments, where the payment is made from the phone itself rather than the phone being used as an authentication tool to send a payment order to another payment service provider;

    Payments made from handheld devices (for example, BlackBerry).

    Authorised payment institutions and small payment institutions may, in addition to providing payment services, engage in the following activities:

  • the provision of operational and closely related ancillary services, including:
  • ensuring the execution of payment transactions;
  • foreign exchange services;
  • safe-keeping activities; and
  • the storage and processing of data;
  • the operation of payment systems; and
  • business activities other than the provision of payment services, subject to any relevant Community or national law.
  • Authorised payment institutions and small payment institutions may grant credit in relation to the provision of the payment services specified in paragraph 1(d), (e) and (g) of Schedule 1 to PSRs only if:

  • such credit is ancillary and granted exclusively in connection with the execution of a payment transaction;
  • such credit is not granted from the funds received or held for the purposes of executing payment transactions;
  • in cases where such credit is granted by an authorised payment institution exercising its passport rights, there is an obligation upon the payment service user to repay the credit within a period not exceeding 12 months; and
  • in relation to an authorised payment institution, in the opinion of the Authority the institution’s own funds (comprising the items specified in paragraph 3(a) to (j) of Schedule 3 to PSRs) are, and continue to be, adequate in the light of the overall amount of credit granted
  • Any payment account held by an authorised payment institution or a small payment institution must be used only in relation to payment transactions.

    Activities which do not constitute payment services

    The following activities do not constitute payment services:

  • payment transactions executed wholly in cash and directly between the payer and the payee, without any intermediary intervention;
  • payment transactions between the payer and the payee through a commercial agent authorised to negotiate or conclude the sale or purchase of goods or services on behalf of the payer or the payee;
  • the professional physical transport of banknotes and coins, including their collection, processing and delivery;
  • payment transactions consisting of non-professional cash collection and delivery as part of a not-for-profit or charitable activity;
  • services where cash is provided by the payee to the payer as part of a payment transaction for the purchase of goods or services following an explicit request by the payer immediately before the execution of the payment transaction;
  • money exchange business consisting of cash-to-cash operations where the funds are not held on a payment account;
  • payment transactions based on any of the following documents drawn on the payment service provider with a view to placing funds at the disposal of the payee:
  • paper cheques of any kind, including traveller’s cheques;
  • bankers’ drafts;
  • paper-based vouchers;
  • paper postal orders;
  • payment transactions carried out within a payment or securities settlement system between payment service providers and settlement agents, central counterparties, clearing houses, central banks or other participants in the system;
  • payment transactions related to securities asset servicing, including dividends, income or other distributions, or redemption or sale, carried out by persons referred to in bullet above or by investment firms, credit institutions, collective investment undertakings or asset management companies providing investment services or by any other entities allowed to have the custody of financial instruments;
  • services provided by technical service providers, which support the provision of payment services, without the provider entering at any time into possession of the funds to be transferred, including:
  • the processing and storage of data;
  • trust and privacy protection services;
  • data and entity authentication;
  • information technology;
  • communication network provision; and
  • the provision and maintenance of terminals and devices used for payment services;
  • services based on instruments that can be used to acquire goods or services only:
  • in or on the issuer’s premises; or
  • under a commercial agreement with the issuer, either within a limited network of service providers or for a limited range of goods or services, and for these purposes the “issuer” is the person who issues the instrument in question;
  • payment transactions executed by means of any telecommunication, digital or IT device, where the goods or services purchased are delivered to and are to be used through a telecommunication, digital or IT device, provided that the telecommunication, digital or IT operator does not act only as an intermediary between the payment service user and the supplier of the goods and services;
  • payment transactions carried out between payment service providers, or their agents or branches, for their own account;
  • payment transactions between a parent undertaking and its subsidiary or between subsidiaries of the same parent undertaking, without any intermediary intervention by a payment service provider other than an undertaking belonging to the same group;
  • services by providers to withdraw cash by means of automated teller machines acting on behalf of one or more card issuers, which are not party to the framework contract with the customer withdrawing money from a payment account, where no other payment service is conducted by the provider.
  • Electronic Money Issuers

    In the Electronic Money Regulations 2011 an “electronic money issuer” means any of the following persons when they issue electronic money:

  • authorised electronic money institutions;
  • small electronic money institutions;
  • EEA authorised electronic money institutions;
  • credit institutions;
  • the Post Office Limited;
  • the Bank of England, the European Central Bank and the national central banks of EEA states other than the United Kingdom, when not acting in their capacity as a monetary authority or other public authority;
  • government departments and local authorities when acting in their capacity as public authorities;
  • credit unions;
  • municipal banks;
  • the National Savings Bank
  • There are two types of electronic money institution (EMI):

  • Authorised EMIs
  • Small EMIs
  • Authorised EMIs are subject to the full regulatory regime, including the capital, safeguarding and conduct of business requirements. Authorised EMIs may provide payment services that are not related to issuing e-money (unrelated payment services), subject to any requirements imposed on their authorisation. Authorised EMIs must, however, notify the FCA of the types of payment services they wish to provide.

    Businesses are eligible to be small EMIs only if they have average outstanding e-money that does not exceed €5 million. The registration process is cheaper and more straightforward than authorisation, but there are no passporting rights. Some small EMIs are subject to capital requirements and all are subject to the requirements relating to safeguarding funds received in exchange for e-money and conduct of business. Small EMIs can provide unrelated payment services, but only if the average monthly total of payment transactions does not exceed €3 million, on a rolling 12-month basis. Small EMIs must notify the FCA of the types of payment services they wish to provide.

    Electronic money” means electronically (including magnetically) stored monetary value as represented by a claim on the electronic money issuer which:

  • is issued on receipt of funds for the purpose of making payment transactions;
  • is accepted by a person other than the electronic money issuer; and
  • is not excluded by regulation 3 (see below);
  • Examples of e-money include prepaid cards that can be used to pay for goods at a range of retailers, or virtual purses that can be used to pay for goods or services online.

    Electronic money: exclusions

    Under the EMRs electronic money does not include:

  • monetary value stored on instruments that can be used to acquire goods or services only:
  • in or on the electronic money issuer’s premises; or
  • under a commercial agreement with the electronic money issuer, either within a limited network of service providers or for a limited range of goods or services;
  • monetary value that is used to make payment transactions executed by means of any telecommunication, digital or IT device, where the goods or services purchased are delivered to and are to be used through a telecommunication, digital or IT device, provided that the telecommunication, digital or IT operator does not act only as an intermediary between the payment service user and the supplier of the goods and services
  • Average outstanding electronic money” means the average total amount of financial liabilities related to electronic money in issue at the end of each calendar day over the preceding six calendar months, calculated on the first calendar day of each calendar month and applied for that calendar month.

    List of Activities under EMRs

    Electronic money institutions may, in addition to issuing electronic money, engage in the following activities:

  • the provision of payment services;
  • the provision of operational and closely related ancillary services, including—
  • ensuring the execution of payment transactions;
  • foreign exchange services;
  • safe-keeping activities; and
  • the storage and processing of data;
  • ensuring the execution of payment transactions;
  • foreign exchange services;
  • safe-keeping activities; and
  • the storage and processing of data;
  • the operation of payment systems; and
  • business activities other than the issuance of electronic money, subject to any relevant European Union or national law.
  • Electronic money institutions may grant credit subject to the same conditions as apply to authorised payment institutions by virtue of regulation 27(2) of the Payment Services Regulations 2009 provided that such credit is not granted from funds safeguarded in accordance with regulation 20 (Safeguarding requirements).

    Any payment account held by an electronic money institution which is used for payment transactions which are not related to the issuance of electronic money must be used only in relation to such payment transactions.

    An authorised electronic money institution which has a branch which is located in the United Kingdom and whose head office is situated in a territory which is outside the EEA may only provide payment services if those services are related to the issuance of electronic money.

    Money Service Businesses

    In this section, it should be noted that in the UK, in the context of anti-money laundering laws, the term “Money Service Business” (MSB) is used in relation to companies whose activities are connected with cash.

    “Money service business” means an undertaking which by way of business operates a currency exchange office, transmits money (or any representations of monetary value) by any means or cashes cheques which are made payable to customers.

    The MSB industry is extremely diverse, ranging from large international companies with numerous outlets worldwide to small, independent convenience stores in communities with population concentrations that do not necessarily have access to traditional banking services or in areas where English is rarely spoken.

    The range of products and services offered, and the customer bases served by MSBs, are equally diverse. Indeed, while they all fall under the definition of a money services business, the types of businesses are quite distinct. Some MSBs offer a variety of services, whilst others only offer money services as an ancillary component to their primary business, such as a convenience store that cashes cheques or a hotel that provides currency exchange.

    MSB services can include one or more of the following activities:

  • Currency dealing / exchanging;
  • Cheque cashing;
  • Money remitting; and
  • Issuing, selling and redeeming stored value and monetary instruments, such as money orders and traveller’s cheques.
  • Under the ML Regulations, MSBs are required to register with HMRC in order to be able to carry out their activities, unless they are subject to FCA supervision. Registration is subject to the MSB meeting the ‘fit and proper’ test set out in the ML Regulations.

    Where MSBs carry out money transmission services, they are included within the definition of financial institutions, and are therefore subject to the full provisions of the ML Regulations. The exemption from the ML Regulations for activities that are engaged in only on an occasional or very limited basis does not apply to money transmission services.

    Under the Payment Services Regulations 2009, MSBs carrying out money remittance services must be included on a register maintained by the FCA. MSBs on the register can be:

  • Authorised Payment Institutions (which are required to meet certain minimum standards in respect of capital, management and systems and controls, and whose client funds must be kept in a separate client account with an authorised bank); or
  • Small Payment Institutions (which are exempt from minimum capital requirements, but whose management must meet certain requirements on propriety and experience, and whose business level must be less than a prescribed monthly maximum); or
  • Agents of an API or an SPI.
  • MSBs may be subject to supervision by the FCA for AML/CTF, if they are part of a banking or financial services group. Other MSBs are supervised by HMRC, which must maintain a register of those MSBs it supervises, and this register may in future be made available for public inspection.

    MSBs must not operate unless they are supervised by the FCA or registered with HMRC.

    Registration as a Money Service Business is not required in the case of occasional money service activities.

    If you exchange currency or cash cheques only occasionally, or only on a limited basis, then you don’t have to register as a Money Service Business if:

  • your total turnover from these money service activities is no more than £64,000 a year
  • turnover from money service activities is no more than 5 per cent of your total annual turnover
  • currency exchange or cheque cashing transactions worth more than €1,000 must be limited to one per customer - this could be one single transaction or a series of smaller transactions that seem to be linked
  • the money service activities must be secondary to your main business activity and directly related to it
  • the currency exchange or cheque cashing service must only be available to customers of the main business - it mustn’t be available to the public
  • your business isn’t operating as a Trust or Company Service Provider or an Accountancy Service Provider
  • You’ll need to meet all of these conditions, otherwise you have to register.

    Authorisation as a Payment Institution

    Main Stages and Procedure of Authorisation

    The authorisation process can be summarised as follows:

    1. Pre-application Meetings / Pre-application Questions

    Normally the FCA would only hold pre-application meetings with potential applicants where the business concerned is complex or unusual. Meetings are unnecessary for less complex businesses and any pre-application issues can usually be resolved by telephone or correspondence.

    2. Submission of an Application
    3. Assessment by FCA

    The assessment by the regulator considers issues such as:

  • Business viability
  • Capital adequacy and liquidity of the firm
  • Corporate governance arrangements
  • Key appointments (part of corporate governance)
  • Resolvability of the firm in the event of financial stress
  • Policies and procedures including money laundering
  • Conduct of business
  • Information technology
  • Outsourcing and offshoring
  • 4. Feedback

    The regulator may provide feedback when it assesses the application, asking for further explanations or additional documents.

    5. Decision about Authorisation

    The decision may be to:

  • Grant authorisation
  • Refuse authorisation
  • Grant authorisation but with restrictions
  • Authorisation as a Payment Institution

    Anyone wishing to become an authorised PI needs to complete an application form and submit it to the FCA along with the required information and the appropriate application fee. The FCA will assess the information provided in the application against the criteria contained in the PSRs and make a decision to approve or refuse the application.

    List of Documents Required

    The information requirements can be found in regulation 5 of and Schedule 2 to the PSRs.

    An application for authorisation as a payment institution must contain or be accompanied by:

  • A programme of operations setting out, in particular, the type of payment services envisaged.
  • A business plan including a forecast budget calculation for the first three financial years which demonstrates that the applicant is able to employ appropriate and proportionate systems, resources and procedures to operate soundly.
  • Evidence that the applicant holds initial capital for the purposes of regulation 6(3) of the PSR.
  • Where regulation 19 applies, a description of the measures taken for safeguarding payment service users’ funds in accordance with that regulation.
  • A description of the applicant’s governance arrangements and internal control mechanisms, including administrative risk management and accounting procedures, which demonstrates that such arrangements, mechanisms and procedures are proportionate, appropriate, sound and adequate.
  • A description of the internal control mechanisms which the applicant has established in order to comply with the Money Laundering Regulations 2007 and Regulation (EC) No 1781/2006 of the European Parliament and of the Council of 15 November 2006 on information on the payer accompanying transfers of funds(a).
  • A description of the applicant’s structural organisation, including, where applicable, a description of the intended use of agents and branches and a description of outsourcing arrangements, and of its participation in a national or international payment system.
  • In relation to each person holding, directly or indirectly, a qualifying holding in the applicant:
  • the size and nature of their qualifying holding; and
  • evidence of their suitability taking into account the need to ensure the sound and prudent management of a payment institution.
  • The identity of directors and persons who are or will be responsible for the management of the applicant and, where relevant, persons who are or will be responsible for the management of the payment services activities of the applicant.
  • Evidence that the persons described in sub-paragraph above are of good repute and that they possess appropriate knowledge and experience to perform payment services.

  • The identity of the auditors of the applicant, if any.
  • The legal status of the applicant and, where the applicant is a limited company, its articles.
  • The address of the head office of the applicant.
  • A description of the audit arrangements of the applicant and of the organisational arrangements the applicant has set up with a view to taking all reasonable steps to protect the interests of its payment service users and to ensure continuity and reliability in the performance of payment services.
  • At any time after receiving an application and before determining it, the Authority may require the applicant to provide it with such further information as it reasonably considers necessary to enable it to determine the application.

    Different directions may be given, and different requirements imposed, in relation to different applications or categories of application.

    Application Forms for Authorisation as a Payment Institution

  • Application for Authorisation
  • Application Form for an individual responsible for the management of a Payment Institution
  • It is required to complete a PSD Individual Form for each individual responsible for payment services; please refer to the accompanying notes, when completing it

  • Individual Notes for Payment Services
  • Notes to assist with the completion of the PSD Individual Form for an individual responsible for the management of a small Payment Institution (SPI) or authorised Payment Institution (API)

  • Disclosing convictions in the PSD Individual Form
  • This factsheet should be read in conjunction with the guidance notes to help complete the PSD Individual Form for an application by an individual responsible for the management of a small Payment Institution (SPI) or authorised Payment Institution (API).

    Additional Forms that an Authorised PI May Need to Submit

    You must complete a form for each person/firm who holds a ‘qualifying holding’ in your firm, from the following list:

  • Application for a Payment Institution: Qualifying Holding Individual (Controller) Form
  • Application for a Payment Institution: Qualifying Holding Corporate (Controller) Form
  • Application for a Payment Institution: Qualifying Holding Partnership (Controller) Form
  • Application for a Payment Institution: Qualifying holding (Controller) - Trust form
  • A condition for authorisation under regulation 6(6)(a) is that the applicant must satisfy the FCA that any persons having a qualifying holding in it are fit and proper persons having regard to the need to ensure the sound and prudent conduct of the affairs of the PI. This comprises two elements:

  • firstly, the applicant will need to assess whether any persons (or entities) have a qualifying holding in the applicant and notify the FCA of the identity of such persons; and
  • secondly, the FCA will undertake an assessment of the fitness and propriety of any such persons (or entities).
  • A ‘qualifying holding’ is defined in the PSRs by reference to Article 4(11) of the Banking Consolidation Directive (BCD). The definition in the BCD is a ‘direct or indirect holding in an undertaking which represents 10% or more of the capital or of the voting rights or which makes it possible to exercise a significant influence over the management of that undertaking’. People with a qualifying holding are referred to as ‘controllers’.

    In relation to an authorised PI, a controller is, broadly, an individual or firm that does one of the following:

  • holds 10% or more of the shares in the applicant firm (including through a parent);
  • is able to exercise significant influence over the management of the applicant firm through a controlling interest in the applicant firm or a parent;
  • is entitled to control or exercise control of 10% or more of the voting power in the applicant firm (including through a parent); or
  • is able to exercise significant influence over the management of the applicant firm through their voting power in it or a parent.
  • AnAdd a PSD agent form should be submitted for any payment services agent(s) who will provide payment services on your behalf and for whom your firm will therefore be responsible in relation to those services.

    If you intend to provide payments services into another EEA State, you should submit the relevant form(s) from the list below:

  • Notice of intention to exercise the right of establishment in another EEA member state in accordance with the Payment Services Directive
  • You must complete this notification if you are an Authorised Payment Institution (API) that wishes to establish a branch in another European Economic Area (EEA) member state and/or engage an agent in another EEA state, in accordance with the Payment Services Directive 2007/64/EC.

  • Notice of intention to provide cross-border services in another EEA state in accordance with the Payment Services Directive (PSD)
  • You must complete this notification if you are an Authorised Payment Institution (API) that wishes to exercise the right of freedom of services in another European Economic Area (EEA) member state, in accordance with the Payment Services Directive 2007/64/EC.

    The FCA will acknowledge that they have received your application within seven days and the case officer assigned to deal with it will be in contact soon after.

    At any time after receiving an application and before determining it, the Authority may require the applicant to provide it with such further information as it reasonably considers necessary to enable it to determine the application.

    The application must be signed by the person(s) responsible for making the application on behalf of the applicant firm. The appropriate person(s) depends on the applicant firm’s type as follows:

    Type of Applicant

    Appropriate Signatory

    Company with one director

    The director

    Company with more than one director

    Two directors

    Limited liability partnership

    Two members

    Limited partnership

    The general partner or partners

    Conditions for Authorisation as a Payment Institution

    The Authority may refuse to grant all or part of an application for authorisation as a payment institution only if any of the following conditions are not met:

  • The application must comply with the requirements of, and any requirements imposed under regulation 5.
  • The applicant must immediately before the time of authorisation hold the amount of initial capital required in accordance with Part 1 of Schedule 3.
  • The applicant must be a body corporate constituted under the law of a part of the United Kingdom having:
  • its head office, and
  • if it has a registered office, that office, in the United Kingdom.
  • The applicant must satisfy the Authority that, taking into account the need to ensure the sound and prudent conduct of the affairs of the institution, it has:
  • robust governance arrangements for its payment service business, including a clear organisational structure with well-defined, transparent and consistent lines of responsibility;
  • effective procedures to identify, manage, monitor and report any risks to which it might be exposed;
  • adequate internal control mechanisms, including sound administrative, risk management and accounting procedures, which are comprehensive and proportionate to the nature, scale and complexity of the payment services to be provided by the institution.
  • The applicant must satisfy the Authority that:
  • any persons having a qualifying holding in it are fit and proper persons having regard to the need to ensure the sound and prudent conduct of the affairs of an authorised payment institution;
  • the directors and persons responsible for the management of the institution and, where relevant, the persons responsible for the management of payment services, are of good repute and possess appropriate knowledge and experience to provide payment services;
  • it has a business plan (including, for the first three years, a forecast budget calculation) under which appropriate and proportionate systems, resources and procedures will be employed by the institution to operate soundly; and
  • it has taken adequate measures for the purpose of safeguarding payment service users’ funds in accordance with regulation 19.
  • The applicant must comply with a requirement of the Money Laundering Regulations 2007(a) to be included in a register maintained under those Regulations where such a requirement applies to the applicant.
  • If the applicant has close links with another person (“CL”) the applicant must satisfy the Authority:
  • that those links are not likely to prevent the Authority’s effective supervision of the applicant; and
  • if it appears to the Authority that CL is subject to the laws, regulations or administrative provisions of a territory which is not an EEA State (“the foreign provisions”), that neither the foreign provisions, nor any deficiency in their enforcement, would prevent the Authority’s effective supervision of the applicant.
  • An applicant has close links with CL if:

  • CL is a parent undertaking of the applicant;
  • CL is a subsidiary undertaking of the applicant;
  • CL is a parent undertaking of a subsidiary undertaking of the applicant;
  • CL is a subsidiary undertaking of a parent undertaking of the applicant;
  • CL owns or controls 20% or more of the voting rights or capital of the applicant; or
  • the applicant owns or controls 20% or more of the voting rights or capital of CL
  • Initial Capital Requirement

    By the time of authorisation, the applicant must provide evidence that they hold initial capital at the level required by Part 1 of Schedule 3 to the PSRs. The level of initial capital required depends on the payment services provided, and is the greater of the following:

    Payment Services

    Initial Capital Required

    Money remittance

    €20,000

    Execution of payment transactions where payer’s consent for execution is given via a telecommunication, digital or IT device and payment is made to the telecommunication, IT system or network operator acting only as an intermediary between the payment service user and the supplier of the goods or services.

