UK E-Money & Payment Regulatory Compliance
E-money and payments, both dominated by large tech companies, are growing rapidly.
Payment providers and FinTech companies are developing more targeted and bespoke services for their customers as a result of tough competition. It’s becoming more important for fintech companies to move from ‘open banking’ to ‘open finance’ and offer more customised customer services to maintain their competitive edge.
The Financial Conduct Authority (FCA) regulates the activities of electronic money institutions (EMIs) following the electronic money Regulations 2011 (EMRs).
However, credit institutions, banks, building societies, credit unions, and municipal banks are exempt and instead need to apply for permission under a different law. Instead, they must apply for Part 4A permission under the Financial Services and Markets Act 2000.
E-money providers must also comply with the Money Laundering, Terrorist Financing, and Transfer of Funds (Information on the Payer) Regulations 2017.
Some companies start with an e-money license because it is simpler and cheaper than becoming a full-fledged bank, which requires meeting more complex requirements and paying higher regulatory costs. However, there is a lot of competition in the banking industry, and meeting the regulations for capital, liquidity, governance, and compliance can take time and effort.
From start-ups to established businesses, ABM Global Compliance supports payment services and e-money providers with a smooth journey to payment services compliance.
Regulatory Framework for E-money License
PSD2, or the Payment Service Directive 2, is an EU Directive (Directive 2015/2366) that sets requirements for businesses that provide payment services. It applies to banks, building societies, payment institutions, electronic money institutions, and customers.
As part of your application for an E-money Institution license in the UK, you will need to provide the following:
Required Documents to apply for an EMI license:
- A business plan
- Details of your safeguarding measures to keep client money separate and protected
- Information on your governance arrangements and risk management
- Information on your governance arrangements and risk management
- A security policy
- Measures to prevent financial crime, including Anti-Money Laundering (AML) policies
You cannot simply use pre-made documents for your application, as this will cause delays and could result in your application being rejected. It’s important to take the time to create policies and procedures that specifically address what the regulatory body is looking for rather than using a generic template.
An important part of your E-money license EMI license / Electronic Money Institution license application in the UK is to ensure you meet the regulator’s basic conditions.
Required Documents to apply for an EMI license:
Here are the basic conditions that must be met for an E-money license EMI license / Electronic Money Institution license application in the UK:
- Employees must be located in the United Kingdom.
- Adequate resources must be in place to operate the business, including sufficient finances, management, staff, and systems to manage the business.
- Adequate resources must be in place to operate the business, including sufficient finances, management, staff, and systems to manage the business.
- Details of IT systems, including core and support systems, must be provided in the application.
- All necessary IT systems should be in place before the E-money license EMI license / Electronic Money Institution license is issued.
The regulator will expect to see that you have these in place before it issues you your E-money license, EMI license, / Electronic Money Institution license. Furthermore, you must have adequate resources in place. This includes:
- Ensure sufficient financial resources are available for smooth business operations.
- Hire competent and experienced management and staff for successful business management.
- Implement effective IT systems and internal controls for secure payments and fraud prevention.
- Develop and implement comprehensive risk management policies and procedures.
- Prepare a thorough risk framework to address operational, security, and money laundering risks.
Required Documents and Time for E-Money
Required Documents to apply for an EMI license:
As part of your Electronic Money Institution license (EMI license) application, you will be required to provide the following information as part of your application:
- Company identification details
- Programme of operations
- Business plan and financial forecasts
- A description of your business’s organisation structure
- Evidence of your initial capital
- Your measures to safeguard the funds of your users
- Your compliance & governance arrangements and internal controls
- Your procedure for monitoring, handling, and following up on security incidents and security-related customer complaints.
- Your processes for filing, monitoring, tracking, and restricting access to sensitive payment data.
- Your business continuity measures
- The principles and definitions applicable to the collection of statistical data on performance, transaction, and fraud
- Security policy
- Your internal control mechanisms to comply with obligations in relation to money laundering and terrorist financing (AML/CTF obligations)
- Your internal control mechanisms to comply with obligations in relation to money laundering and terrorist financing (AML/CTF obligations)
- Details of any outsourcing arrangements
Required time for E-money license:
The Financial Conduct Authority must make a decision within three months of receiving a complete Electronic Money Institution application. In reality, on average, it takes around 6-12 months for an application to be assessed and a decision to be made.
Initial capital requirement for the E-money license:
The initial capital required for an E-money license EMI license / Electronic Money Institution license is €350,000 or £307097.
How can we help?
ABM Global Compliance is a leading international consulting firm specialising in payment services, electronic money, banking, and investment services. Let us help you create a winning plan and strategy for your business by advising you based on your financial product or service and business plan.
As part of our services, we can assist you with licensing, compliance, operational setup, and related services, including obtaining banking facilities. More information is available on our website at ABM Global Compliance.
