UK Payment Services Regulations

The law came into force on 1st November 2009. The law is the implementation into UK legislation of the EU Payment Services Directive, which creates a single market for the provision of payment services across the 27 member states of the EEA.

Since 1st May 2011, any UK payment services firm not FSA regulated should have ceased trading. Firms are committing a criminal act if they continue to trade whilst unlicensed.

Any Payment Institution can decide whether they will seek a pan-European licence under the PSD or whether they will prefer merely to seek registered status (allowing them to trade in the UK only).

As of December 2011, there are around 170 Authorised payment Institutions and 950 Small Payment Institutions in the UK.

Authorised Payment Institution

Prior to granting authorisation, the FSA has to be provided with the following information:

• Programme of operations, including payment services to be provided
• Evidence initial capital requirement is met
• Safeguarding measures
• Description of governance and internal control measures (including AML & 1781/2006)
• Description of structural organisation including use of agents/branches/outsourcing and participation in payment systems
• Qualifying holdings
• Details of directors/managers and evidence of knowledge/experience and suitability
• Details of auditors
• Legal status of applicant, address of head office (and if limited company, copy of articles)
• Description of audit and organisational arrangements to ensure protection of payment service users, etcs

Firms seeking authorised status will need to demonstrate they have initial capital of at least 20,000 Euros. In practice, they will need more than this. They will also need to have identified a bank which is willing to provide them with banking facilities so that the client funds safeguarding requirement can be met.

Once an API application form has been submitted to the FSA (with supporting documentation, such as a business plan and cash flow), the firm can expect the regulator to ask a number of further questions.

The FSA has up to twelve months to determine an application which they deem to be ‘incomplete’ at the time of submission (i.e. an application which leads to any further questions). In practice, most applications are determined within three to six months.

Registration as a Small Payment Institution

A firm may opt to register with the FSA if it meets the following criteria:

• Monthly payment turnover is less than 3 million Euros average payment turnover over 12 months
• Its Head Office is in the UK
• None of its managers has a conviction for financial crime

Applicants for SPI status can expect the regulator to ask a number of questions about the business ownership and structure, customer contracts, procedures for dealing with complaints, anti-fraud policies, services offered as an agent, etc.

Firms considering SPI status should be aware that, in general, UK banks are unwilling to provide bank accounts to Small Payment Institutions, even if they are registered with the FSA.

We want to become a regulated Payment Institution – what do we need to do next?

For more information on FSA regulation (including application forms), go to: /www.fsa.gov.uk/paymenservices

For more information on HMRC supervision under the money laundering regulations (including application forms), go to: www.hmrc.gov.uk/mlr