    €50,000

    Payment institutions providing other services, that is those covered in Schedule 1 Part 1(1)(a) to (1)(e) of the PSRs.

    €125,000

    Qualifying items to be used to meet the initial capital requirement are:

  • paid up capital (including share premium account but excluding cumulative preference shares);
  • reserves;
  • profit/loss
  • The evidence that should be provided will depend on the type of firm and its source of funding. For example, if an applicant was a limited company and using paid-up share capital, the Authority would expect to see a copy of the SH01 form submitted to Companies House and a bank statement, in the business name, showing the monies being paid in. If an applicant has already been trading and has sufficient reserves to meet the initial capital requirement, then a copy of the last year-end accounts may be sufficient (or interim accounts if appropriate).

    Businesses may wish to capitalise nearer to the time of authorisation, so this evidence can be provided at a later date but will be required before authorisation is granted. We will not consider an application to be incomplete merely because the applicant indicates that initial capital will be provided before authorisation.

    Requirement to the Own Funds of a Payment Institution

    As well as the requirements for initial capital, the PSRs require that authorised PIs maintain adequate own funds on an ongoing basis. At the time of authorisation the Authority will also assess the financial information supplied in the business plan to see if it shows that own funds are likely to be maintained on an ongoing basis. Before authorising a PI, the Authority expects a firm to provide evidence it has the systems, resources and procedures to be able to maintain its own funds to meet the maximum ongoing capital requirement projected for its first year of operation.

    Qualifying items that may be used to meet the capital requirements as well as the conditions under which these items qualify are set out in the PSRs (Part 2 of Schedule 3). In brief, these qualifying items consist of:

  • paid up capital (including share premium account but excluding cumulative preference shares);
  • reserves;
  • profit/loss;
  • revaluation reserves;
  • general/collective provisions;
  • undated securities (meeting the conditions of permanence, no fixed costs, subordination and loss absorbency set out in the PSRs provided that only fully paid up amounts are taken into account);
  • perpetual cumulative preference shares;
  • co-operative society members’ commitments;
  • borrowers’ commitments where an authorised PI is organised as a fund;
  • fixed term cumulative preference shares and subordinated debt
  • Qualifying items are subject to deductions and limits. Firms must take these deductions and limits into account in good time, as they will apply immediately after authorisation.

    Paid up capital, reserves, profit/loss and revaluation reserves must be available to the authorised PI for unrestricted and immediate use to cover risks and losses as soon as these occur.

    The ongoing capital held must not fall below the level of the initial capital requirement for the services provided.

    Safeguarding Requirements to Protect Customer Funds being at the Payment Institution’s Accounts

    All authorised PIs are required to comply with the safeguarding requirements in regulation 19.

    The PSRs impose safeguarding requirements to protect customer funds received for the provision of a payment service where they are held by a PI overnight or longer.

    To help protect customers’ funds while they are held by the payment institution, authorised PIs must implement one of two specified safeguarding measures. The two measures are:

  • Segregate the funds received for payment services from others and, when held at the end of the business day on which they were received, place them in an account with an authorised credit institution or in assets held by an authorised custodian.
  • Arrange for the funds received for payment services to be covered by an insurance policy or by a comparable guarantee from a UK or EEA authorised insurer, bank or building society.
  • The requirement to safeguard applies to ‘relevant funds’. These are sums received:

  • from, or for the benefit of, a payment service user for the execution of a payment transaction; and
  • from a payment service provider for the execution of a payment transaction on behalf of a payment service user
  • Funds relating to a particular payment transaction only need to be safeguarded if they exceed £50 (in which case the full amount must be safeguarded, not just the amount by which the funds exceed the £50 threshold).

    Requirements to the Directors

    Under regulation 6(6)(b) and Paragraph 9 of Schedule 2, the applicant must satisfy the Authority that its directors and any other persons who are or will be responsible for the management of the PI or its payment services activities, are of good repute and possess appropriate knowledge and experience to perform payment services.

    This incorporates two elements:

  • Firstly, identification by the applicant of those with responsibility for the payment service activities of the payment institution. All such individuals need to be included in the application (such an individual is referred to as a ‘PSD Individual’)
  • Secondly, the applicant, together with the PSD Individual, must provide full and complete information to the Authority about all PSD Individuals in order to satisfy the FCA as to the reputation, knowledge and experience of these individuals
  • The FCA expects to be provided with the following information in relation to directors and persons responsible for payment services:

  • the identity of all the directors where the payment institution is a corporate body;
  • the identity of all those persons responsible for the management of the payment service activities where the payment institution is not a corporate body or where other individuals perform these activities in addition to the directors of a corporate body; and
  • evidence that these individuals are of good repute (in order to satisfy the fitness and propriety test)
  • In the case of a payment institution that only provides payment services, this will mean the applicant is likely to be required to complete the relevant PSD Individual forms for each and every manager of the PI to the extent their role is directly relevant to payment services.

    The factors that we will have regard to the fit and proper assessment are:

  • honesty, integrity and reputation;
  • competence and capability; and
  • financial soundness
  • In determining the honesty, integrity and reputation of an individual, the matters that will be considered include, but are not limited to:

  • relevant convictions or involvement in relevant criminal proceedings or investigations;
  • relevant civil or administrative cases;
  • relevant disciplinary action (including disqualification as company director or bankruptcy);
  • whether the individual has been a director or senior manager in an entity that has been put into liquidation, wound up or is or has been the subject of an investigation by an inspector under company or any other legislation; and
  • information (including relevant shareholdings) relevant for assessing potential conflicts of interest with another entity
  • In determining an individual’s competence, capability and experience, the Authority will have regard to whether the individual has the:

  • knowledge;
  • experience; and
  • training
  • to be able to perform the activity of providing payment services.

    The level of experience, knowledge and training should be proportionate to the nature, complexity and scale of risk inherent in the business activity of the firm.

    In determining good repute, the FCA will take into account an individual’s financial soundness and will consider any factors including, but not limited to:

  • whether the individual has been the subject of any judgement debt or award in the UK or elsewhere, that remains outstanding or was not satisfied within a reasonable period; or
  • whether the individual has made any arrangements with their creditors, filed for bankruptcy, had a bankruptcy petition served on them, been an adjudged bankrupt, been the subject of a bankruptcy restrictions order (including an interim bankruptcy restriction order), offered a bankruptcy restrictions undertaking, had assets sequestrated, or been involved in proceedings relating to any of these.
  • Requirements to a Company

    The applicant must be a body corporate (for example, a limited company or limited liability partnership) constituted under the law of the UK and must have its head office and, where appropriate, its registered office in the UK.

    The key issue in identifying the head office of a firm is the location of its central management and control, that is, the location of:

  • the directors and other senior management, who make decisions relating to the firm’s central direction, and the material management decisions of the firm on a day-to-day basis; and
  • the central administrative functions of the firm (for example, central compliance, internal audit)
  • For the purpose of regulation 6(4) a ‘virtual office’ in the UK does not satisfy this condition.

    Requirement to Register in Accordance with the Money Laundering Regulations

    Some PIs, such as money remitters, are already required to register with HM Revenue and Customs (HMRC) under the Money Laundering Regulations 2007 (MLR). The PSRs require some additional payment service providers within its scope to register with HMRC under the MLR.

    Payment service providers falling within the following categories will need to be registered with HMRC under the MLR before we can authorise them:

  • money service businesses (MSBs);
  • bill payment service providers; and
  • telecommunications, digital and IT payment service providers
  • Firms that are already MLR-registered with HMRC should supply their registration number when applying to the FCA. If an application to HMRC is being made at the same time as an application for authorisation, then the FCA will still process the application, but cannot grant authorisation until the MLR registration number has been received.

    The FCA will verify with HMRC that the registration number provided matches a valid MLR registration for that firm.

    The FCA is responsible for money laundering supervision of PIs that are credit card issuers or merchant acquirers (other than firms licensed to carry on a consumer credit business for which the OFT will remain the supervisory authority for this purpose). These firms only need complete the ‘Authorised Payment Institution’ form, as it combines both MLR registration and PSD authorisation, although a firm may still wish to refer to the MLR registration form when providing the information on money laundering controls.

    Period for Considering an Application and Determining thereon

    The Authority must determine an application for authorisation before the end of the period of three months beginning with the date on which it received the completed application.

    The Authority may determine an incomplete application if it considers it appropriate to do so, and it must in any event determine any such application within 12 months beginning with the date on which it received the application.

    The applicant may withdraw its application, by giving the Authority notice, at any time before the Authority determines it.

    The Authority may grant authorisation to carry out the payment services to which the application relates or such of them as may be specified in the grant of the authorisation.

    If the Authority decides to grant an application for authorisation, it must give the applicant notice of its decision specifying the payment services for which authorisation has been granted. The notice must state the date on which the authorisation takes effect.

    If the Authority proposes to refuse an application or to impose a requirement it must give the applicant a warning notice.

    The Authority must, having considered any representations made in response to the warning notice:

  • if it decides to refuse the application or to impose a requirement, give the applicant a decision notice; or
  • if it grants the application without imposing a requirement, give the applicant notice of its decision, stating the date on which the authorisation or variation takes effect.
  • Having assessed all the information provided, the Authority will make a decision to either approve or reject the application. This decision will be notified to the applicant, along with instructions for the appeal process, if relevant.

    Appealing against the Decision of the Competent Authority

    If the Authority decides to refuse the application or to impose a requirement the applicant may refer the matter to the Upper Tribunal (Financial Services), an independent judicial body.

    Registration as a Small Payment Institution

    Firms that do not intend to provide payment services on a cross-border basis and which have an average monthly payment value of not more than €3 million can apply for registration as a small PI and be exempt from the authorisation and prudential requirements.

    List of Documents Required

    Under Regulation 12 (1), an application for registration as a small payment institution must contain, or be accompanied by, such information as the Authority may reasonably require.

    Application Forms for Registration as a Small Payment Institution (SPI)

  • Registration application for a small payment institution
  • You must complete a PSD Individual Form for each individual responsible for payment services; please refer to the accompanying notes, when completing the form.

  • PSD Individual Form
  • Application Form for an individual responsible for the management of a Payment Institution

  • Individual Notes for Payment Services
  • Notes to assist with the completion of the PSD Individual Form for an individual responsible for the management of a small Payment Institution (SPI) or authorised Payment Institution (API)

  • Disclosing convictions in the PSD Individual Form
  • This factsheet should be read in conjunction with the guidance notes to help complete the PSD Individual Form for an application by an individual responsible for the management of a small Payment Institution (SPI) or authorised Payment Institution (API).

    The Authority will aim to acknowledge a small PI application within seven days of receiving it, and the case officer responsible for assessing it will contact you shortly after that.

    Additional Forms that a Small PI May Need to Submit

    You must complete a form for each person/firm who holds a ‘qualifying holding’ in your business from the following list:

  • Application for a Payment Institution: Qualifying Holding Individual (Controller) Form
  • If the holder of the qualifying holding is an individual

  • Application for a Payment Institution: Qualifying Holding Corporate (Controller) Form
  • If the holder of the qualifying holding is an incorporated company (i.e. private limited company, limited liability partnership etc.);

  • Application for a Payment Institution: Qualifying Holding Partnership (Controller) Form
  • If the holder of the qualifying holding is a partnership

    An ‘Add a PSD agent’ form should be submitted for any payment services agent(s) who will provide payment services on your behalf. Please note that you will be responsible for an agent in relation to those services.

  • Add a PSD agent form Application under regulation 29 of The Payment Services Regulations 2009
  • To streamline this process, the Authority does not intend to acknowledge receipt of agent applications, but will write to notify you when we make our decision.

    Please note as a small PI you would not be able to passport any payment services to other EEA States.

    The application must be signed by the person(s) responsible for making the application on behalf of the applicant firm. The appropriate person(s) depends on the applicant firm’s type, as follows:

    Type of Applicant

    Appropriate Signatory

    Sole trader

    The sole trader

    Partnership

    Two partners

    Unincorporated association (not a limited partnership)

    All members of the unincorporated association or one person authorised to sign on behalf of them all (supported by a resolution of the committee of management or equivalent)

    Company with one director

    The director

    Company with more than one director

    Two directors

    Limited liability partnership

    Two members

    Limited partnership

    The general partner or partners

    Conditions for Registration as a Small PI

    The Authority may refuse to register an applicant as a small payment institution where any of the following conditions is not met:

  • The projected average monthly payment transactions to be carried out by the applicant (including by agents on its behalf) must not exceed €3 million.
  • None of the individuals responsible for the management or operation of the business has been convicted of offences relating to money laundering or terrorist financing or other financial crimes.
  • Where the applicant is a partnership, an unincorporated association or a body corporate, the applicant must satisfy the Authority that any persons having a qualifying holding in it are fit and proper persons, having regard to the need to ensure the sound and prudent conduct of the affairs of a small PI.
  • The applicant must satisfy the Authority that its directors and / or any persons responsible for the management of the small PI, and where relevant the persons responsible for the management of its payment services, are of good repute and possess appropriate knowledge and experience to provide payment services.
  • Where the applicant is a body corporate that has close links with another person (‘CL’) the applicant must satisfy the Authority that those links are not likely to prevent our effective supervision of the applicant. If it appears that the CL is subject to the laws, regulations or administrative provisions of a territory outside of the EEA, the applicant must satisfy the Authority that neither those foreign laws / provisions, would prevent our effective supervision of the applicant.
  • The applicant’s head office, registered office or place of residence, as the case may be, must be in the UK. This means that the applicant’s head office and, if it has one, registered office must be in the UK. If the applicant is a natural person their place of residence must be in the UK.
  • The applicant must comply with the registration requirements of the MLR, where those requirements apply to it.
  • Where the financial limit referred to in regulation 8 of PSRs is exceeded, the institution concerned must, within 30 days of becoming aware of the change in circumstances, apply for authorisation as a payment institution under regulation 5 if it intends to continue providing payment services in the United Kingdom.

    Monthly Value of Payment Transactions

    Applicants will be required to self-certify that the business will meet the monthly value of payment transactions condition. However, if the Authority suspects that this might not be the case, projected financial statements may be requested.

    Firms will need to take account of changes in exchange rates where they carry out transactions in different currencies.

    Money Laundering Registration

    The MLR registration requirements for application as a small PI are the same as those for an authorised PI (see above)

    Requirement to the Directors

    Under regulation 13(4B) the applicant must satisfy the Authority that its directors and / or the persons who are or will be responsible for the management of it and, where relevant, the management of its payment services, are of good repute and possess appropriate knowledge and experience to perform payment services.

    This incorporates two elements:

  • Firstly, the applicant identifies those with responsibility for the management of the small PI and / or its payment service activities. All such individuals need to be included in the application (such an individual is referred to as a ‘PSD Individual’)
  • Secondly, the applicant, together with the PSD Individual, must provide full and complete information about all PSD Individuals to satisfy the Authority about the reputation, knowledge and experience of these individuals.
  • The FCA expects to be provided with the following information in relation to directors and persons responsible for the management of the applicant and its payment services:

  • the identity of all the directors where the applicant is a corporate body;
  • the identity of all those persons responsible for the management of the applicant and its payment service activities where it is not a corporate body or where other individuals perform these activities in addition to the directors of a corporate body; and
  • evidence that these individuals are of good repute (in order to satisfy the fitness and propriety test)
  • In the case of a small PI that only provides payment services, this will mean the applicant is likely to be required to complete the relevant PSD Individual forms for each and every director and manager (to the extent where the role of the manager is directly relevant to payment services). In the case of small PIs that carry on activities other than just payment services, the applicant is likely to be required to complete the relevant PSD Individual forms for those persons with responsibility for running the applicant’s payment services activities.

    Safeguarding Arrangements

    Small PIs can choose to comply with safeguarding requirements in order to offer the same protections over customer funds as authorised PIs must provide. Where they choose to comply, the requirements are the same as those for an authorised PI.

    The application pack for registration as a small PI will ask the applicant if they will be complying with the safeguarding arrangements. If so, applicants will be required to explain their procedures and methodology.

    We will make a decision to either accept or reject the application once we have received all the required information.

    Period for Considering an Application

    Having assessed all the information provided, the Authority will make a decision to either approve or reject the application. This decision will be notified to the applicant, along with instructions for the appeal process, if relevant.

    The Authority has to make a decision on a complete application within three months of receiving it. An application is complete only when the Authority has received all the information and evidence needed to make a decision. The applicant will be contacted, if more information is required.

    In the case of an incomplete application, the Authority must make a decision within 12 months of receipt. However, if that date is reached and discussions with the firm have not resulted in the Authority receiving all the information needed to make a decision, it is likely that an incomplete application will result in a refusal. This is because it is unlikely the FCA will have been able to be satisfied that the applicant has met the authorisation / registration requirements.

    An application may be withdrawn by giving the Authority written notice at any time before a decision is made. The application fee is non-refundable.

    State Fees

    Fees for applications

    The FCA charges an authorisation fee to cover the costs of processing the application and therefore it is non-refundable. The Authorisation fee is a one-off fee to enable us to process the application.

    The application fee for small PIs is £500.

    For authorised PIs, the amount of the fee depends on the activities for which they are seeking authorisation:

  • £1,500 for firms intending to perform only the payment services (f) and/or (g) in Schedule 1, Part 1 of the PSRs;
  • £5,000 for firms intending to perform any of the payment services (a) to (e) in Schedule 1, Part 1 of the PSRs;
  • Firms completing the change of legal status application pack are charged 50% of the full authorisation fee for straightforward and moderately complex applications (£750 or £2500).

    No work will be done on processing the application until the full fee is received. The fee is non-refundable and must be paid by banker’s draft, cheque or other payable order.

    Notification of Agents Fee

    The FCA makes a charge of £3 per agent when firms apply (in addition to the appropriate application fee) and £3 per notification for any changes after authorisation.

    The FCA charges the notification fee annually in arrears, but only if the total number of notifications in any one year is more than 100.

    The FCA has the same structure of agent registration and notification fees for electronic money institutions.

    The amount of the appropriate authorisation fee is shown in Annexes 1, 8, 10 of thefees manual (part of the FCA Handbook):

  • Annex 1 Authorisation fees payable
  • Annex 8 Fees payable for authorisation as an authorised payment institution or registration as a small payment institution, including notification fees, in accordance with the Payment Services Regulations
  • Annex 10 Fees payable for authorisation as an authorised electronic money institution or registration as a small electronic money institution or variation thereof, including notification fees, in accordance with the Electronic Money Regulations
  • To apply for authorisation, you must send the relevant authorisation fee, without any deductions with the application form.

    Periodic Fees

    Consolidated policy statement on fees (PS12/11) describes the tariff base for the periodic (annual) fees PIs pay and sets out the current rates:

  • Small PIs are liable to a flat fee of £400.
  • Authorised PIs pay a variable periodic fee based on their payment services income, with a minimum annual rate of £400.
  • Payment Services Fees Proposal for the FOS

    Payment service providers are subject to the jurisdiction of the FOS. The Financial Ombudsman Service charges an annual levy to firms in its compulsory jurisdiction, which the FCA collects on its behalf.

    For authorised PIs, the FCA is using income from payment services activities as a tariff base in line with the calculation of the periodic fee tariff base.

    For small PIs and small e-money issuers, there is a flat fee of £75 a year.

    Determination

    Approval

    If the Authority decides to grant an application the applicant will be given notice of that decision. This notice will specify the payment services for which approval has been granted, requirements (if applicable) and the date from which it takes effect.

    The PSRs allow the Authority to vary the types of payment services that a PI is ultimately approved to carry

    out from those requested in the application and to apply requirements to the PI as a condition of authorisation or registration that the Authority considers appropriate (regulation 7). This may include requiring the firm to take a specified action, refrain from taking specified action (for example, not to deal with a particular category of customer) or relate to its relationship with its group or other members of its group. The time that a requirement expires may also be specified.

    The FCA will update the online register as soon as practicable after granting the authorisation or registration. The register will show the contact details of the firm, the payment services it is permitted to undertake, and the names of any agents. If the firm is authorised and has taken up passporting rights to perform payment services in another EEA State, then these will also be shown.

