What is an Electronic Money License?
An Electronic Money License acts as authorization provided by the FCA (which acts as sole regulator) for an Electronic Money Institution to conduct its business. This generally has fewer requirements for approval from the FCA but also comes with fewer protections than a conventional banking license would. It gives an Electronic Money Institution (EMI) the ability to hold client funds for the unlimited period of time an individual has an open IBAN account.
The practical difference between an Electronic Money and Payment Institution and a regular Payment Institution is that e-money institutions in addition to the services provided by a payment institution are entitled to issue electronic money.
What is a Small EMI License?
A small e-money institution (Small EMI) has the ability to issue electronic money (e-money) and provide payment services except for Payment Initiation and Account Information services within the UK.
In order to conduct business as a Small EMI, there are a series of procedures for registration with the FCA who acts as the regulation of electronic money institutions.
There are certain limitations related to the operation of a company with a Small Electronic Money Institution license, e.g.:
- Total business activity of the Small EMI prior to the time of registration must not generate average outstanding electronic money that exceeds 5,000,000 EUR and;
- Monthly averages of the prior 12 month period for the total amount of relevant payment transactions must not exceed 3,000,000 EUR.
Advantages of a UK Electronic Money Institution with an EMI License
Having the status of being a licensed EMI means that as a business, you can start operating and obtaining benefits around the world, such as opening IBAN, SWIFT and SEPA account as well as offering your own payment cards. The key difference in offerings when compared to a conventional bank is that an EMI cannot provide loans or keep deposits that accumulate interest.
Due to the lack of ability to offer loans or interest deposits, there is less regulation on the EMI industry. This means that an EMI has a far more flexible business structure than a conventional bank, and is subject to less strict supervision rules.
UK Electronic Money Institution License Requirements
Applying for a license will be processed via the FCA (Financial Conduct Authority). In order to apply to become an authorized and licensed EMI, you will need to provide certain information as a part of your application. This can include your business plan, details of payment services that will be provided, compliance and governance details, details of how you plan to safeguard users, as well as your initial capital requirements. For further details please refer to FCA’s official website.
The FCA states 12 conditions that a firm must meet before applying:
- You are a corporate body
- Payment services will be carried out in the UK
- You have robust governance arrangements
- You have a business plan
- You have taken adequate measures to safeguard users funds (EMBank can help you with opening Safeguarding Account to fulfill this condition )
- You hold adequate indemnity cover
- Directors must be of good repute with required appropriate skills
- No managers must have been convicted of money laundering
- Head office must be in the UK
- You must comply with money laundering regulation
- Anyone with 10% or more shares must be ‘fit and proper
- If the applicant has close links with another person, the link mustn’t be likely to prevent the FCA’s effective supervision of the business.
On average it takes 7 days for your application to become an authorized EMI to be acknowledged. Please note that conditions for application may be amended from time to time, so do check w. FCA before applying.
How Can EMBank Help?
European Merchant Bank (EMBank) offers accessible financial products for fintech companies and local/regional SMEs across a variety of industries. Established in Lithuania and licensed by the European Central Bank, EMBank offers a total package consisting of a European banking license, a single API-based software, and the know-how to provide a truly embedded finance offering.
In a fintech-friendly approach with customized banking solutions, we provide a Banking-as-a-Service offering, combined with Safeguarding, Business, Payment, Accumulative account types as well as payment options through SEPA, Swift, and Target2.
Please keep in mind that the above information has been prepared or assembled by the EMBank and is intended for informational purposes only. Some of the information may be dated and may not reflect the most current legal developments.