Electronic Money Institution (EMI) in the UK is allowed to issue and redeem electronic money. Electronic money is a digital equivalent of cash stored on an electronic device or remotely at a server. Additionally, EMIs can be authorised to provide all of the services of a Payment Institution. Electronic money Institution license is more suitable for a business wishing to have a possibility of retaining funds of their clients for a more extended period of time and offering products of stored value. Authorisation as an EMI in one of the EU member state allows to benefit from the passporting regime and provide services within the whole of the EEA, while registration as a Small E-money Institution allows providing services only in the jurisdiction of registration.
PSP Lab can assist you if you wish to be authorised to issue electronic money (e.g., prepaid cards) and/or provide e-money accounts to your clients. You will need an Electronic Money Institution license in the UK (also called EMI license UK or E-money license UK) to provide such services. Furthermore, under the same license, you will be able to provide payment services in addition to e-money services.
Regulatory Framework for Electronic Money Institutions (EMIs)
Electronic money Institutions came to existence when the E-money Directive (2000/46/EC) was transposed into national legislation. This made issuing e-money in the UK a “regulated activity” under the Financial Services and Markets Act 2000. Further, the legislative regime was updated in 2011 when Electronic Money Regulations (EMR), transposing Directive 2009/110/EC, entered into force. This legislation sets out the rules for the business practices and supervision of E-money Institutions and must be read along with the Payment Service Regulations 2017 governing the provision of payment services by EMIs. To get E-money Institution License and operate as an EMI, more laws, regulations (including rules of card schemes and standards) should be considered.
Such laws, regulations, and standards include, among other things:
- The Financial Services and Markets Act 2000 that establish a regulatory framework for providing financial services in the UK.
- The Electronic Money Regulations 2011;
- Directive on the taking up, pursuit and prudential supervision of the business of electronic money institutions (EU) 2009/110/EC(EMD);
- Directive on payment services in the internal market (EU) 2015/2366 (PSD2);
- The Payment Services Regulations 2017;
- The FCA rules, guidelines and instruments such as the Principles for Businesses – FCA Handbook, Payment Services and Electronic Money – FCA Approach, the FCA’s role under the Electronic Money Regulations 2011 and so on.
- The UK The Payment Card Interchange Fee Regulations 2015 and EU Interchange Fee Regulation VISA and MasterCard rules that are relevant for EMIs that provide acquiring services.
- Money-laundering and terrorist financing regulations such as the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 including amendments;
- The Criminal Finances Act 2017 that regulates obligation of firms regarding the facilitation of money-laundering, corruption and tax evasion;
- The Data Protection Act 2018 implementing EU General Data Protection Regulation;
- Last but not least there are the Unfair Terms in Consumer Contracts Regulations 1999, the Consumer Protection from Unfair Trading Regulations 2008 (CPRs), case law regulating contracts with consumers, the Electronic Commerce (EC Directive) Regulations 2002, The Financial Services (Distance Marketing) Regulations 2004, Consumer Credit Act 1974 (if credit services are provided).
What is an E-money license?
There is a total of nine core services that a fully authorised E-money Institution can provide under its UK E-money license. They comprise all of the services which can be provided by the Payment Institution including ancillary services together with the possibility to issue e-money. Currently, the “EU Passport” for the provision of payment services and issuance of electronic money is attached to E-money license UK. It means that after the notification procedure EMIs can provide services within the whole of the EEA.
To get a license and issue electronic money as an Electronic Money Institution, authorisation from the FCA is required. However, there is no need to get a separate authorisation to provide payment services. In any case, the FCA must be notified regarding the types of payment services an EMI will be providing. EMI is required to be established as a body corporate (e.g. a limited liability company or limited liability partnership).
Initial capital requirements
If you want to be authorised as an E-money Institution, there is the initial capital requirement of EUR 350,000. There are no additional initial capital requirements related to the provision of payment services nonrelated to the issuance of electronic money.
What is a Small EMI license?
Small E-money Institution (Small EMI) can issue e-money and provide payment services except for Payment Initiation and Account Information services within the UK without the right to provide services within the EEA.
To conduct business as a Small EMI, a company should go through the procedure of registration with the FCA. Only body corporate can be registered as a Small EMI.
However, there are certain limitations related to the operation of a company with a Small Electronic Money Institution license:
- the total business activities of the applying Small Electronic Money Institution immediately before the time of registration must not generate average outstanding electronic money that exceeds EUR 5,000,000 and
- the monthly average over the period of 12 months preceding the application to be registered as a Small EMI of the total amount of relevant payment transactions must not exceed 3,000,000 euro.
Despite there is only a registration procedure for Small EMIs, they are still required to comply with safeguarding requirements in relation to the funds received from clients in exchange for e-money. Small E-money Institutions are not obliged to safeguard funds received from clients for the execution of non-related payment services; however, they may decide to do so.
Initial Capital Requirements
Initial capital requirements for companies with Small E-money Institution license depend on the average outstanding e-money the company’s activities generate or projected to generate. If the amount of the average outstanding e-money is equal or more than EUR 500,000, then there is an obligation to hold an amount of initial capital at least equal to 2% of average outstanding electronic money. In cases, where there is not enough business history for an applicant wishing to have a Small E-money license UK, projections in a business plan can be used to determine the initial capital requirement following any adjustments that the FCA may require during the registration process.
Why E-money License UK?
As of 28 September 2020 there were 174 authorised E-money Institutions, and 31 Small E-money Institutions in the UK. This is the highest number among all other jurisdictions in the EAA. The numbers cannot surprise as the UK is the leading hub for payment companies and one of the best places to operate a company with an E-money license in the UK. Below we provide just a few reasons why the UK is worth considering for any company willing to provide e-money issuance and payment services.
There are more than 1600 FinTech firms, 200 incubators and accelerators in the UK, and most of them are based in London. It is estimated that the number will more than double by 2030. London based FinTech companies usually get the most funding from private and public deals out of all European financial technology companies. There are many conferences and exhibitions every week in London, and you do not need to travel far to meet with your potential partners, software providers or clients.
The highest number of “hot” PayTech start-ups in the whole of the EEA have the UK E-money License and their headquarters in London. There are many reasons why such companies chose London. One of the reasons is that international tech companies consider London as the city with one of the best R&D infrastructures in the world. Another reason is that there are many professionals working in the financial sector in London. Unsurprisingly, around 55% of all EMIs is authorised in the UK.
Adequate corporate tax rates, infrastructure, experienced regulator, one of the most widely spoken languages, access to a network of companies and professionals in the payment sector make the UK, especially London, one of the best places to be authorised as an Electronic Money Institution.
How can PSP help you to be authorised as an Electronic Money Institution in the UK?
PSP Lab comprises of various experts in FinTech and payment sector including former CEOs of companies with the UK E-money License and other senior positions. We know how to help you to be authorised and start your operation as fast as possible. PSP Lab can help you with safeguarding accounts, banking partners, any documents, policies, contracts, and communication with the FCA. We can even help you to find the right personnel that will be considered fit and proper by the FCA. We are experts in Strong Customer Authentication, unfair terms in financial services contracts, anti-money laundering, communication with banks and regulators, business development of PayTech companies and many other things. While you can have the best ideas and software, you still may need PSP Lab that knows all essential nuances related to legal and practical aspects of authorisation and operation of Electronic Money Institutions. You can read more about our authorisation and registration support by clicking on the following link.