    Refusal

    The Authority can refuse an application when the information and evidence provided does not satisfy the requirements of the PSRs. When this happens the FCA is required to give the applicant a warning notice setting out the reason for refusing the application and allowing 28 days to make a representation on the decision.

    Applicants can make oral or written representations. If oral representations are required, the FCA should be notified within 2 weeks of the warning notice, so that arrangements can be made for a meeting within the 28 day deadline.

    If no representations are made, or following them the Authority still decides to refuse the application, the applicant will be given a decision notice. If a firm wishes to contest the decision, they may refer the matter to the Upper Tribunal (Financial Services), an independent judicial body. If no referral has been made within 28 days the Authority will issue a final notice. If the matter is referred to the tribunal, the AUthority will take action in accordance with any directions given by it (including to authorise / register the firm) and then issue the final notice.

    On issuing the final notice, the FCA is required to publish such information about the matter to which a final notice relates as the FCA considers appropriate. However, the Authority may not publish information if it believes this would be unfair to the firm or prejudicial to the interests of consumers.

    Reporting Requirements and Audit

    Where an authorised payment institution carries on activities other than the provision of payment services, it must provide to the Authority separate accounting information in respect of its provision of payment services.

    Such accounting information must be subject, where relevant, to an auditor’s report prepared by the institution’s statutory auditors or an audit firm (within the meaning of Directive 2006/43/EC of the European Parliament and of the Council of 17th May 2006 on statutory audits of annual accounts and consolidated accounts (a)).

    The PSRs impose an obligation on an auditor of an authorised PI to report certain matters to the Authority that they have become aware of in their capacity as auditor of that PI. For example, if the auditor reasonably believes that there is or has been a contravention of any of the requirements of the PSRs, they must report it to the FCA (regulation 20).

    For authorised PIs, the FCA uses reporting as our tool to monitor compliance with the capital requirements. The report, which is required annually, also requires information on an authorised PI’s safeguarding arrangements and the number of agents it has, to provide confirmation that the necessary notification of any changes to these areas has been made. The reports are required within 30 days of a firm’s year end.

    In respect of small PIs, the Authority requires an annual report of both the volume and the value of transactions carried out. This information enables the Authority to make a report to the European Commission (as required) and to ensure that the average monthly value of transactions undertaken by a firm has not risen above the level where it can remain a small PI. The FCA also requires information on the number of agents a small PI has and whether it is voluntarily safeguarding payment service user funds. The report covers the calendar year from 1 January to 31 December, and must be submitted by the end of the following January.

    For both authorised and small PIs, the FCA's electronic reporting system (GABRIEL) will monitor when the FSA056 and FSA057 returns are due to be submitted to us and issue a reminder to each PI one month before that date. Firms should then follow the instructions on the GABRIEL system to submit their returns electronically.

    Firms must comply with the deadlines for sending regulatory data to the Authority. Normal data collection processes will apply so firms failing to meet the reporting deadlines will be reminded to do so and be subject to an administrative charge of £250. This is in common with reporting by all FCA-authorised or registered firms, which is received and processed in the same way as returns from PIs will be.

    Outsourcing of Certain Functions by External Contractors

    An authorised payment institution must notify the Authority of its intention to enter into a contract with another person under which that other person will carry out any operational function relating to its provision of payment services (“outsourcing”).

    Where an authorised payment institution intends to outsource any important operational function, all of the following conditions must be met:

  • the outsourcing is not undertaken in such a way as to impair:
  • the quality of the authorised payment institution’s internal control; or
  • the ability of the Authority to monitor the authorised payment institution’s compliance with these Regulations;
  • the outsourcing does not result in any delegation by the senior management of the authorised payment institution of responsibility for complying with the requirements imposed by or under these Regulations;
  • the relationship and obligations of the authorised payment institution towards its payment service users under these Regulations is not substantially altered;
  • compliance with the conditions which the authorised payment institution must observe in order to be authorised and remain so is not adversely affected; and
  • none of the conditions of the payment institution’s authorisation requires removal or variation
  • An operational function is considered important if a defect or failure in its performance would materially impair:

  • compliance by the authorised payment institution with these Regulations and any requirements of its authorisation;
  • the financial performance of the authorised payment institution; or
  • the soundness or continuity of the authorised payment institution’s payment services
  • Accounting Requirements

    An authorised payment institution must maintain relevant records and keep them for at least five years from the date on which the record was created.

    Records are relevant where they relate to the authorised payment institution’s compliance with requirements set out in PSRs and, in particular, would enable the Authority to supervise effectively such compliance.

    Use of European Passporting Right by a Payment Institution

    Passporting is the right of a firm to conduct activities and services regulated under EU legislation in another EEA State on the basis of authorisation in its home member state. The activities can be conducted through an establishment in the host state (known as a ‘branch’ passport) or on a cross-border services basis without using an establishment in the host state (a ‘services’ passport). A physical presence established in another member state by a UK authorised PI is referred to as an ‘EEA branch’. Regulation 23 sets out the procedure for the exercise of passporting rights.

    Passporting rights are only available to authorised PIs, not small PIs.

    A UK authorised PI can also provide services in another EEA State through an agent established in the UK (using a ‘services’ passport) or in another EEA State (using its right of establishment).

    The passporting right extends to all the payment services for which the PI is authorised but does not, according to the FCA, extend to other activities that authorised PIs may perform that are ancillary to the provision of payment services. Whether an authorised PI can carry on those other activities in another EEA State will depend on the local law in that state.

    Where an authorised PI intends to provide payment services, either on a freedom of services basis or on a freedom of establishment basis into another EEA State, regulation 23 requires the firm to give the Authority notice of its intention to do so (a notice of intention). Notification forms are available on the payment services section of the FCA's website.

    The notification form will ask for the payment services the firm intends to carry on, the names of the people responsible for managing any proposed EEA branch and details of that branch’s organisational structure, as well as the EEA State(s) where the payment services are to be performed.

    Once we have received the notification form with the required information, we will forward that information to the host state as soon as possible.

    Service Passports – not Involving an EEA Agent

    Where a firm has applied for a services passport that it will be using directly (that is, not through an EEA agent), the FCA will let it know once the host state has been notified and update the register to show the details of the passport.

    Branch Passports and/or Use of EEA Agents

    Where a firm seeks to establish a branch, or provide services through an EEA agent (either exercising its right of establishment or using a services passport) the FCA is required to assess the fitness and propriety of the management of the establishment and, as part of this, make a notification to the host state competent authority. The FCA is required to take the host state competent authority’s opinion on certain matters into account.

    Agency Relationship

    Payment institutions may provide payment services through agents, subject to prior registration with the FCA. An agent is any person who acts on behalf of a PI in the provision of payment services.

    An authorised PI wanting to use a passport to provide payment services into another EEA member state may use an agent, established in either the UK or the host state, to provide those services (an EEA agent), subject to additional notification requirements.

    The requirements relating to the use of agents are contained mostly in regulation 29. In addition, regulation 31(2) makes PIs responsible for anything done or omitted by an agent. PIs are responsible to the same extent as if they had expressly permitted the act or omission. Therefore PIs are expected to have appropriate systems and controls in place to effectively oversee their agents’ activities.

    Application forms for registration of agents, ‘Add PSD agent’ can be found in the application forms sections of this document or on the FCA's website in the payment services section. The same form is used for agents of authorised and small PIs.

    In general, the information required for the registration of an agent is:

  • the name and address of the agent;
  • a description of the anti-money laundering (AML) internal control mechanisms; and
  • the identity of the directors and persons responsible for the management of the agent and evidence that they are fit and proper persons
  • The PI should carry out its own fitness and propriety review of its proposed agents on the basis of a ‘due and diligent’ enquiry before completing the application form to register an agent. The FCA asks that this is certified on the form for each person and any adverse information is disclosed. The enquiries made should be proportionate to the nature, complexity and scale of risk inherent in the payment services activities being carried out by the agent.

    The Authority is required to make a decision on registering an agent within a reasonable period, beginning with the date on which we receive the information required. The FCA aims to process the majority of applications within ten working days, provided the application is complete.

    Where an agent application forms part of an application for authorisation or registration, it will be determined in accordance with the timetable for that application.

    In the case of an EEA agent, host state competent authorities are required to tell the FCA of any suspicions of money laundering or terrorist financing and so our decision will take into account any such suspicions reported by the host state competent authority, as required when passporting, which may add to the time taken in coming to a decision.

    After Authorization/Registration

    Once a payment institution (PI) is authorised, or registered, the FCA requires them to meet the standards set out in the FCA Approach Document and to supply the Authority with information, so that the FCA can monitor their business.

    Chapter 4 of the Approach Document details when a firm is required to notify the FCA under the Payment Services Regulations 2009 (PSRs).

    Variation of payment services: if a PI decides to change the payment services it provides (either adding or removing) then it should apply to vary its payment services.

    Amending PSD Individuals / Agents: a PI should notify the Authority of any changes to their PSD Individuals, or PSD Agents, using the relevant form.

    Change of legal status: if a PI wants to change its legal status then it should submit the relevant change of legal status application.

    Change in Qualifying Holding: the PSRs require an authorised payment institution (authorised PI) to notify the Authority of any changes in its qualifying holdings.

    Cancellation: a PI wishing to stop providing payment services must apply to the Authority.

    Standing Data: a PI should notify the Authority of any changes to their Registered Name, Trading Name(s), addresses, contact details, website address, Auditor (where applicable) and Accounting Reference Date.

    E-money issuers licensing

    Required documents and terms of license issue

    In general, a UK business or a UK branch of a business with its head office outside the EEA that intends to issue e-money (as defined in the EMRs) has to be either an authorised EMI or a small EMI or have Part 4A permission to issue e-money under FSMA (credit institutions, credit unions and municipal banks).

    In accordance with regulation 32 of the EMRs, EMIs are permitted to provide payment services without having to be separately authorised or registered under the PSRs.

    Anyone wishing to become an authorised EMI has to complete an application form and submit it to the FCA along with the required information and the appropriate application fee.

    List of required documents

    The information requirements can be found in Schedule 1 to the EMRs.

    An application to become an authorised electronic money institution must contain or be accompanied by:

  • A programme of operations, setting out, in particular, the type of electronic money issuance and payment services which are envisaged
  • A business plan including a forecast budget calculation for the first three financial years which demonstrates that the applicant is able to employ appropriate and proportionate systems, resources and procedures to operate soundly
  • Evidence that the applicant holds initial capital for the purposes of regulation 6(3)
  • A description of the measures taken for safeguarding the electronic money holders’ and payment service users’ funds in accordance with regulation 20
  • A description of the applicant’s governance arrangements and internal control mechanisms including administrative risk management and accounting procedures, which demonstrates that such arrangements, mechanisms and procedures are proportionate, appropriate, sound and adequate
  • A description of the internal control mechanisms which the applicant has established in order to comply with the Money Laundering Regulations 2007 and Regulation (EC) No 1781/2006 of the European Parliament and of the Council of 15 November 2006 on information on the payer accompanying transfers of funds(a)
  • A description of the applicant’s structural organisation, including, where applicable, a description of the intended use of agents and branches and a description of outsourcing arrangements, and of its participation in a national and international payment system
  • In relation to each person holding, directly or indirectly, a qualifying holding in the applicant:
  • the size and nature of their qualifying holding; and
  • evidence of their suitability taking into account the need to ensure the sound and prudent management of an electronic money institution
  • The identity of directors and persons who are or will be responsible for the management of the applicant and, where relevant, persons who are or will be responsible for the management of the electronic money issuance and payment services activities of the applicant.
  • Evidence that the persons described above are of good repute and that they possess appropriate knowledge and experience to issue electronic money and perform payment services.

  • The identity of the auditors of the applicant, if any.
  • The legal status of the applicant and, where the applicant is a limited company, its articles of association.
  • The address of the head office of the applicant.
  • A description of:
  • the audit arrangements of the applicant; and
  • the organisational arrangements that the applicant has set up, with a view to the applicant taking all reasonable steps to protect the interests of its electronic money holders and payment service users and to ensuring continuity and reliability in the performance of the issuance of electronic money and payment services activities.
  • At any time after receiving an application and before determining it, the Authority may require the applicant to provide it with such further information as it reasonably considers necessary to enable it to determine the application.

    Different directions may be given, and different requirements imposed, in relation to different applications or categories of application.

    Application Forms for Authorisation as an Electronic Money Institution

  • Application for authorisation as an authorised electronic money institution
  • An applicant will need to complete an EMD Individual form for each individual responsible for the management of electronic money and payment services business (as applicable); please refer to the accompanying notes, when completing it.

  • EMD Individual form
  • EMD Individual form (notes)
  • EMD Factsheet
  • Firms applying to be an EMI will also need to be registered with the FCA under the Money Laundering Regulations 2007 (MLR):

    The Annex 1 registration form (this should be submitted with your application) and guidance notes.

    Additional forms that an authorised EMI may need to submit

    The applicant must complete a form for each person / firm who holds a ‘qualifying holding’ (for definition, see above) in the firm, from the following list:

  • EMD Qualifying holding – Standard Notification: if the holder of the qualifying holding is already an FCA approved person, an FCA-authorised firm or an existing controller of an FCA-authorised firm;
  • EMD Qualifying holding – Individual: if the holder of the qualifying holding is an individual (if a ‘EMD Individual Form’ for the individual has already been submitted, there is no need to complete this form);
  • EMD Qualifying holding – Corporate: if the holder of the qualifying holding is an incorporated company (i.e. private limited company, limited liability partnership etc.)
  • EMD Qualifying holding –  Partnership:  if the holder of the qualifying holding is a partnership;
  • EMD Qualifying holding – Trust: if the holder of the qualifying holding is a trust
  • Agents

    EMIs may distribute and redeem e-money and provide payment services through agents, subject to prior registration of the agent by the Authority.

    An ‘Add an EMD Agent’ form should be submitted for any agent(s) who will provide payment services on your behalf:

  • Add an EMD Agent form
  • Distributors

    EMIs may engage distributors to distribute and redeem e-money. A distributor does not provide payment services, so does not have to be registered by the FCA – but applicants will have to identify their proposed use of distributors.

    If the firm intends to issue, distribute or redeem electronic money or provide payments services (if applicable) in another EEA State, you should submit the relevant form(s) from the list below:

  • Cross-border services in another EEA State
  • Freedom of establishment in another EEA member state
  • The application must be signed by the person(s) responsible for making the application on behalf of the applicant business. The appropriate person(s) depend(s) on the applicant’s type, as follows.

    Type of applicant

    Appropriate signatory

    Company with one director

    The director

    Company with more than one director

    Two directors

    Limited liability partnership

    Two members

    Limited partnership

    The general partner or partners

    The Authority will acknowledge receipt of the application and the case officer assigned to deal with it will be in contact soon after.

    It should be noted that supplying the information requested on the application form will not necessarily be enough for the application to be ‘complete’.

    At any time after receiving an application for authorisation and before determining it, the Authority can require the applicant to provide such further information as it reasonably considers necessary for determining the application. Where an application is incomplete, applicants will have to provide the information requested promptly to avoid delay to consideration of their application.

    The FCA attaches considerable importance to the completeness and accuracy of the information provided in connection with an application. If there is any material change, deficiency or inaccuracy in the information provided in connection with an application before the Authority has issued its decision on it, the applicant must notify the Authority accordingly. This applies equally if it becomes apparent to the applicant that a deficiency or inaccuracy in the application or a material change is likely to arise. The requirements also apply to material changes to supplementary information provided due to an earlier material change. If an applicant fails to provide accurate and complete information it will take longer to assess the application. In some cases, it could lead to the application being rejected.

    The notification must include details of the change, the complete information or a correction of the inaccuracy (as the case may be) and must be made without undue delay. In the case of an anticipated material change that has not yet taken place, the applicant must provide details of the likely change as soon as they become aware of it.

    The state application processing fee

    The application fee to become an authorised EMI is £5,000. The FCA will not begin processing the application until the full fee is received. The fee is non-refundable and must be paid by cheque.

    Applicants that wish to provide payment services through agents will be charged a notification fee of £3 per agent.

    Conditions for authorisation as an electronic money institution

    The Authority may refuse to grant an application for authorisation only if any of the following conditions is not met:

  • The application must comply with the requirements of, and any requirements imposed under, regulation 5
  • The applicant must immediately before the time of authorisation hold the amount of initial capital required in accordance with Part 1 of Schedule 2 of EMRs
  • The applicant must be either:
  • a body corporate constituted under the law of a part of the United Kingdom having its head office (and if it has a registered office, that office) in the United Kingdom; or
  • a body corporate which has a branch that is located in the United Kingdom and whose head office is situated in a territory that is outside the EEA
  • The applicant must satisfy the Authority that, taking into account the need to ensure the sound and prudent conduct of the affairs of the institution, it has:
  • robust governance arrangements for its electronic money issuance and payment service business, including a clear organisational structure with well-defined, transparent and consistent lines of responsibility;
  • effective procedures to identify, manage, monitor and report any risks to which it might be exposed; and
  • adequate internal control mechanisms, including sound administrative, risk management and accounting procedures, which are comprehensive and proportionate to the nature, scale and complexity of electronic money to be issued and payment services to be provided by the institution
  • The applicant must satisfy the Authority that:
  • having regard to the need to ensure the sound and prudent conduct of the affairs of an authorised electronic money institution, any persons having a qualifying holding in the institution are fit and proper persons;
  • the directors and persons responsible for the management of its electronic money and payment services business are of good repute and possess appropriate knowledge and experience to issue electronic money and provide payment services;
  • it has a business plan (including for the first three years, a forecast budget calculation) under which appropriate and proportionate systems, resources and procedures will be employed by the institution to operate soundly;
  • it has taken adequate measures for the purpose of safeguarding electronic money holders’ funds in accordance with regulation 20
  • The applicant must comply with a requirement of the Money Laundering Regulations 2007 to be included in a register maintained under those Regulations where such a requirement applies to the applicant
  • If the applicant has close links with another person (“CL”) the applicant must satisfy the Authority:
  • that those links are not likely to prevent the Authority’s effective supervision of the applicant; and
  • if it appears to the Authority that CL is subject to the laws, regulations or administrative provisions of a territory which is not an EEA state (“the foreign provisions”), that neither the foreign provisions, nor any deficiency in their enforcement, would prevent the Authority’s effective supervision of the applicant
  • An applicant has close links with CL if:
  • CL is a parent undertaking of the applicant;
  • CL is a subsidiary undertaking of the applicant;
  • CL is a parent undertaking of a subsidiary undertaking of the applicant;
  • CL is a subsidiary undertaking of a parent undertaking of the applicant;
  • CL owns or controls 20% or more of the voting rights or capital of the applicant; or
  • the applicant owns or controls 20% or more of the voting rights or capital of CL
  • Requirements to business plan

    The business plan has to explain how the applicant intends to carry out its business. It should provide enough detail to show that the proposal has been carefully thought out and that the adequacy of financial and non-financial resources has been considered.

    The plan must include a forecast budget for the first three financial years. The budget has to demonstrate that the applicant is able to employ appropriate and proportionate systems, resources and procedures to operate soundly, and that it will be able to continue to meet the initial capital requirements and the ongoing capital (own funds) requirements as outlined below.

    The business plan should also include, but not be limited to, the following:

  • background to the application;
  • a description of the e-money issuance and payment services business;
  • location of the business, including any intention to ‘passport’;
  • sources of funding;
  • target markets; and
  • a marketing plan
  • If the applicant intends to provide unrelated payment services then a separate business plan for these, covering the information required above, should also be submitted.

    Capital requirements

    The EMRs establish capital requirements for EMIs. Under the EMRs, authorised EMIs and those small EMIs whose average outstanding e-money exceeds the relevant monetary threshold are required to hold a minimum amount of capital.

    The parts of the EMRs that deal with the capital resources and requirements are regulation 19 and Schedule 2.

    The term ‘capital resources’ describes what a business holds as capital. ‘Capital requirements’ refers to the amount of capital that must be held by the business for regulatory purposes. The capital requirements established by the EMRs are initial requirements that are a condition of authorisation or registration and ongoing requirements.

    The capital requirements set out in the EMRs are expressed in euro, as they are in 2EMD. It is expected that EMIs will hold sufficient capital to ensure that the capital requirements are met, even in the event of exchange rate fluctuations. Current and historical rates can be found on the European Commission’sInforEuro website.

    EMIs can also provide unrelated payment services. There are separate capital requirements for authorised EMIs that provide unrelated payment services.

    Additionally, EMIs can undertake activities that are not related to issuing e-money and payment services. These businesses are called ‘hybrid’ businesses. The EMRs do not impose any initial or ongoing capital requirements in relation to the business that does not involve issuing e-money or providing payment services. Any other capital requirements imposed because of other legislation – for example, if the EMI is undertaking an activity regulated under FSMA – have to be met separately and cumulatively.

