Money Transfer Business UK and Money Service Business License UK
Cross-border money transfers are important elements of the global economy. Money transfer is the type of service people will always have the need for, especially in countries with a diverse population such as the UK. In fact, in 2019, the World Bank reported that foreign currency outflows from the UK were approximately $ 10.4 billion. You probably already know a few things about the Money Transfer Business in the UK or maybe even heard about the Money Service Business License UK, Money Transmitter License UK, UK Payment Institution license or UK E-money License. That being said, we are guessing that since you came across this article, you are possibly thinking of dipping your toes into the financial services industry and want to get what is sometimes called a ‘money transfer license.’
This article explains the different types of licenses that may be required to start a Money Transfer Business in the UK as well as different types of services covered by the term “money transfer license.” Upon reading the article, you will understand what is money remittance and why a license for money remittance requires less capital than a license to issue e-money. Finally, you will understand the difference between Money Service Businesses (MSBs), Authorised Payment Institutions (APIs), Small Electronic Payment Institutions (SPIs), Electronic Money Institutions (EMIs) and Small Electronic Money Institutions (small EMIs) as providers of money transfer.
6 Paths to enter Money Transfer Business in the UK without setting-up a bank
We bet you have already conducted a study of the market sector you are interested in providing services in, assessed the competitiveness of the sector, the barriers to entry, start-up costs, and have at this point come up with a sustainable business model. It’s time for you to understand what kind of license do you need to enter the UK Money Transfer Business Industry. Basically, we want to answer your question ‘How to start a money transfer business in the UK?’
When an entity is willing to provide at the same time a bureau de change, cashing cheques, and money transmitting services, there are four options:
- Registration with HRMC only (Money Service Business License UK)
- Registration with HRMC and application to the FCA to become a PI or SPI (Money Transmitter License UK)
- Application to the FCA to become a PI or SPI without HRMC registration
- Application to the FCA to become an EMI or a SEMI.
Money Service Business License UK (MSB license in the UK)
The FCA Handbook defines money service business (MSB) as an entity whose business activities consist of operating a foreign exchange point (bureau de change), transmitting money or monetary values by various means, or cashing cheques that are made payable to customers. To provide bureau de change and cashing cheques services, registration with HRMC in accordance with the Money Laundering Regulations 2017 (MLRs 2017) is sufficient. Usually, registration with HMRC as a Money Service Business is called Money Service Business License UK (MSB license UK).
It is possible to provide money transmission services without making an application to become a PI or EMI when such money transmitting services are not considered payment services under Schedule 1 of the Payment Services Regulations 2017 (PRSs 2017)). PERG 15.1 of the FCA Handbook clarifies that, for example, cash-to-cash currency exchange activities, payment transactions through commercial agents acting in the name of the payer or payee, services which are provided by technical service providers, payment services which are used within a limited network, and payment transactions for particular goods or services resulting from electronic communications are excluded from the scope of the PSRs 2017.
Money Remittance License UK (Money Service Business License UK + Payment Institution License UK)
You may want to enter Money Transfer Business in the UK by starting to provide money remittance services. It is a payment service as per Schedule I of the PSRs 2017. Regulation 2(1) of the UK Payment Services Regulations 2017 (PSRs 2017) defines money remittance as a service for the transferring of money without the need for a payment account to be created in the name of the person paying or the person receiving the money.
Thus, money remittance is not excluded from the scope of the PSRs, and if you want to provide money remittance service, you must make an application to the FCA either to become a PI or an EMI. You have a reasonable question ‘What do the HMRC and the Money Service Business License UK have to do with it?’ The answer is that money remittance is a service provided by Money Service Businesses in the UK. MSBs providing money remittance service either supervised under the MRLs 2017 by the FCA or HMRC.
All EMIs are always supervised by the FCA and registration with HRMC is not necessary. PIs are supervised by the HMRC if their sole payment service under Schedule 1 of the PSRs is money remittance. In such a situation, an entity must be registered with HMRC and authorised to provide money remittance service by the FCA as a PI. This dual-license is often called Money Transmitter License UK. Sometimes it is also called the Money Transfer Business License or Money Transfer License; however, we consider these two services are quite broad. For example, it is hard to disagree that Wise (formerly Transferwise) has a kind of money transfer license but can offer more services than a company with the Money Transmitter License UK.