    For the purposes of calculating the capital requirements, EMIs that provide unrelated payment services or that are hybrid businesses must treat each part of the business as a separate business.

    Seed capital requirements

    The initial capital requirement is one of the conditions to be met at the application stage. The EMRs require that the EMI’s capital must not at any time fall below the prescribed levels of initial capital for its business activity.

    The level of initial capital required is at least €350,000.

    The applicant should evidence that they have such capital already in place or provide satisfactory evidence that it will be in place prior to authorisation. Authorisation cannot be granted without the required initial capital.

    The evidence that should be provided will depend on the type of business and its source of funding. For example, if an applicant is a limited company and using paid-up share capital, the Authority would expect to see a copy of the SH01 form submitted to Companies House and a bank statement, in the business name, showing the monies being paid in. If an applicant has already been trading and has sufficient reserves to meet the initial capital requirement, then a copy of the last year-end accounts may be sufficient (or interim accounts if appropriate).

    Businesses may wish to capitalise nearer to the time of authorisation, so this evidence can be provided at a later date but will be required before authorisation is granted. For an application to be complete the Authority needs to be satisfied that the initial capital will be in place immediately before authorisation.

    For the purposes of the EMRs “initial capital” comprises the items specified in paragraph 4(a), (b) and (c) of Schedule 2 to the EMRs, namely:

  • paid up capital, including share premium accounts but excluding amounts arising in respect of cumulative preference shares;
  • reserves other than:
  • revaluation reserves;
  • fair value reserves related to gains or losses on cash flow hedges of financial instruments measured at amortised cost; and
  • that part of profit and loss reserves that arises from any gains on liabilities valued at fair value that are due to changes in the electronic money institution’s credit standing;
  • profit or loss brought forward as a result of the application of the final profit or loss provided that:
  • interim profits may only be included if they are:
  •     § verified by persons responsible for the auditing of the institution’s accounts;
  •     § shown to the satisfaction of the Authority that the amount has been evaluated in accordance with the principles set out in Directive 86/635/EEC of the Council of the 8th December 1986 on the annual accounts and consolidated accounts of banks and other financial institutions(a); and
  •     § net of any foreseeable charge or dividend;
  • in the case of an electronic money institution which is the originator of a securitisation, net gains arising from the capitalisation of future income from the securitised assets and providing credit enhancement to positions in the securitisation are excluded
  • Requirements to e-money issuer`s proprietory funds

    As well as the requirements for initial capital, the EMRs require authorised EMIs to maintain adequate own funds on an ongoing basis. At the time of authorisation the FCA will also assess the financial information supplied in the business plan to see if it shows that own funds are likely to be maintained on an ongoing basis. Before authorising an applicant, the Authority expects to be provided with evidence that the applicant has the systems, resources and procedures to be able to maintain its own funds to meet the maximum ongoing capital requirement projected for its first year of operation.

    An authorised electronic money institution must maintain at all times own funds equal to or in excess of:

  • 350,000 euro; or
  • the amount of the own funds requirement calculated in accordance with paragraph 13 of Schedule 2 subject to any adjustment directed by the Authority under paragraph 15 of that Schedule, whichever is the greater.
  • An authorised EMI has to work out its ongoing capital requirements using method D, which is described in paragraph 23 of Schedule 2 to the EMRs as follows:

  • the own funds requirement in respect of the activity of issuing electronic money and providing payment services that are related to the issuance of electronic money is an amount equal to 2% of the average outstanding electronic money of the authorised electronic money institution.
  • If an authorised EMI chooses to provide unrelated payment services it must meet separate and additional ongoing capital requirements for the unrelated payment services part of the business.

    The ongoing capital requirements for unrelated payment services are laid out in paragraph 13(a) of Schedule 2 to the EMRs (methods A, B or C). Authorised EMIs that provide unrelated payment services are asked in the application pack to indicate which calculation method they wish to use.

    The FCA may direct an authorised EMI to hold capital up to 20% higher or permit it to hold capital up to 20% lower than the outcome of its ongoing requirement calculation for its e-money business or its unrelated payment services activities (or both), based on evaluation of the authorised EMI. The evaluation may take into account risk management processes, risk loss database or internal control mechanisms (if available and as the FCA considers appropriate). The Authority may make a reasonable charge for this evaluation. The details are set out in paragraphs 15 to 18 in Schedule 2 of the EMRs.

    The ongoing capital (own funds) requirement is to be met by the EMI’s capital resources using qualifying items as set out below.

    Qualifying items that may be used to meet the capital requirements, as well as the conditions under which these items qualify, are set out in Part 2 of Schedule 2 of the EMRs. The list of qualifying items is applicable to both the e-money businesses and unrelated payment services businesses.

    In brief, these qualifying items consist of:

  • paid-up capital (including share premium account, but excluding cumulative preference shares);
  • reserves;
  • profit/loss;
  • revaluation reserves;
  • general/collective provisions;
  • undated securities (meeting the conditions of permanence, no fixed costs, subordination and loss absorbency set out in the EMRs, as long as only fully paid-up amounts are taken into account);
  • perpetual cumulative preference shares;
  • co-operative society members’ commitments;
  • borrowers’ commitments where an authorised PI is organised as a fund; and
  • fixed-term cumulative preference shares and subordinated debt
  • The full definition of each qualifying item can be found in paragraph 4 of Part 2 of Schedule 2 of the EMRs. Qualifying items are subject to deductions and limits. EMIs must take these deductions and limits into account in good time, as they will apply immediately after authorisation.

    In brief, the deductions from capital are:

  • the EMI’s own shares held by the EMI;
  • intangible assets;
  • material losses of the current financial year;
  • material holdings (meaning holdings of shares in credit and financial institutions in excess of 10% of their capital) as well as the undated securities, cumulative preference shares, cooperative society members’ commitments held in these institutions;
  • material holdings not already deducted as above where the amount exceeds 10% of the EMI’s capital calculated before deduction of the other items grouped at Q on this list;
  • participations in insurance or reinsurance undertakings or insurance holding companies (IHCs); and
  • subordinated debt issued by those insurance or reinsurance undertakings or IHCs in which a participation is held
  • Limits on qualifying items are set out in detail in paragraph 9 of Part 2 of Schedule 2 to the EMRs.

    Paid-up capital, reserves, profit / loss and revaluation reserves must be available to the EMI for unrestricted and immediate use to cover risks and losses as soon as these occur. They must also be net of foreseeable tax charges or be suitably adjusted in so far as such tax charges reduce the amount up to which these items may be applied to cover risks or losses. Also, capital must not include guarantees provided by the Crown or a local authority to a publicly quoted EMI.

    Safeguarding requirements to protect customer funds on the accounts of e-money issuers

    The EMRs (Regulation 20) impose safeguarding requirements to protect customer funds. If a business that has safeguarded funds becomes insolvent, the claims of e-money holders (and payment service users where appropriate) are paid from the asset pool formed from these funds above all other creditors (except for the costs of distributing the asset pool).

    Electronic money institutions are required by regulation 20 to safeguard funds that have been received in exchange for electronic money that has been issued (“relevant funds”).

    EMIs are entitled to provide payment services that are unrelated to the issuance of e-money. Authorised EMIs that provide unrelated payment services are subject to the safeguarding provisions of the PSRs (regulation 19 of the PSRs) as if they were authorised payment institutions.

    Relevant funds received in the form of payment by a payment instrument only have to be safeguarded when they are credited to the EMI’s payment account or are otherwise made available to the EMI but must be safeguarded by the end of five business days after the date on which the e-money has been issued.

    This relates to e-money paid for by a payment instrument such as a credit or debit card and not e-money that is paid for by cash, even if the cash payment is received by a person acting on behalf of the EMI (such as an agent or distributor).

    Authorised EMIs must also separately safeguard funds received in exchange for unrelated payment services.

    There are two ways in which an EMI may safeguard relevant funds:

  • safeguarding option 1 – the segregation method; and
  • safeguarding option 2 – the insurance or guarantee method
  • Safeguarding option 1 – the segregation method

    The first method requires the EMI to segregate funds received in exchange for e-money (relevant funds) from any other funds it holds including its working capital and funds received for other business activities for example, foreign exchange transactions. Relevant funds must be held separately from funds received for the execution of payment transactions not related to issuing e-money. This requirement applies as soon as funds are held by the EMI and includes money received on its behalf by agents or distributors.

    If relevant funds are still held at the end of the business day following the day the EMI received them, the EMI must:

  • deposit the relevant funds in a separate account it holds with an authorised credit institution; or
  • invest the relevant funds in secure and low risk assets that are approved by the FCA as liquid and place those assets in a separate account with an authorised custodian
  • Regulation 21(6) (a) of the EMRs defines the assets that are considered to be secure and low risk for these purposes. The FCA does not consider that all of the assets described in regulation 21(6) (a) meet the third criterion of ‘liquid’. The FCA has approved the assets referred to below as liquid. On this basis, assets are secure, low risk and liquid, and an EMI can invest in them and place them in a separate account with an authorised custodian in order to comply with the safeguarding requirement, if they are:

  • items that fall into one of the categories set out in Table 1 of point 14 of Annex 1 to Directive 2006/49/EC (on the capital adequacy of investment firms and credit institutions) for which the specific risk capital charge is no higher than 0%; or
  • units in an undertaking for collective investment in transferable securities (UCITS), which invests solely in the assets mentioned previously
  • The safeguarding account in which the relevant funds or equivalent assets are held must be named in a way that shows it is a safeguarding account (rather than an account used to hold money belonging to the EMI). It must be clear to any administrator that the funds are held for the purpose of safeguarding.

    The safeguarding account must not be used to hold any other funds or assets including safeguarding or segregation of funds from other services or the protection of funds received for foreign exchange deals. This means that, when EMIs are safeguarding funds received for both e-money and unrelated payment services, the money should not be held in the same account.

    The effect of having to hold a separate account where only the EMI may have any interest or right over the relevant funds or assets (except as provided by regulation 19 of the PSRs) is that EMIs cannot share safeguarding accounts. For example, a corporate group containing several EMIs cannot pool their respective relevant funds or assets in a single account. Each EMI must therefore have its own safeguarding account.

    The EMRs do not, however, prevent EMIs from holding more than one safeguarding account. If an account with an authorised credit institution is being used, it is important that the account is named in such a way that its purpose is clear, and that the EMI has an acknowledgement from the credit institution, or is otherwise able to demonstrate to the FCA's satisfaction that the bank has no rights (for example of set-off) over funds in that account.

    To ensure it is clear what funds have been segregated and in what way, EMIs must keep records of any:

  • relevant funds segregated;
  • relevant funds placed in an account with a credit institution; and
  • assets placed in a custody account
  • Safeguarding option 2 – the insurance or guarantee method

    The second safeguarding method is to arrange for the relevant funds to be covered by an insurance policy with an authorised insurer, or a guarantee from an authorised insurer or an authorised credit institution. EMIs also safeguarding funds received for payment transactions that are not related to issuing e-money may need a separate policy or guarantee to ensure both sets of funds are adequately covered. The policy or guarantee will have to cover all relevant funds, not just funds held overnight or longer.

    The proceeds of the insurance policy or guarantee must be payable in an insolvency event (as defined in regulation 24 of the EMRs and regulation 19 of the PSRs) into a separate account held by the EMI. That account must be named in a way that shows it is a safeguarding account (rather than an account used to hold money belonging to the EMI). The account must not be used for holding any other funds, and no-one other than the EMI  may have an interest in or right over the funds in it (except as provided for by regulation 24 of the EMRs and regulation 19 of the PSRs).

    Neither the authorised credit institution nor the authorised insurer can be part of the group to which the EMI belongs.

    Money Laundering Regulations registration requirements

    Firms applying to be an EMI need to be registered with the FCA under the Money Laundering Regulations 2007 (MLR).

    The FCA is responsible for monitoring EMIs’ compliance with their legal obligations under the EMRs, the Money Laundering Regulations 2007 and the Counter-Terrorism Act 2008.

    Governance arrangements

    Governance arrangements are the procedures used in the decision-making and control of the business that provide its structure, direction and accountability.

    The description of the governance arrangements must include a clear organisational structure with well-defined, transparent and consistent lines of responsibility (regulation 6(5) (a)). If applicable, this should cover the unrelated payment services business as well as the e-money business. The Authority would also expect to receive information on:

  • decision-making procedures;
  • reporting lines;
  • internal reporting and communication processes;
  • the arrangements for regular monitoring of internal controls and procedures; and
  • measures that would be taken to address any deficiencies
  • Risk management

    The description of the risk management procedures provided in the application should show how the business will effectively identify, manage, monitor and report any risks to which the applicant might be exposed (regulation 6(5)(b)). Such risks may include risks in relation to both the e-money business and any payment services business:

  • settlement risk (settlement of a payment transaction does not take place as expected);
  • operational risk (loss from inadequate or failed internal processes, people or systems);
  • counterparty risk (that the other party to a transaction does not fulfil its obligations);
  • liquidity risk (inadequate cash flow to meet financial obligations);
  • market risk (risk resulting from the behaviour of the entire market);
  • financial crime risk (the risk that the EMI or its services might be used for a purpose connected with financial crime); and
  • foreign exchange risk (fluctuation in exchange rates)
  • Depending on the nature and scale of the business and any payment services being provided, it may be appropriate for the authorised EMI to operate an independent risk management function. Where an independent risk management function is not appropriate, the authorised EMI should nevertheless be able to demonstrate that the risk management policies and procedures it will adopt are effective. In any case, it will have to appoint a money laundering reporting officer.

    Internal controls

    Internal controls are the systems, procedures and policies used to safeguard the business from fraud and error, to ensure the authorised EMI’s compliance with legal requirements, and to ensure accurate financial information (regulation 6(5)(c)). They should include sound administrative and accounting procedures that will enable the applicant to deliver to the Authority, in a timely manner, financial reports that reflect a true and fair view of its financial position and that will enable the applicant to comply with the requirements of the EMRs in relation to its customers.

    Where the applicant wishes to engage distributors and / or agents the FCA would expect the internal controls to ensure the applicant meets its responsibilities for these entities.

    Money laundering controls

    All EMIs must comply with legal requirements to deter and detect financial crime, which includes money laundering and terrorist financing. Applicants for authorisation are required to provide a description of the internal control mechanisms they will establish to comply with the Money Laundering Regulations 2007 and the EC wire transfer regulation6 (paragraph 6, Schedule 1 to the EMRs).

    In particular, the Authority expects information on the risk-sensitive policies, procedures and internal controls related to:

  • customer due diligence checks;
  • the ongoing monitoring of business relationships;
  • the reporting of suspicions, both within the business and to the Serious Organised Crime Agency;
  • assessment of money laundering risks and the application of enhanced measures in higher risk situations;
  • record-keeping;
  • monitoring compliance with procedures;
  • internal communication of policies and procedures; and
  • staff awareness and training on money laundering matters
  • Applicants must also provide the Authority with the name of the person nominated to receive disclosures under Part 7 of the Proceeds of Crime Act 2002 and referred to in regulation 20(2) (d)(1) of the Money Laundering Regulations 2007 (the money laundering reporting officer).

    The FCA will also monitor authorised EMIs’ compliance with Schedule 7 to the Counter-Terrorism Act 2008. The Authority expects the description of the applicant’s governance arrangements and internal control mechanisms to explain how they propose to meet their obligations under this legislation.

    Qualifying holdings

    A condition for authorisation under regulation 6(6)(a) is that the applicant must satisfy the Authority that any persons having a qualifying holding in it are fit and proper persons having regard to the need to ensure the sound and prudent conduct of the affairs of the authorised EMI. This comprises two elements:

  • an assessment by the applicant as to which persons have a qualifying holding; and
  • an assessment of the fitness and propriety of those persons
  • A ‘qualifying holding’ is defined in the EMRs by reference to Article 4(11) of the Banking Directive 2006/48/EC (BD). The definition in the BD is a: ‘direct or indirect holding in an undertaking that represents 10% or more of the capital or of the voting rights or that makes it possible to exercise a significant influence over the management of that undertaking’. A person with a qualifying holding is referred to as a ‘controller’.

    In relation to an authorised EMI, a controller is, broadly, an individual or business that does one of the following:

  • holds 10% or more of the shares in or capital of the applicant business (or 10% or more of shares in / capital of a parent of the applicant);
  • has a shareholding of any size in the applicant business or a parent and is able to exercise significant influence over the management of the applicant;
  • is entitled to control or exercise control of 10% or more of the voting power in the applicant business (or 10% or more of the voting power in a parent of the applicant); or
  • is able to exercise significant influence over the management of the applicant business through their voting power in it or a parent
  • Regulation 6 of the EMRs requires the applicant to satisfy the Authority that its controllers are fit and proper having regard to the sound and prudent conduct of the affairs of the applicant.

    Paragraph 8 of Schedule 1 sets out the information that must be provided to the Authority about the applicant’s controllers. For each controller in the applicant, an authorisation application must contain the following information:

  • the size and nature of the qualifying holding; and
  • evidence of the suitability of each controller taking into account the need to ensure the sound and prudent management of an authorised EMI
  • Schedule 1 to the EMRs refers to evidence about the ‘suitability’ of controllers and regulation 6 to their ‘fitness and propriety’. Although these terms are different, they incorporate the same essential factors, namely the controller’s:

  • honesty, integrity and reputation;
  • competence and capability; and
  • financial soundness
  • While it is impossible to list every fact or matter that would be relevant to the fitness and propriety of a controller, the following are examples of factors that are taken into consideration by the FCA:

  • Any convictions or cautions for criminal offences, this includes any spent and unspent criminal convictions and cautions unless the relevant conviction or caution is protected. Of particular relevance are any offences involving dishonesty, fraud, or financial crime.
  • Whether the controller has been investigated or prosecuted for any criminal offence even if that investigation or prosecution did not result in a conviction.
  • Whether the controller has been the subject of any adverse finding or any settlement in civil proceedings, particularly in connection with investment or other financial business, misconduct, fraud or the formation or management of a business, particularly an EMI.
  • Whether the controller has been the subject of adverse findings or any settlement in regulatory proceedings conducted by us or other regulatory bodies including a previous regulator, clearing houses and exchanges, professional bodies, or government bodies or agencies such as HM Revenue & Customs (HMRC), the Serious Organised Crime Agency and the Serious Fraud Office. This could include where the controller has received a fine for misconduct of some kind or has been warned that disciplinary measures may be imposed even if the warning was private.
  • Whether the controller has been the subject of, or interviewed in the course of, any existing or previous investigation or disciplinary proceedings, by the Authority or other regulatory bodies including a previous regulator, clearing houses and exchanges, professional bodies, or government bodies or agencies such as HMRC, the Serious Organised Crime Agency and the Serious Fraud Office. This could include where the controller has been required to produce documents or has been the subject of a search (with or without a warrant).
  • Whether the controller has been refused membership, registration or authorisation of a professional organisation or if registration, authorisation, membership or licence has been revoked, withdrawn or terminated, or if the person has been expelled by a regulatory or government body.
  • Whether the controller has been a director, partner, or concerned in the management of a business that has gone into insolvency, liquidation or administration while the person has been connected with that organisation or within one year of that connection.
  • Whether, in the past, the controller has been candid and truthful in all his or her dealings with any regulatory body, government agency or similar and whether the person demonstrates a readiness and willingness to comply with the requirements and standards of the EMRs and regulatory system generally and with other legal, regulatory and professional requirements and standards.
  • The FCA will also consider the fitness and propriety of any person linked to the controller, for example, any person who has, or who appears to have, a relevant family or business relationship with the controller. This will include previous firms of which the controller has been a director, partner, or otherwise concerned in the management if the relevant event has occurred within one year of the controller’s involvement in that business.

    Non-disclosure of matters which we consider relevant, even if the applicant considers the matter to be irrelevant or immaterial, may impugn the fitness and propriety of the applicant and is likely to result in a delay of the processing of the application and could result in the application being refused on those grounds. Full and candid disclosure is similarly treated as positive evidence of fitness and propriety.

    Requirements to directors

    A condition for authorisation under regulation 6(6)(b) is that the applicant must satisfy the Authority that all directors and all persons who are or will be responsible for the management of the e-money business and payment services business are of good repute and possess the appropriate knowledge and experience.

    In order to meet this condition, the applicant is required under Schedule 1 to provide the following information:

  • the identity of all members of the management board (for example, the directors (if the applicant is a company) or the members (if the applicant is an LLP));
  • the identity of all persons responsible for the management of the e-money business and payment services business where other individuals perform these activities in addition to the directors/members; and
  • evidence that these individuals are of good repute and that they possess the appropriate knowledge and experience to issue e-money and perform payment services
  • In the case of an applicant that only issues e-money and provides payment services, this will mean the applicant is likely to be required to complete the relevant EMD Individual forms for all senior management of the applicant. In the case of a hybrid authorised EMI that carries on business activities other than e-money issuance and payment services, the applicant only has to provide the information set out above in relation to persons responsible for the management of its e-money business or payment services business. The individuals that the applicant tells the FCA are responsible for the management of the e-money issuance and payment services activities of the applicant are referred to as ‘EMD Individuals’.

    Where the applicant is a company, it is likely that all the directors will be EMD Individuals.

    Auditors and audit arrangements

    Where an authorised EMI would be required under any UK legislation (in particular company legislation) to appoint an auditor, the name and contact details must be included in the application form.

    The applicant must provide a description of the audit and organisational arrangements that have been set up in relation to the safeguarding measures, governance arrangements, risk management procedures, internal control mechanisms and organisational structure described in the application. These should show that the applicant is taking all reasonable steps to protect the interests of its customers and to ensure continuity and reliability in the performance of the issuance of e-money and payment services activities.

    Depending on the nature, scale and complexity of the business, to comply with the requirement of the EMRs for sound accounting procedures and adequate internal control mechanisms, it may be appropriate for an authorised EMI to maintain an internal audit function that is separate and independent from the other functions and activities of the authorised EMI. The FCA would expect the internal audit function to have the following responsibilities:

  • establish, implement and maintain an audit plan to examine and evaluate the adequacy and effectiveness of the business’s systems, internal control mechanisms and arrangements;
  • issue recommendations based on the result of work carried out;
  • verify compliance with those recommendations; and
  • report in relation to internal audit matters to senior personnel and / or a separate supervisory function (for example, a supervisory board in a two-tier board structure or non-executive committee in a one-tier structure)
  • Requirements to company

    The applicant must be either:

  • a body corporate (for example, a limited company or LLP) constituted under the law of a part of the UK and whose head office and, where relevant, its registered office, is in the UK; or
  • a body corporate which has a branch that is located in the UK and whose head office is situated in a territory that is outside the EEA
  • The key issue in identifying the head office is the location of its central management and control, that is, the location of:

  • the directors and other senior management, who make decisions relating to the business’s central direction, and the material management decisions on a day-to-day basis; and
  • the central administrative functions (for example, central compliance, internal audit)
  • For the purpose of regulation 6(4) a ‘virtual office’ in the UK does not satisfy this condition.

    An applicant that is a body corporate with a branch located in the UK and whose head office is situated in a territory that is outside the EEA may only provide payment services that are related to the issuing of e-money, and will not be able to exercise passport rights in another EEA state.

    Requirements to IT systems

    Authorised EMIs are inherently reliant on IT systems so, to ensure they operate soundly, the Authority will assess IT systems during the approval process. Applicants must satisfy the Authority that their overall IT strategies and systems are proportionate to the nature, scale and complexity of the business and are sufficiently robust to facilitate, on an ongoing basis, their compliance with the conditions of authorisation.

    Small EMIs registration

    Required documents and registration terms and conditions

    Businesses whose total business activities are projected to generate average outstanding e-money that does not exceed €5 million may apply to be registered as small EMIs. Small EMIs may provide unrelated payment services, but only on the same basis as a small payment institution; that is, the monthly average, over a period of 12 months, of the total amount of relevant payment transactions must not exceed €3 million.

    To qualify for registration as a small EMI, an applying firm must meet all the conditions listed in regulation 13 of the EMRs (see the Conditions for Registration section below).

    An application for registration as a small electronic money institution must contain, or be accompanied by, such information as the Authority may reasonably require.

    Application forms for Registration as a Small EMI

    If your firm meets the conditions for registration (Regulation 13 of the EMRs) and wants to apply, the Application for registration as a small electronic money institution form will have to be filled out and submitted to the FCA:

  • Application for registration as a small electronic money institution
  • An applicant will need to complete an EMD Individual Form for each individual responsible for the electronic money and payment services business; please refer to the accompanying notes when completing it:

  • EMD Individual Form
  • EMD Individual Form (notes)
  • EMD Factsheet
  • Small EMIs must submit an Annex 1 registration application under the Money Laundering Regulations 2007 (MLR) along with their application for registration.

    TheAnnex 1 registration form (this should be submitted with the application) andguidance notes.

    An ‘Add an EMD agent’ form should be submitted for any agent(s) who will provide payment services on behalf of the applicant:

  • Add an EMD agent
  • The FCA will aim to acknowledge a small EMI application within five business days of receiving it and, following this, the case officer responsible for assessing it will contact the applicant.

    At any time after receiving an application and before determining it, the Authority may require the applicant to provide it with such further information as it reasonably considers necessary to enable it to determine the application.

    Small EMIs will not be able to passport any services into other EEA States.

    The application must be signed by the person(s) responsible for making the application on behalf of the applicant. The appropriate person(s) depend(s) on the applicant’s type, as follows:

    Type of applicant

    Appropriate signatory

    Company with one director

    The director

    Company with more than one director

    Two directors

    Limited liability partnership

    Two members

    Limited partnership

    The general partner or partners

    The application fee for applying for registration

    The application fee for applying for registration as a small EMI is £1,000.

    No work will be done on processing the application, until the full fee is received. The fee is non-refundable and must be paid by cheque.

    The application fee is non-refundable.

    Conditions for registration

    Registration will not be granted unless we are satisfied in relation to the ‘conditions for registration’ specified in regulation 13:

  • The application must comply with the requirements of, and any requirements imposed under, regulation 12.
  • The total business activities of the applicant immediately before the time of registration must not generate average outstanding electronic money that exceeds 5,000,000 euro.
  • The monthly average over the period of 12 months preceding the application of the total amount of relevant payment transactions must not exceed 3,000,000 euro.
  • The applicant must immediately before the time of registration hold such amount, if any, of initial capital as is required in accordance with Part 1 of Schedule 2 (see below).
  • The applicant must satisfy the Authority that, taking into account the need to ensure the sound and prudent conduct of the affairs of the institution, it has:
  • robust governance arrangements for its electronic money and payment services business, including a clear organisational structure with well-defined, transparent and consistent lines of responsibility; and
  • effective procedures to identify, manage, monitor and report any risks to which it might be exposed, which are comprehensive and proportionate to the nature, scale and complexity of electronic money to be issued and payment services to be provided by the institution
  • The applicant must satisfy the Authority that:
  • the directors and persons responsible for the management of its electronic money and payment services business are of good repute and possess appropriate knowledge and experience to issue electronic money and provide payment services;
  • it has a business plan (including for the first three years, a forecast budget calculation) under which appropriate and proportionate systems, resources and procedures will be employed by the institution to operate soundly; and
  • it has taken adequate measures for the purpose of safeguarding electronic money holders’ funds in accordance with regulation 20
  • None of the individuals responsible for the management or operation of the business has been convicted of:
  • an offence under Part 7 of the Proceeds of Crime Act 2002 (money laundering) or under the Money Laundering Regulations 2007;
  • an offence under section 15 (fund-raising), 16 (use and possession), 17 (funding arrangements), 18 (money laundering) or 63 (terrorist finance: jurisdiction) of the Terrorism Act 2000;
  • an offence under the 2000 Act;
  • an offence under the Terrorist Asset-Freezing etc. Act 2010 or the Al-Qaida and Taliban (Asset-Freezing) Regulations 2010;
  • an offence under these Regulations or the Payment Services Regulations 2009; or
  • any other financial crime
  • The applicant must be a body corporate whose head office is situated in the United Kingdom.
  • The applicant must comply with a requirement of the Money Laundering Regulations 2007 to be included in a register maintained under those Regulations where such a requirement applies to the applicant.
  • Relevant payment transactions” in respect of a small electronic money institution means payment transactions which:

  • are not related to the issuance of electronic money; and
  • are executed by the institution, including any of its agents who are in the United Kingdom
  • Where a small electronic money institution ceases to comply with a condition referred to in regulation 8(2)(c) - the condition that the total business activities of the applicant generate average outstanding electronic money that does not exceed 5,000,000 euro - or (d) - the condition that the monthly average over any period of 12 months of the total amount of relevant payment transactions does not exceed 3,000,000 euro - (as applied by regulation 15), the institution concerned must, within 30 days of becoming aware of the change in  circumstances, apply to become an authorised electronic money institution under regulation 5 if it intends to continue issuing electronic money in the United Kingdom.

    Requirements to business plan

    The business plan has to explain how the applicant intends to carry out its business. It should provide enough detail to show that the proposal has been carefully thought out and that the adequacy of financial and non-financial resources has been considered.

    The plan must include a forecast budget for the first three financial years. The budget has to demonstrate that the applicant is able to employ appropriate and proportionate systems, resources and procedures to operate soundly, and that it will be able to continue to meet the initial capital requirements and the ongoing capital (own funds) requirement, if applicable.

    The business plan should also include, but not be limited to, the following:

  • background to the application;
  • a description of the e-money issuance and payment services business (this should include a step-by-step description from start to end of how the e-money will be issued by the applicant and redeemed by the customer);
  • sources of funding;
  • target markets; and
  • a marketing plan
  • If the applicant intends to provide unrelated payment services then a separate business plan for these, covering the information required above, should also be submitted.

    Requirements to capital

    The EMRs establish capital requirements for EMIs. Under the EMRs, authorised EMIs and those small EMIs whose average outstanding e-money exceeds the relevant monetary threshold are required to hold a minimum amount of capital.

    The parts of the EMRs that deal with the capital resources and requirements are regulation 19 and Schedule 2.

    The term ‘capital resources’ describes what a business holds as capital. ‘Capital requirements’ refers to the amount of capital that must be held by the business for regulatory purposes. The capital requirements established by the EMRs are initial requirements that are a condition of authorisation or registration and ongoing requirements.

    The capital requirements set out in the EMRs are expressed in euro, as they are in 2EMD. It is expected that EMIs will hold sufficient capital to ensure that the capital requirements are met, even in the event of exchange rate fluctuations. Current and historical rates can be found on the European Commission’sInforEuro website.

    EMIs can also provide unrelated payment services. There are separate capital requirements for authorised EMIs that provide unrelated payment services.

    Additionally, EMIs can undertake activities that are not related to issuing e-money and payment services. These businesses are called ‘hybrid’ businesses. The EMRs do not impose any initial or ongoing capital requirements in relation to the business that does not involve issuing e-money or providing payment services. Any other capital requirements imposed because of other legislation – for example, if the EMI is undertaking an activity regulated under FSMA – have to be met separately and cumulatively.

    For the purposes of calculating the capital requirements, EMIs that provide unrelated payment services or that are hybrid businesses must treat each part of the business as a separate business.

    Requirements to seed capital of small EMIs

    By the time of registration, the applicant must provide evidence that it holds initial capital at the level required by Part 1 of Schedule 2 to the EMRs. The level of initial capital required varies according to the average value of outstanding e-money:

  • where the business activities of an applicant generate average outstanding e-money of €500,000 or more, the capital requirement is at least equal to 2% of the average outstanding e-money of the institution; and
  • where the business activities of an applicant generate average outstanding e-money of less than €500,000, there is no capital requirement
  • Where an applicant to become a small EMI has not completed a sufficiently long period of business to compile historical data adequate to make that assessment, the applicant must make the assessment on the basis of projected outstanding e-money as evidenced by its business plan, subject to any adjustments to that plan required by the Authority.

    The evidence that should be provided will depend on the type of business and its source of funding. For example, if an applicant is a limited company and using paid-up share capital, the FCA would expect to see a copy of the SH01 form submitted to Companies House and a bank statement, in the business name, showing the monies being paid in. If an applicant has already been trading and has sufficient reserves to meet the initial capital requirement, then a copy of the last year-end accounts may be sufficient (or interim accounts if appropriate). Businesses may wish to capitalise nearer to the time of registration, so this evidence can be provided at a later date but will be required before registration is granted. For an application to be complete the Authority must be satisfied that the initial capital will be in place immediately before registration.

    Requirements to proprietory funds of small EMIs

    Small EMIs that are required by the EMRs to hold initial capital are also required to maintain adequate own funds on an ongoing basis.

    The ongoing capital (own funds) requirement is to be met by the EMI’s capital resources using qualifying items as set out below.

    In brief, these qualifying items consist of:

  • paid-up capital (including share premium account, but excluding cumulative preference shares);
  • reserves;
  • profit/loss;
  • revaluation reserves;
  • general/collective provisions;
  • undated securities (meeting the conditions of permanence, no fixed costs, subordination and loss absorbency set out in the EMRs, as long as only fully paid-up amounts are taken into account);
  • perpetual cumulative preference shares;
  • co-operative society members’ commitments;
  • borrowers’ commitments where an authorised PI is organised as a fund; and
  • fixed-term cumulative preference shares and subordinated debt
  • The full definition of each qualifying item can be found in paragraph 4 of Part 2 of Schedule 2 of the EMRs. Qualifying items are subject to deductions and limits. EMIs must take these deductions and limits into account in good time, as they will apply immediately after authorisation.

    In brief, the deductions from capital are:

  • the EMI’s own shares held by the EMI;
  • intangible assets;
  • material losses of the current financial year;
  • material holdings (meaning holdings of shares in credit and financial institutions in excess of 10% of their capital) as well as the undated securities, cumulative preference shares, cooperative society members’ commitments held in these institutions;
  • material holdings not already deducted as above where the amount exceeds 10% of the EMI’s capital calculated before deduction of the other items grouped at Q on this list;
  • participations in insurance or reinsurance undertakings or insurance holding companies (IHCs); and
  • subordinated debt issued by those insurance or reinsurance undertakings or IHCs in which a participation is held
  • Limits on qualifying items are set out in detail in paragraph 9 of Part 2 of Schedule 2 to the EMRs.

    Small EMIs subject to an initial 2% capital requirement must continue to meet this on an ongoing basis unless their level of business falls below the threshold.

    Small EMIs with capital requirements work out ongoing capital requirements using method D (2% of the average outstanding e-money issued by the EMI) for their e-money business and related payment services

    Small EMIs are allowed to provide payments services not related to the issuance of e-money on the same basis as a small payment institution. There are no initial or ongoing capital requirements for small EMIs in relation to their unrelated payment services business.

    Applicants will be required to provide evidence of how this condition will be met.

    The requirements to the clients` funds safeguard

    All EMIs are required by regulation 20 to safeguard funds received in exchange for e-money that has been issued (referred to as ‘relevant funds’).

    Relevant funds received in the form of payment by a payment instrument only have to be safeguarded when they are credited to the EMI’s payment account or are otherwise made available to the EMI, but must be safeguarded by the end of five business days after the date on which the e-money has been issued. This relates to e-money paid for by a payment instrument such as a credit or debit card and not e-money that is paid for by cash, even if the cash payment is received by a person acting on behalf of the EMI (such as an agent or distributor).

    Small EMIs may choose to safeguard funds received in exchange for unrelated payment services. Funds received in exchange for unrelated payment services and relating to a particular payment transaction only have to be safeguarded if they exceed £50 (in which case the full amount must be safeguarded, not just the amount by which the funds exceed the £50 threshold). EMIs may, however, choose to safeguard amounts beneath this threshold, in which case the insolvency protections will apply.

    The Authority requires businesses applying to become small EMIs that provide unrelated payment services to tell the Authority if they will safeguard these funds. Those that opt to safeguard funds received for unrelated payment services will have to provide information about their safeguarding arrangements in annual reporting returns.

    It is important that the availability of an asset pool from which to pay the claims of e-money holders or payment service users in priority to other creditors in the event of the insolvency of an EMI is not undermined by the EMI improperly mixing funds, assets or proceeds received or held for different purposes. For example, if an account that an EMI holds with a credit institution is used not only for holding funds received in exchange for e-money but also for funds received for the execution of payment transactions not related to issuing e-money, or funds received for other activities (such as foreign exchange), this is likely to corrupt the segregation.

    There are two ways in which an EMI may safeguard relevant funds:

  • safeguarding option 1 – the segregation method; and
  • safeguarding option 2 – the insurance or guarantee method
  • Safeguarding option 1 – the segregation method

    The first method requires the EMI to segregate funds received in exchange for e-money (relevant funds) from any other funds it holds including its working capital and funds received for other business activities for example, foreign exchange transactions. Relevant funds must be held separately from funds received for the execution of payment transactions not related to issuing e-money. This requirement applies as soon as funds are held by the EMI and includes money received on its behalf by agents or distributors.

    If relevant funds are still held at the end of the business day following the day the EMI received them, the EMI must:

  • deposit the relevant funds in a separate account it holds with an authorised credit institution; or
  • invest the relevant funds in secure and low risk assets that are approved by the FCA as liquid and place those assets in a separate account with an authorised custodian
  • Regulation 21(6) (a) of the EMRs defines the assets that are considered to be secure and low risk for these purposes. The FCA does not consider that all of the assets described in regulation 21(6) (a) meet the third criterion of ‘liquid’. The FCA has approved the assets referred to below as liquid. On this basis, assets are secure, low risk and liquid, and an EMI can invest in them and place them in a separate account with an authorised custodian in order to comply with the safeguarding requirement, if they are:

  • items that fall into one of the categories set out in Table 1 of point 14 of Annex 1 to Directive 2006/49/EC (on the capital adequacy of investment firms and credit institutions) for which the specific risk capital charge is no higher than 0%; or
  • units in an undertaking for collective investment in transferable securities (UCITS), which invests solely in the assets mentioned previously
  • The safeguarding account in which the relevant funds or equivalent assets are held must be named in a way that shows it is a safeguarding account (rather than an account used to hold money belonging to the EMI). It must be clear to any administrator that the funds are held for the purpose of safeguarding.

    The safeguarding account must not be used to hold any other funds or assets including safeguarding or segregation of funds from other services or the protection of funds received for foreign exchange deals. This means that, when EMIs are safeguarding funds received for both e-money and unrelated payment services, the money should not be held in the same account.

    The effect of having to hold a separate account where only the EMI may have any interest or right over the relevant funds or assets (except as provided by regulation 19 of the PSRs) is that EMIs cannot share safeguarding accounts. For example, a corporate group containing several EMIs cannot pool their respective relevant funds or assets in a single account. Each EMI must therefore have its own safeguarding account.

    The EMRs do not, however, prevent EMIs from holding more than one safeguarding account. If an account with an authorised credit institution is being used, it is important that the account is named in such a way that its purpose is clear, and that the EMI has an acknowledgement from the credit institution, or is otherwise able to demonstrate to the FCA's satisfaction that the bank has no rights (for example of set-off) over funds in that account.

    To ensure it is clear what funds have been segregated and in what way, EMIs must keep records of any:

  • relevant funds segregated;
  • relevant funds placed in an account with a credit institution; and
  • assets placed in a custody account
  • Safeguarding option 2 – the insurance or guarantee method

    The second safeguarding method is to arrange for the relevant funds to be covered by an insurance policy with an authorised insurer, or a guarantee from an authorised insurer or an authorised credit institution. EMIs also safeguarding funds received for payment transactions that are not related to issuing e-money may need a separate policy or guarantee to ensure both sets of funds are adequately covered. The policy or guarantee will have to cover all relevant funds, not just funds held overnight or longer.

    The proceeds of the insurance policy or guarantee must be payable in an insolvency event (as defined in regulation 24 of the EMRs and regulation 19 of the PSRs) into a separate account held by the EMI. That account must be named in a way that shows it is a safeguarding account (rather than an account used to hold money belonging to the EMI). The account must not be used for holding any other funds, and no-one other than the EMI  may have an interest in or right over the funds in it (except as provided for by regulation 24 of the EMRs and regulation 19 of the PSRs).

    Neither the authorised credit institution nor the authorised insurer can be part of the group to which the EMI belongs.

    The requirement to registration under MLR

    Firms applying to be an EMI need to be registered with the FCA under the Money Laundering Regulations 2007 (MLR).

    The FCA is responsible for monitoring EMIs’ compliance with their legal obligations under the EMRs, the Money Laundering Regulations 2007 and the Counter-Terrorism Act 2008.

    Governance arrangements and risk management controls

    Applicants are required to provide descriptions of the governance arrangements and risk management procedures they will use when issuing e-money and providing payment services.

    Governance arrangements

    Governance arrangements are the procedures used in the decision-making and control of the business that provide its structure, direction and accountability.