There are two ways to get Money Transmitter authorisation by the FCA. The first way is to apply to become an Authorised Payment Institution that provides money remittance only. The second way is to register with the FCA as a Small PI that provides money remittance only. An entity willing to become an API that only provides money remittance must have an initial capital of EUR 20,000. Unlike an SPI, API does not have a monthly transaction limit of €3million and before BREXIT, APIs could establish agents and branches in the EU Member States. To get an authorisation from the FCA to provide money remittance services under the supervision of HRMC, an entity either must already have the Money Service Business License UK or provide evidence that it has submitted an application to HMRC to become a registered MSB.
The below diagram illustrates the options available for becoming of Money Transfer Bussiness, as regulated under the PSRs, as well as what they share in common with a Money Service Business. While the diagram is simplified, it provides insight into how we can understand these types of businesses.
Full Authorised Payment Institution License UK (full API license UK)
The full API license is a license that allows providing other services besides money remittance (follow the link if you want to read about another type of PI license which is the PISP license UK). Unlike EMIs, APIs cannot issue e-money. You may need an API license in the UK if you want to enter the Money Transfer Business UK by providing money transfer services requiring opening a payment account for a payment service user (PSU).
However, a payment account of a PI has more limitations than a payment account of an EMI (sometimes called an e-money account). Whether a money transfer service requires a payment account of a PI or an e-money account depends on your business model. If you are not sure whether it is required or not, you should consult with a professional consultancy such as PSP Lab. In any case, more explanations are provided in the section explaining the full EMI license.
Full APIs must have an initial capital of EUR 125,000 and the company willing to become a full API, has to submit more documents with its application to the FCA than an entity that applies to provide money remittance service only.
Small Payment Institution License UK (Small PI License UK)
As it was said, if you want to become a Small PI and provide money remittance, you will need registration with both the FCA and HMRC. If you want to provide more payment services (e.g., transfer services requiring a payment account), you will need to register only with the FCA. This may look strange at first glance, however, the reason for such dual registration in the case of Small PI providing only money remittance services lies in the fact that there can be only one supervisor under the MLR and in the former case it is HMRC. In contrast, if a Small PI engages in the provision of other regulated services that are outlined in Schedule 1 of the PSR, they become directly supervised by the FCA under the MLR. Small PIs are subject to a limit of having an average monthly payment value of not more than €3 million over a period of 12 months.
Electronic Money Institution License UK (EMI License UK)
One of the most well-known players in the UK Money Transfer Business industry, Transferwise, has a type of money transfer license that is called E-money license. It allows users to have e-money accounts with dedicated IBANs and payment cards attached to such accounts. The difference between an e-money account of an EMI and a payment account of a PI is that payment accounts of PIs can have money solely for the execution and identifiable payment transaction and, thus, more sophisticated money transfer services can be provided. It means that the clients’ funds on the e-money account can be kept for a longer period of time than is necessary solely for the execution of payment transactions.
To become an EMI, an entity must have an initial capital of at least EUR 350,000 and submit a variety of documents (such as policies and procedures detailing risk management controls, business plan, programme of operations, information about senior managers, controllers, etc.) to the FCA.
Small Electronic Money Institution License (UK) Small EMI License UK
Small EMIs are limited to the territory of the UK for providing payment services and issuing of e-money. Another thing to consider is the fact that these entities, same as Small PIs, are also limited in the volume of transactions they can enable, more specifically, the average monthly payment transactions in the previous 12 months can not exceed EUR 3 million and the total business activities of a firm must not generate an outstanding electronic money amount exceeding EUR 5 million and over. Unlike UK Money Service Business holding the Money Transmitter License UK, Small EMIs does have to register with HMRC.
How can PSP Lab help?
PSP Lab has consultants specialised in Money Transfer Business in the UK. Our specialised team can provide assistance with all of the stages involved in getting any type of Money Transfer License UK whether it is еру Money Service Business License UK+ Money Transmitter License UK, EMI UK , PI UK, small EMI, small PI , AISP Licese, or PISP License, as well as getting a Crypto License UK. We can advise you on whether you need a full PI license, EMI license, Money Transmitter License or just a Money Service Business License. If you have any questions on the process or the services that we offer, please do not hesitate to contact us. We are here to help!