    The description of the governance arrangements must include a clear organisational structure with well-defined, transparent and consistent lines of responsibility (regulation 13(6)(a)). If applicable, this should cover the unrelated payment services business as well as the e-money business. The FCA would also expect to receive information on:

  • decision-making procedures;
  • reporting lines;
  • internal reporting and communication processes;
  • the arrangements for regular monitoring of internal controls and procedures; and
  • measures that would be taken to address any deficiencies
  • Risk management

    The description of the risk management procedures provided in the application should show how the business will effectively identify, manage, monitor and report any risks to which the applicant might be exposed (regulation 13(6)(b)). Such risks may include risks in relation to both the e-money business and any payment services business:

  • settlement risk (settlement of a payment transaction does not take place as expected);
  • operational risk (loss from inadequate or failed internal processes, people or systems);
  • counterparty risk (that the other party to a transaction does not fulfil its obligations);
  • liquidity risk (inadequate cash flow to meet financial obligations);
  • market risk (risk resulting from the behaviour of the entire market);
  • financial crime risk (the risk that the EMI or its services might be used for a purpose connected with financial crime); and
  • foreign exchange risk (fluctuation in exchange rates)
  • Depending on the nature and scale of the business and any payment services being provided, it may be appropriate for the small EMI to operate an independent risk management function. Where this is not appropriate, the small EMI should nevertheless be able to demonstrate that the risk management policies and procedures it will adopt are effective.

    Money laundering controls

    All EMIs must comply with legal requirements to deter and detect financial crime, which includes money laundering and terrorist financing. Applicants for registration are required to provide a description of the internal control mechanisms that they will establish in order to comply with the Money Laundering Regulations 2007 and the EC wire transfer regulation on information on the payer accompanying transfers of funds (regulation 12(1) of the EMRs).

    In particular, the FCA expects information on the risk-sensitive policies, procedures and internal controls related to:

  • customer due diligence checks;
  • the ongoing monitoring of business relationships;
  • the reporting of suspicions, both within the business and to the Serious Organised Crime Agency;
  • assessment of money laundering risks and the application of enhanced measures in higher risk situations;
  • record-keeping;
  • monitoring compliance with procedures;
  • internal communication of policies and procedures; and
  • staff awareness and training on money laundering matters
  • Qualifying holdings

    Applicants must identify those persons that have a qualifying holding (a ‘controller’) in the applicant. Although the Authority will not assess the fitness and propriety of these persons as part of the applicant’s registration, the FCA needs information about the identity of the person(s) as well as the size and nature of the qualifying holding(s) for their ongoing monitoring of the small EMI. Small EMIs should be aware that the same ongoing requirements relating to ‘changes in control’ apply in respect of them as apply in relation to authorised EMIs.

    A qualifying holding is defined in the EMRs by reference to Article 4(11) of the Banking Directive (BD). The definition in the BD is a: ‘direct or indirect holding in an undertaking that represents 10% or more of the capital or of the voting rights or that makes it possible to exercise a significant influence over the management of that undertaking’.

    In relation to an EMI, a person with a qualifying holding is, broadly, an individual or business that does one of the following:

  • holds 10% or more of the shares in or capital of the applicant business (or 10% or more of shares in / capital of a parent);
  • has a shareholding of any size in the applicant business or a parent and is able to exercise significant influence over the management of the applicant business;
  • is entitled to control or exercise control of 10% or more of the voting power in the applicant business (or 10% or more of the voting power in a parent); or
  • is able to exercise significant influence over the management of the applicant business through their voting power in it or a parent
  • Requirements to directors and management team

    Under regulation 13(7)(a), the Authority must be satisfied that the applicant’s directors and (where different) those persons who are or will be responsible for the management of the e-money business or payment services business carried on by the small EMI are of good repute and possess appropriate knowledge and experience.

    This incorporates two elements:

  • Firstly identification by the applicant of those with responsibility for the e-money business and payment service business. All such individuals must be included in the application (such an individual is referred to as an ‘EMD Individual’);
  • Secondly the applicant, together with the EMD Individual, must provide full and complete information about all EMD Individuals in order to satisfy the Authority as to the reputation, knowledge and experience of these individuals
  • The Authority expects to be provided with the following information:

  • the identity of all members of the management board (for example, the directors (if the applicant is a company) or the members (if the applicant is an LLP));
  • the identity of all persons responsible for the management of the e-money business or payment services business where other individuals perform these activities in addition to the directors / members; and
  • evidence that these individuals are of good repute (in order to satisfy the fitness and propriety test)
  • In the case of an applicant that only issues e-money and provides payment services, this will mean the applicant is likely to be required to complete the relevant EMD Individual forms for each and every senior manager of the applicant. In the case of a hybrid small EMI that carries on business activities other than e-money issuance or payment services, the applicant only has to provide the information set out above in relation to persons responsible for the management of its e-money business or payment services business.

    Where the applicant is a company, it is likely that all the directors will be EMD Individuals.

    The Authority asks the applicant to confirm on the application form that none of the individuals responsible for the management of the small EMI has been convicted, including spent convictions, of offences listed in the ‘Conditions for Registration’ section above. This includes offences involving fraud or dishonesty, offences under FSMA or under the EMRs or PSRs, and includes acts or omissions that would be an offence if they took place in the UK.

    Requirements to company

    The applicant must be a body corporate (for example, a limited company or LLP) and have its head office situated in the UK.

    The key issue in identifying the head office is the location of its central management and control, that is, the location of:

  • the directors and other senior management, who make decisions relating to the business’s central direction, and the material management decisions on a day-to-day basis; and
  • the central administrative functions (for example, central compliance, internal audit)
  • For the purpose of regulation 13(9) a ‘virtual office’ in the UK does not satisfy this condition.

    Requirements to IT systems

    As small EMIs are inherently reliant on IT systems to ensure they operate soundly, the Authority intends to assess IT systems during the approval process. Applicants must satisfy the Authority that their overall IT strategy is proportionate to the nature, scale and complexity of the business and is sufficiently robust to facilitate, on an ongoing basis, their compliance with the conditions of registration.

    The application processing terms and decision rendering

    Having assessed all the information provided, the Authority will make a decision to either approve or reject the application for authorisation or registration. The applicant will be notified of the decision, along with instructions for the appeal process, if relevant.

    The Authority has to make a decision on a complete application within three months of receiving it.

    In the case of an incomplete application, the FCA must make a decision within 12 months of receipt. If discussions with the applicant have not resulted in the FCA receiving all the information they need to make a decision, it is likely that an incomplete application will result in a refusal.

    If the Authority decides to grant an application they will give the applicant notice of that decision, including, for authorised EMIs that wish to provide unrelated payment services, a direction on which capital calculation method they must use.

    The EMRs allow the Authority to include in the authorisation / registration a requirement for the EMI to take a specified action or refrain from taking specified action (for example, not to deal with a particular category of customer). The requirement may be imposed by reference to the person’s relationship with its group or members of its group. The Authority may also specify the time that a requirement expires (regulations 7 and 15).

    The FCA will update the online e-money section of its Register as soon as practicable after granting the authorisation or registration. It will show the contact details of the EMI, the activity of issuing e-money and the payment services it is permitted to undertake, and the names of any agents. It will also show if an authorised EMI has taken up passporting rights to issue e-money and provide payment services in another EEA state.

    License issue refusal / registration and the competent authority decision appeal

    The FCA can refuse an application when the information and evidence provided does not satisfy the requirements of the EMRs. When this happens the Authority is required to give the applicant a warning notice setting out the reason for refusing the application and allowing 28 days to make a representation on the decision.

    Applicants can make oral or written representations. If the applicant chooses to make an oral representation, the Authority should be notified within two weeks of the warning notice, so that arrangements can be made for a meeting within the 28-day deadline.

    If no representations are made or, following them, the application is still refused, the Authority will give the applicant a decision notice. If an EMI wishes to contest the decision, they may refer the matter to the Upper Tribunal (the Tribunal), an independent judicial body. If no referral has been made within 28 days the FCA will issue a final notice. If the matter is referred to the Tribunal, the Authority will take action in accordance with any directions given by it (including to authorise / register the EMI) and then issue the final notice.

    EMIs use of European passporting

    Passporting is the exercise of the right of an authorised firm to conduct activities and services regulated under EU legislation in another EEA state on the basis of authorisation in its home state. The activities can be conducted through an establishment in the host state (using its right of establishment) or on a cross-border services basis without using an establishment in the host state (a ‘services’ passport). A branch established in another EEA state by a UK-authorised EMI is referred to as an ‘EEA branch’. Regulation 28 sets out the procedure for the exercise of passporting rights.

    Passporting rights under 2EMD are available only to authorised EMIs (except authorised EMIs whose head office is situated outside the EEA). Passporting rights are not available to small EMIs.

    A UK-authorised EMI can provide payment services in another EEA state through an agent established in the UK or an agent established in another EEA state, subject to the requirements in the EMRs. A UK-authorised EMI may also engage an agent or a distributor to distribute or redeem e-money in another EEA state in the exercise of its passport rights. An EMI may not, however, issue e-money through a distributor or an agent.

    Where an authorised electronic money institution intends to exercise its passport rights for the first time in a particular EEA state it must give the Authority notice of its intention to do so (“notice of intention”) which:

  • identifies the electronic money issuance, redemption, distribution or payment services which it seeks to carry on in exercise of those rights in that State;
  • gives the names of those responsible for the management of a proposed EEA branch, if any;
  • provides details of the organisational structure of a proposed EEA branch, if any; and
  • identifies the distributors, if any, whom the institution intends to engage to distribute or redeem electronic money in exercise of its passport rights in that State
  • The Authority must, within one month beginning with the date on which it receives a notice of intention, inform the host state competent authority of:

  • the name and address of the authorised electronic money institution; and
  • the information contained in the notice
  • Service passports

    Where an authorised EMI has applied for a services passport that it will be using directly or through an EEA agent or distributor located in the host state, the Authority will let it know once the host state competent authority has been notified and update the e-money section of the Register to show the details of the passport.

    Establishment passports

    Where an authorised EMI seeks to establish a branch, or provide services through an EEA agent or distributor (exercising its right of establishment) the FCA will assess the fitness and propriety of the individuals responsible for the management of the branch, EEA agent or distributor before making the notification to the host state competent authority.

    If the assessment is satisfactory, the Authority will notify the relevant host state competent authority.

    If the Authority, taking into account any information received from the host competent authority, has reasonable grounds to suspect that, in connection with the establishment of an EEA branch by an authorised electronic money institution:

  • money laundering or terrorist financing within the meaning of the money laundering directive is taking place, has taken place, or has been attempted; or
  • the risk of such activities taking place would be increased, the Authority may refuse to register the EEA branch, or cancel any such registration already made and remove the branch from the register.
  • If the Authority proposes to refuse to register, or cancel the registration of, an EEA branch, it must give the relevant authorised electronic money institution a warning notice.

    The Authority must, having considered any representations made in response to the warning notice:

  • if it decides not to register the branch, or to cancel its registration, give the authorised electronic money institution a decision notice; or
  • if it decides to register the branch, or not to cancel its registration, give the authorised electronic money institution notice of its decision
  • If the Authority decides not to register the branch, or to cancel its registration, the authorised electronic money institution may refer the matter to the Upper Tribunal.

    Agents and distributors

    Differentiating agents and distributors

    Regulation 33 provides that an EMI may distribute or redeem e-money through an agent or a distributor. EMIs may not issue e-money through an agent or distributor. Agents must, under regulation 34, be included on the Register, but there is no requirement to register distributors.

    The EMRs define an “agent” as a person who provides payment services on behalf of an electronic money institution. EMIs may engage agents to provide payment services both related and unrelated to issuing e-money. EMIs may also distribute or redeem e-money through agents.

    Under the EMRs a “distributor” means a person who distributes or redeems electronic money on behalf of an electronic money institution but who does not provide payment services on its behalf. A person who simply loads or redeems e-money on behalf of an EMI would, in principle, be considered by the FCA to be a distributor.

    An authorised EMI may engage an agent (established in either the UK or the host state subject to additional notification requirements) or a distributor to distribute or redeem electronic money in the exercise of its passport rights.

    Applying to register an agent

    The application form for registering agents, Add EMD agent, is available in the relevant Application Forms section of this document and on the e-money section of the FCA's website.

    In general, the information required for the registration of an agent is:

  • the name and address of the agent;
  • a description of the anti-money laundering internal control mechanisms; and
  • if applicable, the identity of the directors and persons responsible for the management of the agent and evidence that they are fit and proper persons
  • The factors that EMIs are expected to include in their internal controls with agents are the same as those described in the relevant money laundering controls section above.

    Where agents are based in another EEA state, authorised EMIs must ensure agents’ anti-money laundering systems and controls comply with any applicable local legislation and regulation which implements the Third Money Laundering Directive.

    The EMI should take reasonable measures to satisfy itself that the agents’ anti-money laundering internal controls mechanisms remain appropriate throughout the agency relationship.

    Regulation 34(3)(a)(iii) requires that the application must also provide:

  • the identity of the directors and persons responsible for the management of the agent; and
  • evidence that they are fit and proper persons
  • EMI should carry out its own fitness and propriety checks on its agents, on the basis of a ‘due diligence’ enquiry. The FCA asks that this is certified on the form for each person and any adverse information is disclosed.

    As with the assessment of EMD Individuals, the Authority expects the EMI to consider the same factors when making a fit and proper assessment of the directors and persons responsible for the management of the agent:

  • honesty, integrity and reputation;
  • competence and capability; and
  • financial soundness
  • Once an application has been submitted, both before the application has been determined and on an ongoing basis, the duty to notify significant changes in circumstances relevant to the fitness and propriety of an agent’s management or to matters relating to money laundering or terrorist financing applies. EMIs must notify the Authority of such changes without undue delay (regulation 37(1)(c)).

    Decision-making

    The FCA is required to make a decision on registering an agent within a reasonable period from the date on which they receive the information required to make the application complete. The Authority will aim to process the majority of UK applications within ten days provided the application is complete. However, where an agent application forms part of the EMI’s application for authorisation or registration, it will be determined in accordance with the timetable for that application.

    Approval

    Where the Authority decides to approve the agent application it will update the e-money section of the Register, usually the next business day. The Authority will not acknowledge successful agent applications as doing so would add unnecessary costs to the process given the large volume of agents and high turnover. EMIs should check the e-money section of our Register to ensure that the agent has been registered.

    EMIs cannot provide payment services through an agent until that agent is included on the e-money section of the Register.

    Refusal

    The Authority may refuse to include the agent on the register only if:

  • it has not received all the information required in the application, or is not satisfied that such information is correct;
  • it is not satisfied that the directors and persons responsible for the management of the agent are fit and proper persons;
  • it has reasonable grounds to suspect that, in connection with the provision of services through the agent:
  • money laundering or terrorist financing within the meaning of the money laundering directive (or, in the United Kingdom, the Money Laundering Regulations 2007) is taking place, has taken place, or has been attempted; or
  • the risk of such activities taking place would be increased
  • The refusal process for agents is the same as for authorisation and registration.

    The payment organization`s separate functions transfer to the external contractors

    An authorised electronic money institution must notify the Authority of its intention to enter into a contract with another person under which that person will carry out any operational function relating to the issuance, distribution or redemption of electronic money or the provision of payment services (“outsourcing”).

    Where the institution intends to outsource any important operational function, all of the following conditions must be met:

  • the outsourcing is not undertaken in such a way as to impair:
  • the quality of the institution’s internal control; or
  • the ability of the Authority to monitor the authorised electronic money institution’s compliance with these Regulations or the Payment Services Regulations 2009;
  • the outsourcing does not result in any delegation by the senior management of the institution of responsibility for complying with the requirements imposed by or under the EMRs or the Payment Services Regulations 2009;
  • the relationship and obligations of the institution towards its electronic money holders under the EMRs or the Payment Services Regulations 2009 is not substantially altered;
  • compliance with the conditions which the institution must observe in order to become an authorised electronic money institution and remain so is not adversely affected; and
  • none of the conditions of the institution’s authorisation requires removal or variation
  • An operational function is important if a defect or failure in its performance would materially impair:

  • compliance by the institution with the EMRs or the Payment Services Regulations 2009 and any requirement of its authorisation under the EMRs;
  • the financial performance of the institution; or
  • the soundness or continuity of the institution’s electronic money issuance or provision of payment services
  • Accounting and statutory audit

    An electronic money institution which carries on activities other than the issuance of electronic money and the provision of payment services must provide to the Authority separate accounting information in respect of its issuance of electronic money and provision of payment services.

    Such accounting information must be subject, where relevant, to an auditor’s report prepared by the institution’s statutory auditors or an audit firm (within the meaning of Directive 2006/43/EC)

    Application of accounting standards

    An electronic money institution must recognise the asset, liability, equity or income statement item and measure its value in accordance with whichever of the following are applicable for the purpose of the institution’s external financial reporting:

  • Financial Reporting Standards and Statements of Standard Accounting Practice issued or adopted by the Accounting Standards Board;
  • Statements of Recommended Practice, issued by industry or sectoral bodies recognised for this purpose by the Accounting Standards Board;
  • International Financial Reporting Standards and International Accounting Standards issued or adopted by the International Accounting Standards Board;
  • International Standards on Auditing (United Kingdom and Ireland) issued by the Auditing Practices Board; and
  • the Companies Act 2006
  • The requirement to the accounting documents storage

    Electronic money institutions must maintain relevant records and keep them for at least five years from the date on which the record was created.

    Records are relevant where they relate to the institution’s compliance with Part 3 of the EMRs and, in particular, would enable the Authority to supervise effectively such compliance.

    Reporting requirements

    The FCA uses reporting as a tool to monitor compliance with the requirements for authorisation / registration, initial and ongoing capital and safeguarding by analysing the reports that both authorised EMIs and small EMIs are required to provide.

    All EMIs are required to submit reports providing information to help the Authority understand the risks posed by their business activities. In addition to requiring certain financial information, the Authority requires confirmation of an EMI’s safeguarding arrangements and the number of open accounts and agents.

    All reports are required within 30 business days of the EMI’s year end or half year end, with the first report due within one month of the first year end or half year end that occurs on or after 30 April 2011.

    The FCA is responsible for monitoring EMIs’ compliance with their legal obligations under the EMRs, the Money Laundering Regulations 2007 and the Counter-Terrorism Act 2008. EMIs should be prepared to provide the Authority with information about the operation and effectiveness of their anti-money laundering and counter-terrorist financing policies and procedures. This is likely to be based on the information EMIs have to provide to senior management under regulation 20(5A)(d) of the Money Laundering Regulations 2007.

    A summary of the reporting requirements for authorised EMIs

    Reporting return

    Required information / purpose

    Frequency

    FSA059

    Balance sheet

    Twice yearly within 30 business days of the authorised EMI’s year end and half-year end.

    FSA060

    Income statement

    FSA061

    Capital requirements

    Confirmation that the capital requirement is appropriately calculated and the requirement is being met.

    Authorised EMIs providing unrelated payment services in addition to issuing e-money are subject to two cumulative ‘electronic money’ and payment service’ own funds requirements. The payment service element to the requirement is calculated by the authorised EMI using one of three methods, A, B or C (paragraphs 20-22 of Part 2 of Schedule 2 to the EMRs).

    The authorised EMI must provide a breakdown of its capital resources that shows where it is in surplus or deficit.

    FSA062

    Safeguarding

    Information is required on how the authorised EMI safeguards its clients’ funds with respect to e-money and unrelated payment services by selecting from the following options:

  • placed in a separate account with an authorised credit institution;
  • invested in approved secure, low-risk and liquid assets held in a separate account with an authorised custodian;
  • covered by an insurance policy with an authorised insurer;
  • covered by a guarantee from an authorised insurer; or
  • covered by a guarantee from an authorised credit institution
  • For each option selected, the authorised EMI will also be asked to provide the name of the institution, custodian or insurer.

    FSA063

    Supplementary information

    The authorised EMI is asked whether, for the reporting period, it has:

  • met its own funds requirement; and
  • immediately segregated and then safeguarded all funds received from customers throughout the reporting period
  • If either or both of the above requirements are not met, the authorised EMI will be required to provide an explanation.

    The authorised EMI is also required to confirm, as at the reporting end date:

  • its number of agents – to enable the Authority to verify the information provided for the e-money section of the Register; and
  • the number of accounts it has open
  • If the number of agents does not match the number of agents appearing on the FCA's Register, the Authority may ask the authorised EMI for an explanation.

    To enable the Authority to check that the firm is meeting the requirements to provide accounting and audit information under regulation 25, the return also asks whether the authorised EMI:

  • is required to have its accounts audited, and if it is, when this was last done; and
  • is a hybrid business, conducting other non-regulated business with an obligation to submit separate accounts for its e-money and payment services business
  • Annual report and accounts

    Within 80 business days of year end

    A summary of the reporting requirements for small EMIs

    Reporting return

    Information required/purpose

    Frequency

    FSA064

    Capital requirements

    The small EMI is required to provide figures that demonstrate how it meets its capital requirements. It must then provide a breakdown of its capital resources that shows where it is in surplus or deficit.

    Safeguarding

    Information is required on how the small EMI safeguards its clients’ funds with respect to e-money and unrelated payment services (if it has opted to safeguard the funds received for unrelated payment services) by selecting from the following options:

  • placed in a separate account with an authorised credit institution;
  • invested in approved secure, low-risk and liquid assets held in a separate account with an authorised custodian;
  • covered by an insurance policy with an authorised insurer;
  • covered by a guarantee from an authorised insurer; or
  • covered by a guarantee from an authorised credit institution
  • For each option selected the small EMI will also be asked to provide the name of the institution, custodian or insurer.

    Supplementary information

    Confirmation of whether, for the reporting period, it has:

  • not exceeded the limit of €5m of average outstanding e-money;
  • not exceeded a rolling monthly average of €3m for the total amount of any unrelated payment transactions (over any period of 12 months);
  • met its own funds requirement (if applicable); and
  • immediately segregated and then safeguarded all funds received for e-money and unrelated payment services (if it has opted to safeguard funds received for unrelated payment services) from customers throughout the reporting period
  • If any of the above requirements are not met, the small EMI will be required to provide an explanation.

    The small EMI will also be required to confirm, as at the reporting end date:

  • its number of agents – to enable the Authority to verify the information provided for the e-money section of the Register; and
  • the number of accounts it is has open
  • If the number of agents does not match the number of agents appearing on the Register, the Authority may ask the small EMI for an explanation.

    To enable the Authority to check that the small EMI is meeting the requirements to provide accounting and audit information under regulation 25, the return also asks whether it:

  • is required to have its accounts audited, and if it is, when this was last done; and
  • is a hybrid business, conducting other non-regulated business with an obligation to submit separate accounts for its e-money and payment services business
  • Twice yearly within 30 business days of the small EMI’s year end and half year end.

    FSA065

    Total amount of outstanding e-money issued at 31 December.

    This information is required for the FCA to meet its obligations in providing information to the Treasury

    Annual report covering 1 January to 31 December. To be submitted by the end of the following January

    Annual report and accounts

    Within 80 business days of year end

    The Authority requires annual reports detailing controllers and close links within four months of the authorised EMI’s year end.

    The returns must be completed electronically in Microsoft Excel and emailed to the Authority

    EMIs will be responsible for ensuring that they meet reporting deadlines. The receipt of each return will be acknowledged by email or letter.

    EMIs failing to meet the reporting deadlines will be reminded to do so and be subject to an administrative charge of £250.

    The obligation to provide the competent authority with notifications of changes

    EMIs must provide the Authority with notifications of changes in any information they have already provided.

    There are specific notification requirements in relation to an EMI’s agents, in respect of payment services provided (for both authorised EMIs and small EMIs), and passporting (authorised EMIs only).

    The EMRs contain requirements in relation to notifications of specific changes in circumstances, as well as a general requirement in regulation 37.

    The general requirement is that an EMI must provide the Authority with details without undue delay where it becomes apparent that there is, or is likely to be, a significant change in circumstances that is relevant to the matters listed below. The Authority would generally consider ‘without undue delay’ to mean within 28 days of the change occurring at the latest.

    Notifications applicable to all EMIs

    Changes in the following information will require a notification to the Authority:

  • Name, contact details and standing data (including business name and contact details)
  • Changes to the types of e-money issued or payment services provided
  • Application for variation of authorisation or registration (applicants should complete and submit the Variation of EMRs Authorisation/ Registration form, which is available on the e-money section of the FCA's website.)
  • Cancellation of authorisation / registration (by using the Cancellation of Authorisation or Registration form available on the e-money section of the FCA's website.)
  • Change in legal status (for example, LLP to limited company) by using the Change of Legal Status form available on the e-money section of the FCA's website. This will mean that the authorisation / registration will have to be cancelled and the business will have to apply for authorisation / registration as the new legal entity
  • Appointment / removal of directors and persons responsible for the management of the issuing of e-money and any payment services
  • Changes affecting the fitness and propriety of individuals
  • Acquisitions of, or increases in, control
  • Significant changes to the programme of operations or business plan
  • Changes in method of safeguarding
  • Change to the money laundering reporting officer
  • Authorised EMI:
  • Its fulfilment of the conditions for authorisation (including any significant change that is relevant to the items of information set out in Schedule 1 to the EMRs) or the requirement to maintain own funds
  • The issuance, distribution or redemption of e-money or the payment services it provides in exercise of passport rights.
  • Small EMI:
  • Its fulfilment of the conditions for registration (including the information a small EMI must provide under regulation 12).
  • Use of an agent to provide payment services:
  • The matters referred to in regulation 34(6)(b) - reasonable grounds to suspect money laundering or terrorist financing is taking place, has taken place, or has been attempted through the agent - and (c) - fit and proper requirement for directors and persons responsible for the management of the agent
  • Government fees

    This section summarises the structure for levying fees from electronic money issuers to recover set-up and ongoing costs of the Authority in meeting its regulatory responsibilities under the EMRs.

    Application fees

    Applicants for authorisation or registration are charged fees to cover the FCA's expenses in dealing with their applications.

    The rates are as follows:

  • Registration as a small EMI - £1,000
  • Authorisation as an authorised EMI - £5,000
  • There is an additional charge of £3 per agent levied on authorised EMIs.

    Periodic fees

    All electronic money issuers are charged annual periodic fees to recover the costs of supervision and the set-up costs of establishing the processes and systems to support the regime. The FCA structures its fees by allocating its costs to fee blocks, which are defined on the basis of the permitted regulatory activities undertaken by firms.

    There are two fee blocks for electronic money issuers:

  • Fee block G.10 - all electronic money issuers except small EMIs
  • Fee block G.11 - small EMIs
  • There are two fee-bands for fee block G.10:

  • a minimum fee of £1,500 per year for the first £5m of e-money liabilities. This is because the fee block includes firms that fall below the threshold for small EMIs because they wish to passport out of the UK, but regulatory engagement with them is greater than with similar-sized electronic money issuers in fee block G.11; and
  • for liabilities beyond £5m, the FCA uses a variable rate per £m or part-£m in addition to the minimum fee of £1,500. The FCA consults on the rates at the beginning of each year and notifies EMIs of the finalised rates in its consolidated Policy Statement in June
  • Small EMIs pay a flat rate of £1,000 in fee block G.11.

    Payment services

    EMIs automatically receive permission to provide the payment services related to issuing e-money but only pay fees in fee block G.10 or G.11 as electronic money issuers.

    EMIs that provide unrelated payment services have to notify the Authority. The FCA does not charge them an application fee, but they are subject to the periodic fees applicable to authorised payment institutions or small payment institutions.

    Notification of agents

    The FCA charges £3 per notification of any changes relating to agents after the authorised EMI has been authorised. The notification fee is charged annually in arrears, but only if the total number of notifications in any one year is more than 100.

    Applications part-way through a financial year

    When a firm or business becomes newly authorised or registered during a fee-period, a discount is applied to reflect how much of the financial year remains. The same model is applied to electronic money issuers, as set out below:

    Proportion of full-year periodic fee payable for firms registered or authorised during the financial year

    Quarter in which firm is registered or authorised

    Proportion of full-year fee payable

    1 April to 30 June inclusive

    100%

    1 July to 30 September inclusive

    75%

    1 October to 31 December inclusive

    50%

    1 January to 31 March inclusive

    25%

    The Money Advice Service

    The Money Advice Service was set up under the Financial Services Act 2010 to enhance:

  • the understanding and knowledge of members of the public of financial matters (including the UK financial system); and
  • the ability of members of the public to manage their own financial affairs
  • The Money Advice Service is funded by an allocation from the levy that the FCA collects from the financial services firms that it regulates.

    The Money Advice Service levy for EMIs mirrors the FCA's fees structure and is applied to the current tariff bands. EMIs with average outstanding e-money of up to £5m will pay the minimum Money Advice Service levy, which is currently £10, and a variable rate beyond that. Small EMIs pay the minimum Money Advice Service levy of £10.

    The ombudsman service fees

    The ombudsman service is a statutory, informal dispute-resolution service, established under FSMA and operationally independent of the FCA. It operates as an alternative to the civil courts. Its role is to resolve disputes between individuals, micro-enterprises, small charities and trusts, and financial services firms quickly, without taking sides and with minimum formality, on the basis of what is fair and reasonable in the circumstances of each case.

    Jurisdiction of the ombudsman service:

  • The compulsory jurisdiction covers all firms, payment service providers and electronic money issuers with UK establishments
  • The consumer credit jurisdiction covers businesses (other than those covered by the compulsory jurisdiction) licensed by the OFT under the Consumer Credit Act 2006
  • The voluntary jurisdiction extends to financial services businesses that are not covered by the compulsory jurisdiction or the consumer credit jurisdiction, but choose to join the voluntary jurisdiction – for example, firms providing services in the UK from overseas
  • All electronic money issuers are covered by the compulsory jurisdiction of the ombudsman service for disputes concerning issuing and redeeming e-money and the related payment services. Electronic money issuers that provide unrelated payment services will also be in the compulsory jurisdiction for disputes concerning the provision of payment services.

    The ombudsman service charges an annual general levy to firms / businesses in its compulsory jurisdiction, which the FCA collects on its behalf.

    For all fee-paying electronic money issuers (except for small electronic money institutions) the fee is based on average outstanding electronic money:

  • £0.0016 per £1,000 of average outstanding electronic money subject to a minimum levy of £75
  • Small EMIs are charged a flat fee of £50

    EMIs are charged separately for unrelated payment services (except for small electronic money institutions) at the rate of £0.0007 per £1,000 of relevant income subject to a minimum levy of £75.

    Small electronic money institutions are charged a flat fee of £35

    The ombudsman service also charges a case fee for the fourth and any further cases that are referred to it. The case fee is currently £500.

    For more information on applicable fees, see the FCA’sFees Manual.

    List of Advisers on Compliance with the Requirements of Regulatory Bodies

    You should consider early on whether, given the nature of the proposed business and your own experience, it is appropriate to seek professional advice with your application. For example, you may need to seek advice from lawyers, auditors or consultants.

    If you do ask a professional person to fill in the application form on your behalf, the FCA still expects you to remain closely and actively involved in the application and hold you (not the professional adviser) responsible for the accuracy of, and any omission of, information in the form.

    The Authority will address all correspondence to you, copying in the professional adviser if requested to. The Authority will need to receive all responses directly from you.

    Please note:

  • Compliance and controls are always your and your firm's responsibility.
  • Your firm must have appropriate processes and controls in place.
  • You can't delegate the responsibility for compliance to another party, but you can get help to ensure your controls are appropriate.
  • Compliance consultants may provide useful services for your firm. However, the FCA does not require you to use a consultant and many firms are happy to manage their own compliance with help from the FCA website.

    However, you must have a framework for:

  • assessing and covering the risks to your business
  • meeting regulatory requirements
  • checking your firm continues to be compliant
  • A list of compliance consultants produced by searching Google is shown below. It is by no means exhaustive:

  • www.keystonelaw.co.uk/sectors/financial-services/
  • www.scottrobert.co.uk
  • www.complyport.com
  • www.cordium.com
  • www.citycapital.uk.com
  • www.theconsultingconsortium.com
  • www.gemcompliance.com
  • http://pragmaticcompliance.co.uk
  • http://concordo.co.uk/index.html
  • www.compliancy-services.co.uk
  • http://rwagroup.co.uk/
  • Alternatively, you can search the directory of the Association of Professional Compliance Consultants for members who advise firms regulated by the Financial Conduct Authority and the Prudential Regulatory Authority in the UK:http://www.apcc.org.uk/the-directory

    Company’s Registration

    Choosing the Legal Structure

    The legislation governing the incorporation of companies in the UK is the Companies Act 2006. The UK government agency responsible for the incorporation and registration of companies is the Registrar of Companies (Companies House).

    A UK company must be registered at the Companies House as part of the process of incorporation.

    There are several different forms of legal structure in the UK. The main types of business are:

  • sole trader
  • limited company
  • limited by shares
  • limited by guarantee
  • public limited company
  • business partnership
  • The Financial Conduct Authority (FCA) considers applications for authorisation for the provision of payment services by legal entities registered in one of the following legal forms:

  • Limited company
  • Limited liability partnership
  • Limited partnership
  • Applications are considered for registration as a small payment institution from persons registered in one of the following legal forms:

  • Sole trader
  • Partnership
  • Unincorporated association (not a limited partnership)
  • Company with one director
  • Company with more than one director
  • Limited liability partnership
  • Limited partnership
  • The most popular type of business of the payment institution is a limited liability company. Therefore, hereinafter we will consider only this type of business.

    Limited Company

    A limited company is an organisation that can be set up to run a payment service. It’s responsible in its own right for everything it does and its finances are separate to personal finances of its shareholders.

    Any profit it makes is owned by the company, after it pays Corporation Tax. The company can then share its profits.

    Every limited company has ‘members’ - the people or organisations who own shares in the company. Directors are responsible for running the company. Directors often own shares, but they don’t have to.

    Types of Limited Company

    Private Company Limited by Shares

    Most limited companies are ‘limited by shares’. This means that the shareholders’ responsibilities for the company’s financial liabilities are limited to the value of shares that they own but haven’t paid for.

    Company directors aren’t personally responsible for debts the business can’t pay if it goes wrong, as long as they haven’t broken the law.

    Private Company Limited by Guarantee

    A private company limited by guarantee means the members of the company financially back it up to an agreed amount. Its members aren’t called shareholders.

    Public Limited Company

    The company’s shares are traded publicly on a market, such as the London Stock Exchange.

    Procedure of Registration and Filing

    All limited companies must be registered (‘incorporated’) with Companies House. To do this you need:

  • a company name - there are rules on what it can and can’t include
  • an address for the company
  • at least one director
  • at least one shareholder
  • the agreement of all initial shareholders (‘subscribers’) to create the company - known as a ‘memorandum of association
  • details of the company’s shares and the rights attached to them - known as a ‘statement of capital
  • written rules about how the company is run - known as ‘articles of association
  • Once the company is registered you’ll get a ‘Certificate of Incorporation’. This confirms the company legally exists and shows the company number and date of formation.

    A company can be registered:

  • online - as long as the company is limited by shares and uses standard (known as ‘model’) articles of association
  • by post usingform IN01 andIN01 continuation pages sent to the address on the form
  • usingan agent
  • using third-party software, e.g. a software package from a Companies House (and HMRC) approved provider
  • Documents Required for Registration and Requirements thereto
  • Form IN01 and IN01 continuation pages
  • Memorandum of association
  • Articles of association
  • Statement of capital
  • Memorandum of Association

    When you register your company you must get the agreement of all the initial shareholders. For this purpose, you must make a ‘memorandum of association’ - a legal statement signed by all initial shareholders (known as ‘subscribers’) confirming they agree to form the company.

    The exact wording of the statement can’t be changed - usea memorandum of association template to make sure your document is valid.

    Articles of Association

    Your ‘articles of association’ are the written rules about running the company that shareholders and ‘officers’ (directors or company secretary) have to agree. They include rules about how to make decisions that affect the company and whether to involve shareholders in those decisions.

    Most companies use‘model’ articles. You can write your own articles but, if you do, you can’t register your company online.

    Statement of Capital

    When you register a company you will need to make a ‘statement of capital’. This includes:

  • the number of shares of each type the company has and their total value - known as the company’s ‘share capital’
  • the names and addresses of all shareholders - known as ‘subscribers’ or ‘members’
  • Your statement of capital also contains information about shares known as ‘prescribed particulars’.

    Your prescribed particulars say what rights each type (known as ‘class’) of share gives the shareholder, and must include:

  • what share of dividends they get
  • whether they can exchange (‘redeem’) their shares for money
  • whether they can vote on certain company matters
  • how many votes they get
  • Requirements to Director and Secretary

    Company Directors

    A company must have at least one director.

    A director must be 16 or over and not be disqualified from being a director. For details on directors of a payment institution, see relevant sections of the document above.

    Another company can be a director, but at least one of your company’s directors must be a person.

    A director is legally responsible for running the company and making sure company accounts and reports are done properly.

    Directors' Responsibilities

    The law says a director of a limited company must:

  • try to make the company a success, using skills, experience and judgment
  • follow the company’s rules, shown in its articles of association
  • make decisions for the benefit of the company, not yourself
  • tell other shareholders if you might personally benefit from a transaction the company makes
  • keep company records and report changes to Companies House and HM Revenue and Customs (HMRC)
  • make sure the company’s accounts are a ‘true and fair view’ of the business’ finances
  • register for Self-Assessment and send a personal Self-Assessment tax return every year
  • Directors’ names and addresses are publicly available from Companies House.

    Company Secretaries

    For a private limited company there is no need for a company secretary.

    Registered Office

    Your registered office address is where official communications will be sent, eg letters from Companies House and HM Revenue and Customs (HMRC).

    The address must be:

  • a physical address
  • in the same country that your company is registered in, e.g. a company registered in Scotland must have a registered address in Scotland
  • You can use a PO Box but must include a physical address and postcode after the PO Box number.

    You can use your home address or the address of the person who will manage your Corporation Tax if these addresses meet the rules above.

    The company address will be publicly available on the register.

    Periods for Registration and State Fees

    Online applications are usually registered within 24 hours and cost £15 (paid by debit or credit card or Paypal).

    Postal applications take 8 to 10 days and cost £40 (paid by cheque made out to ‘Companies House’).

    There’s a same day service costing £100. You must get your application to Companies House by 3pm. Your envelope (and any courier’s envelope) must be marked ‘same day service’ in the top left-hand corner.

    Registration with the Tax Authority

    You must give HM Revenue and Customs (HMRC) specific information about your company within 3 months of starting up in business. You may get a penalty if you don’t.

    You must tell HMRC:

  • the date you started in business
  • your company name and registered number
  • the main address where you do business from
  • what kind of business you do
  • the date you’ll make your annual accounts up to and
  • the name of your business’ parent company and the address of its registered office (if your business is part of a group)
  • HMRC will use this information to work out when your company must pay Corporation Tax.

    You can do thisonline once you’ve got your company’s Unique Taxpayer Reference (UTR).

    HMRC will send your company’s Unique Taxpayer Reference to your registered office address, usually within a few days of the company being registered (incorporated). The letter tells you how to:

  • give HMRC the information they need about your company
  • set up your company’s HMRC online account for Company Tax Returns and Corporation Tax
  • General Requirements to Accounting Records and Reporting

    Company and Accounting Records

    A company must keep:

  • records about the company itself
  • financial and accounting records
  • HM Revenue and Customs (HMRC) may check your records to make sure you’re paying the right amount of tax.

    Records about the Company

    A company must keep details of:

  • directors, shareholders and company secretaries
  • the results of any shareholder votes and resolutions
  • promises for the company to repay loans at a specific date in the future (‘debentures’) and who they must be paid back to
  • promises the company makes for payments if something goes wrong and it’s the company’s fault (‘indemnities’)
  • transactions when someone buys shares in the company
  • loans or mortgages secured against the company’s assets
  • You must tell Companies House if you keep the records somewhere other than the company’s registered office address.

    Accounting Records

    A company must keep accounting records that include:

  • all money received and spent by the company
  • details of assets owned by the company
  • debts the company owes or is owed
  • stock the company owns at the end of the financial year
  • the stocktakings you used to work out the stock figure
  • all goods bought and sold
  • who you bought and sold them to and from (unless you run a retail business)
  • You must also keep any other financial records, information and calculations you need to complete your Company Tax Return. This includes records of all money:

  • spent by the company, e.g. receipts, petty cash books, orders and delivery notes
  • received by the company, e.g. invoices, contracts, sales books and till rolls
  • You must also keep any other relevant documents, e.g. bank statements and correspondence.

    If you don’t keep accounting records, you can be fined £3,000 by HMRC or disqualified as a company director.

    You must normally keep records for at least 6 years from the end of the last company financial year they relate to.

    You may need to keep records longer if:

  • they show a transaction that covers more than one of the company’s accounting periods
  • the company has bought something that it expects to last more than 6 years, like equipment or machinery
  • you sent your Company Tax Return late
  • HMRC has started a compliance check into your Company Tax Return
  • Company Annual Return

    You must send Companies House a company annual return every year, within 28 days of the anniversary of the company’s incorporation.

    You can send the company annual returnonline. It costs £13 to send online.

    You can also fill in and send the company annual return on paper using formAR01 andAR01 continuation pages. It costs £40 if you want to send paper forms.

    If you miss the deadline, Companies House can close down your company or prosecute you. You could also be disqualified from being a company director.

    The company annual return must include details of:

  • the company’s registered office address
  • what type of business the company runs (e.g. retail, accountancy, catering)
  • the address where the company’s list of shareholders is kept
  • the type of limited company (e.g. limited by shares, limited by guarantee)
  • name and address of all company directors (and company secretary if you have one)
  • the number and value of shares issued by the company and who owns them
  • where details of ‘debentures’ (a type of loan the company has taken out with a promise to repay at a specific time in the future) are kept
  • Statutory Accounts

    At the end of its financial year, your limited company must prepare full (‘statutory’) annual accounts.

    This information is then used to:

  • send accounts to Companies House
  • pay Corporation Tax - or tell HM Revenue and Customs (HMRC) that your limited company doesn’t owe any
  • send a Company Tax Return to HMRC
  • Action

    Deadline

    File annual accounts with Companies House

    9 months after your company’s financial year ends

    Pay Corporation Tax

    9 months and 1 day after your company’s financial year ends

    File a Company Tax Return

    12 months after your company’s financial year ends

    These deadlines are for private limited companies.

    Statutory accounts are prepared from the company’s financial records at the end of your company’s financial year.

    You must always send copies of the statutory accounts to:

  • all shareholders
  • people who can go to the company’s general meetings
  • HM Revenue and Customs (HMRC) as part of your Company Tax Return
  • Companies House (unless you send ‘abbreviated’ accounts - see below)
  • Statutory accounts must include:

  • a ‘balance sheet’, which shows the value of everything the company owns and is owed on the last day of the financial year
  • a ‘profit and loss account’, which shows the company’s sales, running costs and the profit or loss it has made over the financial year
  • notes about the accounts
  • a director’s report
  • You might have to include an auditor’s report - this depends on the size of your company. Most small private limited companies don’t need an audit of their annual accounts - unless the company’s articles of association say it must or enough shareholders ask for one. However, some companies must have an audit even if they meet the rules for not having one, if at any time in the financial year it’s been:

  • a public company (unless it’s dormant)
  • a subsidiary company (unless it qualifies for an exception)
  • an authorised insurance company or carrying out insurance market activity
  • involved in banking or issuing e-money
  • a Markets in Financial Instruments Directive (MiFID) investment firm or an Undertakings for Collective Investment in Transferable Securities (UCITS) management company
  • a corporate body and its shares have been traded on a regulated market in a European state
  • A director must sign the balance sheet and their name must be printed on it.

    Accounting Standards

    Your statutory accounts must meet either:

  • International Financial Reporting Standards
  • UK Generally Accepted Accounting Practice
  • Small Companies and Micro-Entities

    Small Companies

    Your company will be ‘small’ if it has any 2 of the following:

  • a turnover of £6.5 million or less
  • £3.26 million or less on its balance sheet
  • 50 employees or less
  • If your company is small, you can send shorter (‘abbreviated’) accounts to Companies House. An abbreviated account is the balance sheet from your company’s statutory accounts, along with any notes.

    The balance sheet must have the name of a director printed on it and must be signed by a director.

    Sending an abbreviated account means less information about your company will be publicly available.

    If your company is small, you can also:

  • use the exemption so your company’s accounts don’t need to be audited
  • choose whether to send a copy of the director’s report or not
  • Micro-Entities

    Micro-entities are very small companies. Your company will be a micro-entity if it has any 2 of the following:

  • a turnover of £632,000 or less
  • £316,000 or less on its balance sheet
  • 10 employees or less
  • If your company is a micro-entity, you can:

  • prepare simpler accounts that meet statutory minimum requirements
  • send only your balance sheet with less information to Companies House
  • benefit from the same exemptions available to small companies
  • You must still send statutory accounts to your members and to HMRC as part of your Company Tax Return if you’re a small company or micro-entity.

    The type of account you prepare depends on the size of your company.

    Taxation

    The UK now has a very competitive tax regime. The tax authority in the UK is calledHM Revenue & Customs (HMRC).

    A UK resident company is subject to UK tax on its worldwide income, profits and gains whether or not those profits are brought into the UK.

    Corporation Tax

    A limited company must pay Corporation Tax on its taxable profits.

    Taxable profits include the money your company makes from:

  • doing business (‘trading profits’)
  • investments
  • selling assets for more than they cost (‘chargeable gains’)
  • If the company is based in the UK, it pays Corporation Tax on all its profits from the UK and abroad.

    If your company isn’t based in the UK but has an office or branch here, it only pays Corporation Tax on profits from its UK activities.

    The Corporation Tax rate for company profits from 1 April 2015 is 20%.

    Allowances and reliefs

    You may be able to get deductions or claim tax credits on your Corporation Tax. These are known as reliefs.

    You can deduct the costs of running your business from your profits before tax when you prepare your company’s accounts.

    Anything you or your employees get personal use from must be treated as a benefit. Some expenses aren’t allowed for Corporation Tax, e.g. entertaining clients.

    Claim capital allowances if you buy assets that you keep to use in your business, e.g.:

  • equipment
  • machinery
  • business vehicles, e.g. cars, vans, lorries
  • VAT

    You must register for VAT with HM Revenue and Customs (HMRC) if your business’ VAT taxable turnover is more than £82,000. You can register voluntarily if it’s below this, unless everything you sell is exempt.

    Some goods and services are exempt from VAT. If all of the goods and services you sell are exempt, your business is exempt and you won’t be able to register for VAT. This means you can’t reclaim any VAT on your business purchases or expenses.

    Examples of exempt items include financial services and investments, in particular:

  • Financial services including the issue, transfer or receipt of, or dealing with money, securities for money or orders for the payment of money (VAT Notice 701/49)
  • The granting of credit such as loans
  • The management of credit by the person who has granted it
  • The operation of a current, deposit or savings account etc.
  • These items are exempt from VAT so are not taxable. You do not include sales of exempt goods or services in your taxable turnover for VAT purposes. And if you buy exempt items, there is no VAT to reclaim.

    Exempt items are different from zero-rated supplies. In both cases VAT is not added to the selling price, but zero-rated goods or services are taxable for VAT - at 0%.

    If you only sell or otherwise supply goods or services that are exempt from VAT then yours is an exempt business and:

  • you cannot register for VAT
  • you cannot recover any VAT you incur on your purchases or expenses
  • Enforcement of Money Laundering Regulations

    Supervisory Authorities

    The supervisory authorities are:

  • HMRC
  • FCA
  • Gambling Commission
  • Department for Business Innovation & Skills
  • Department of Enterprise, Trade and Investment in Northern Ireland
  • Some designated professional bodies also act as supervisory authorities, e.g. Association of Chartered Certified Accountants, Chartered Institute of Taxation, Law Society, Chartered Institute of for Legal Executives etc.

    HMRC is the supervisory body for most Money Service Businesses under the Money Laundering Regulations. If you run a Money Service Business it’s your responsibility to register with HMRC unless you’re already supervised by the Financial Conduct Authority (FCA) for the purposes of the Money Laundering Regulations. You mustn’t act as a Money Service Business until you’re either registered with HMRC or supervised by the FCA.

    If you’re not already supervised by the FCA (credit card issuers or merchant acquirers) for the purposes of the Money Laundering Regulations you mustn’t operate as a Money Service Business until you’ve registered with HMRC.

    If you have a consumer credit license and also operate as a Money Service Business then HMRC will supervise both your consumer credit activity and your Money Service Business activities. When you put in place anti-money laundering policies and procedures you’ll need to make sure these cover all your activities undertaken under the Money Laundering Regulations.

    If you’ve a consumer credit license for your business but you don’t offer Money Service Business activities the FCA will supervise your business as a Consumer Credit Financial Institution under Money Laundering Regulations.

    Money Service Businesses that are required to register with HMRC and carry out money transmission will also need to be registered or authorised with the FCA under the Payment Services Regulations 2009. The contractual agreements between businesses will affect what type of registration they’ll need from HMRC and the FCA respectively.

    Businesses Covered by Money Laundering Regulations

    The Money Laundering Regulations apply to a number of different business sectors, including most UK financial and credit businesses such as currency exchange offices, cheque cashers or money transmitters, accountants and estate agents.

    Every business covered by the regulations must be supervised by a supervisory authority. If your business falls into one of 5 business sectors, you’ll likely need to register with HMRC.

    HMRC supervises the following 5 business sectors:

  • Money Service Businesses (not supervised by the Financial Conduct Authority (FCA))
  • High Value Dealers
  • Trust or Company Service Providers (not supervised by the FCA or a professional body)
  • Accountancy Service Providers (not supervised by a professional body)
  • Estate Agency Businesses
  • Money Service Businesses

    The term Money Service Business has a special meaning under the Money Laundering Regulations 2007. Your business is a Money Service Business under these regulations if it:

  • acts as a bureau de change - even if this is on a ship that isn’t always in UK territorial waters
  • transmits money, or any representation of money, in any way (just collecting and delivering money as a ‘cash courier’ isn’t transmitting money)
  • cashes cheques that are payable to your customers
  • Even if your business only does one of these things, it is still classed as a Money Service Business.

    If you exchange currency or cash cheques only occasionally, or only on a limited basis, then you don’t have to register as a Money Service Business if:

  • your total turnover from these money service activities is no more than £64,000 a year
  • turnover from money service activities is no more than 5 per cent of your total annual turnover
  • currency exchange or cheque cashing transactions worth more than €1,000 must be limited to one per customer - this could be one single transaction or a series of smaller transactions that seem to be linked
  • the money service activities must be secondary to your main business activity and directly related to it
  • the currency exchange or cheque cashing service must only be available to customers of the main business - it mustn’t be available to the public
  • your business isn’t operating as a Trust or Company Service Provider or an Accountancy Service Provider
  • You’ll need to meet all of these conditions, otherwise you have to register.

    If you transmit money from time to time but not by way of business you may not have to register.

    Registering with HMRC as a Money Services Business

    To register with HM Revenue and Customs (HMRC) under Money Laundering Regulations as a Money Service Business you’ll need to fill in a registration form and provide all the information requested. You’ll also need to apply for a fit and proper test.

    You need to complete and submit an application form for each premises that carries out any of the business activities that HMRC supervises.

    To register with HM Revenue and Customs (HMRC) you’ll need to fill in formMLR100.

    Form MLR 100 has been designed for you to download, save on your computer and fill it in on screen. When completed, the form needs to be printed and a paper copy sent to HMRC.

    If you’re registering with HMRC as a Money Service Business or a Trust or Company Service Provider you’ll also need to apply for the ‘fit and proper’ test.

    The Fit and Proper Test

    The fit and proper test is a check to make sure that you and certain other people involved in running the business meet the requirements of the Money Laundering Regulations.

    The aim of the fit and proper test is to prevent unsuitable people from running a Money Service Business or a Trust or Company Service Provider. HMRC carries out these tests as part of the registration process.

    When you register your Money Service Business under the Money Laundering Regulations, you and anyone who controls the business must apply for a fit and proper test as part of the application process.

    You must apply for a test if you’re:

  • the person applying to register the business and you’re running the business either on your own or in partnership
  • a person who can, or will be able to, direct the business - this includes directors and shadow directors, whether they’re based in the UK or overseas
  • a ‘beneficial owner’ of the business - you’re a beneficial owner of a business if you own or control more than 25% of it
  • a ‘nominated officer’ for the business - the nominated officer for a business is the person who will act as the money laundering reporting officer
  • This means that you’ll have to apply for a test if you’re:

  • the sole proprietor of the business
  • a partner in the business
  • a director of the business or a nominated officer
  • Some trustees have to apply for a test, as do shareholders who own or control more than 25% of the shares or voting rights in the company.

    Form MLR101 is designed to be downloaded, saved on your computer and filled in on screen. When you have finished you need to print the form, sign and date it and send it to HMRC to apply for a fit and proper test.

    If you’re a non-UK resident, you’ll also need to send documents which confirm your identity and home address.

    Send your completed MLR100 and MLR101 forms to HMRC along with applicable fees (see below). Send your documents and payment to:

    HMRC Anti-Money Laundering Supervision
    Alexander House
    21 Victoria Avenue
    Southend-on-Sea
    SS99 1AG

    You must list each address where you carry on business activities covered by the Money Laundering Regulations in your application and pay a fee for each one for each relevant business that you register.

    Premises means any place where you carry on business activities that HMRC supervises under the Money Laundering Regulations.

    For registration purposes, some examples of premises include:

  • offices
  • shops and auction houses
  • call centres
  • cruise ships (in UK territorial waters)
  • domestic premises
  • When HMRC has accepted your registration, it will send you a registration certificate. This shows your Money Laundering Regulations registration number as well as the other details that HMRC has for your business.

    HMRC will notify you immediately in writing if your application is refused and you’ll have the opportunity to appeal against the decision.

    You can appeal to the First-tier Tribunal (Tax) if you want to challenge some decisions by HM Revenue and Customs (HMRC), Border Force or the National Crime Agency (NCA).

    The tribunal is independent of government and will listen to both sides of the argument before making a decision.

    Registration Fees

    There’s a non-refundable application charge for registering for anti-money laundering supervision for the first time. This is in addition to the premises fee for registering each of your premises for the first time and also an annual renewal fee for each of your premises. You may also have to apply and pay for the ‘fit and proper’ test.

    From 1 April 2015 the fee structure has changed. The new charges for 2015 and 2016 are listed below:

    Charge Type

    1 April 2015

    1 April 2016

    New customers: application charge for registering for anti-money laundering supervision

    Note: this is in addition to the premises fee and if you have to pay for a fit and proper test

    £100 (non- refundable)

    £100 (non- refundable)

    New customer: premises fee

    £110 for each premises listed on the application (this is in addition to the application charge)

    £115

    Existing customers: renewal premises fee

    £110 for each premises listed on the application at the time of renewal

    £115

    Estate Agency Businesses

    £110

    £115

    Fit and proper test

    £100

    £100

    There’s an initial fee for each of the premises you list in your registration. This is currently £110 for each of the premises. If you’re listing more than one you can make a single payment that covers all of the fees due.

    You have to pay the registration fee when you first apply to register under the Money Laundering Regulations and every year after that.

    Towards the end of your registration year HM Revenue and Customs (HMRC) will send you a reminder to pay your annual renewal fee. The letter shows the registration details that HMRC has for your business and also how much you must pay.

    HMRC may cancel your registration if you don’t pay your annual renewal fee on time.

    You’ll need to pay your registration fee by cheque when you first apply to register. You can include any ‘fit and proper’ test fees you need to pay on the same cheque. Make it payable to ‘HM Revenue and Customs’.

    Once you’re registered you can pay your renewal fees each year by:

  • internet / telephone banking
  • Faster Payments
  • Bacs (Bankers Automated Clearing System) Direct Credit
  • CHAPS (Clearing House Automated Payment System)
  • Make sure you quote your Money Laundering Regulations registration number when making your payment.

    Anti-Money Laundering Controls and Monitoring

    You must put in place certain controls to prevent your business from being used for money laundering if you’re covered by the Money Laundering Regulations. These include:

  • assessing the risk of your business being used by criminals to launder money
  • checking the identity of your customers
  • checking the identity of ‘beneficial owners’ of corporate bodies and partnerships
  • monitoring your customers’ business activities and reporting anything suspicious to the National Crime Agency (NCA)
  • making sure you have the necessary management control systems in place
  • keeping all documents that relate to financial transactions, the identity of your customers, risk assessment and management procedures and processes
  • making sure that your employees are aware of the regulations and have had the necessary training
  • Reporting Suspicious Activity

    You need to appoint a nominated officer (sometimes called the money laundering reporting officer) as part of the anti-money laundering controls that you have to put in place.

    You don’t need to appoint a nominated officer if your business doesn’t have any employees, because you’re the person who is directly responsible for informing the NCA.

    Your nominated officer must be told if anyone in your business knows or suspects that another person is laundering money or financing terrorism. The nominated officer then has to review the information they have received and decide if it needs to be reported to the NCA.

    Once the nominated officer decides there are reasonable grounds to suspect money laundering they must tell the NCA at the earliest possible opportunity. The nominated officer should get consent from the NCA to complete the transaction. If it’s not possible to delay the transaction to get consent, the nominated officer should inform the NCA of this when they send their report.

    Nominated Officers and Employee Training

    Businesses that are regulated by the Money Laundering Regulations must appoint what’s known as a ‘nominated officer’. The nominated officer must be someone in the business. You must act as the nominated officer yourself if you’re a regulated sole trader with no employees.

    The Role of the Nominated Officer

    Your nominated officer’s role is to be aware of any suspicious activity in the business that might be linked to money laundering or terrorist financing, and if necessary to report it. They’re responsible for:

  • receiving reports of suspicious activity from any employee in the business
  • considering all reports and evaluating whether there is - or seems to be - any evidence of money laundering or terrorist financing
  • reporting any suspicious activity or transaction to the National Crime Agency (NCA) by completing and submitting a Suspicious Activity Report
  • asking the NCA for consent to continue with any transactions that they’ve reported, and making sure that no transactions are continued illegally
  • You might decide to make your nominated officer responsible for other tasks that need to be done to make sure your business complies with the Money Laundering Regulations. For example, you could make them responsible for:

  • putting in place and operating anti money laundering controls and procedures
  • carrying out money laundering risk assessments
  • record keeping
  • training staff in preventing money laundering
  • Requirements to the Nominated Officer

    Your nominated officer for anti-money laundering must be someone in your business or organisation. They have a very important role, so it’s wise to appoint someone who:

  • can be trusted with the responsibility
  • is senior enough to have access to all your customer files and records
  • can decide independently whether or not they need to report suspicious activities or transactions - a decision that could affect your customer relations
  • The role of nominated officer should not be held by an external consultant.

    The nominated officer must also pass the ‘fit and proper’ test if your business is a Money Service Business

    You can temporarily delegate the nominated officer’s responsibilities to someone else if they are absent. This doesn’t relieve the nominated officer of their overall responsibility.

    You must make alternative arrangements in the business to cover for times when the nominated officer is away. It’s recommended that you appoint an alternative officer or deputy. Make sure that all your staff are aware of the alternative arrangements and know when to use them.

    Training Your Employees to Comply with the Money Laundering Regulations

    You must make sure any employees are aware of the laws covering money laundering. In particular, employees who deal with customers - including receptionists and anyone who answers the telephone - should receive regular training to make sure your business complies with the regulations.

    You should train employees on how to recognise suspicious transactions and what to do if they identify them. They should understand how your anti money laundering policies and procedures affect them. It’s a good idea to have your anti money laundering policies and procedures written down and available to all your staff.

    Make staff aware of the penalties for committing offences under the Money Laundering Regulations and related legislation.

    Important examples of best practice in employee training include:

  • making sure all employees know who the nominated officer is and what they’re there for
  • giving employees clear guidance on spotting suspicious activity and reporting it to the nominated officer or their deputy
  • explaining clearly the steps your business has taken to make sure it’s not used for money laundering or terrorist financing
  • writing down all anti money laundering policies, procedures and risk assessments, and giving employees access to them at all times - written policies also help to demonstrate that your businesses takes its obligations under the Money Laundering Regulations seriously
  • encouraging employees to refer to your written documents whenever they need to, and to get more guidance if they need it
  • making sure employees know where to go for more help or information about the Money Laundering Regulations
  • You should keep a log of all the training your employees receive. Getting employees to sign and date the log can help emphasise just how important it is that they follow their training at all times. An up-to-date training log also demonstrates that your business is giving its staff the money laundering training they need.

    Useful Information

  • Directive 2007/64/EC on Payment Services in the Internal Market (Payment Services Directive)
  • Directive 2009/110/EC on the Taking up, Pursuit and Prudential Supervision of the Business of Electronic Money Institutions
  • Directive 2005/60/EC on the Prevention of the Use of the Financial System for the Purpose of Money Laundering and Terrorist Financing
  • Regulation (EU) No 260/2012 Establishing Technical and Business Requirements for Credit Transfers and Direct Debits in Euro (the SEPA Regulation)
  • Regulation (EC) No 924/2009 on Cross-border Payments in the Community
  • Regulation (EC) No 2560/2001 on Cross-border Payments in Euro
  • Regulation (EU) 2015/751 on Interchange Fees for Card-based Payment Transactions
  • Financial Services and Markets Act 2000
  • Financial Services Act 2012
  • The Payment Services Regulations 2009
  • The Payment Services Regulations 2012
  • The Electronic Money Regulations 2011
  • Regulation (EC) No 1781/2006/EC of the European Parliament and of the Council of 15 November 2006 on information on the payer accompanying transfers of funds
  • Companies Act 2006
  • Counter-Terrorism Act 2008
  • Money Laundering Regulations 2007
  • Proceeds of Crime Act 2002
  • Terrorism Act 2000
  • The FCA Handbook (for FCA regulated firms)
  • The FCA's role under the Payment Services Regulations 2009 - Our approach
  • FSA - Applying for authorisation
  • Authorisation and regulated activities
  • FSA factsheet: Using compliance consultants
  • Information Sources

  • www.bankofengland.co.uk
  • www.fca.org.uk
  • http://fshandbook.info/FS/html/handbook
  • https://www.gov.uk/
  • www.thecityuk.com
  • www.financial-ombudsman.org.uk
  • www.moneyadviceservice.org.uk