Emoney Ongoing Comprehensive Service:
Review Company Policies And Update Procedures:
- We can assist you in identifying and assessing risks and, if necessary, finding ways to minimise them.
- Our expertise in industry regulations and best practices enables us to provide valuable insight for a comprehensive financial crime risk assessment..
- We can help you develop and implement effective AML (Anti-Money Laundering) policies and procedures.
- Whether it is creating new or developing existing anti-money laundering (AML) policies or procedures, we offer support in the drafting and implementing of this AML documentation.
- This can range from reviewing policies against regulation, guidance, and best practices to reflecting changes in the firm’s environment or offerings.
Safeguarding procedure and minimum capital requirement:
- Assist in preparing Client Safeguarding reconciliation per FCA guidelines.
- Prepare monthly management reporting to track the ongoing minimum capital adequacy requirement.
- Assist in the preparation of a Safeguarding policy for the company.
Respond to Regulatory Bodies and Correspondence Parties
We will assist in response to correspondence bodies like banks and regulatory bodies like HMRC and FCA, including the surveys issued by the regulatory bodies.
AML/CTF training
AML/CTF training will be provided through the online platform to the senior management, including MLRO and Director
RegData Collection
RegData collects and organizes regulatory data from firms, making it easier for you. The system replaces Gabriel and simplifies the submission of firm data. Ensure that all RegData reports for the company are submitted to the supervisor on time.
Risk-Based Methodology
Assist the company in designing the risk-based methodology for clients during onboarding and ongoing monitoring.
Safeguarding and Prudential Risk Management
- Safeguarding Account Letter from the bank.
- Safeguarding Policy
- Client funds safeguarding and reconciliation process
Client onboarding KYC and CDD.
Assist the company during the client onboarding process and design the controls, checks, and procedures for customer onboarding.
E-Money Safeguard Audit
More and more people are using payment and e-money firms for their banking needs. The Financial Conduct Authority (FCA) now requires an annual safeguarding audit to ensure these firms protect their customers’ funds. This helps demonstrate that the firms are taking appropriate measures to safeguard their customers’ money.
A recent industry-wide survey by the FCA explored the financial resilience of regulated firms in relation to the COVID-19 situation. The results showed that the payments and e-money sector had the highest number of unprofitable firms, making them more susceptible to insolvency. This highlights the importance of safeguarding audits to ensure these firms adequately protect their customers’ money.
Since payment services and e-money customers are not covered by the Financial Services Compensation Scheme (FSCS), safeguarding audits have become crucial for the FCA to supervise these firms and ensure their customers’ funds are secure.
So, what should you expect from this audit, and how can you best prepare? Where should firms start with a safeguarding audit?
Here are some of the initial steps that firms should consider, including:
- Revisiting the requirements in the FCA’s approach document, as well as the Payment Services Regulations 2017 (the PSRs) and the Electronic Money Regulations 2011 (the EMRs).
- Carefully looking at the FCA’s expectations set out in the recent publications and preparing a gap analysis and a remediation plan.
- Obtaining an independent review of your arrangements.
- Discussing the new safeguarding audit requirement with your auditors and assessing their necessary capability.
- Ensuring that all actions and plans are documented, approved by senior management and monitored through to resolution.
- Preparing to communicate your progress with the FCA if the regulator gets in touch or you identify material weaknesses.
- Since the audit will be undertaken on a ‘reasonable assurance' basis, you should expect a robust and thorough review, including detailed tests of related controls.
The auditor will expect even smaller firms to have a reasonable set of approved policies and procedural documentation. If prepared to a good standard, this can be invaluable in providing initial familiarity with your business and clearly articulating the firm’s safeguarding arrangements. Importantly, it will send an early signal of a positive safeguarding culture.
For example, a safeguarding policy would be expected to cover, among other things:
- An overview of safeguarding arrangements in the context of your business model
- Related processes and controls
- Records and accounts for client funds
- Reconciliation processes and controls
- Banking arrangements (account designations, acknowledgement letters, and periodic reviews)
- Governance arrangements
- Breach management and reporting.
- A clear description of relevant systems and controls, alongside the risks they are designed to mitigate, will help firms demonstrate how they meet the safeguarding requirements.
- Internal assurance before safeguarding audit
E-Money Risk Management
Financial services firms, including Electronic Money Institutions (EMIs) and traditional banks, need to have a strong risk management structure in place. This structure should be appropriate to the size, complexity, and type of the business. The (CBI) usually requires this as a condition for authorisation.
Based on our experience and regulatory requirements (such as under EMR/PSD2), the CBI expects EMIs to implement effective risk management processes and procedures to identify, manage, oversee, and monitor any risks that the EMI is or may be exposed to. This includes:
- Developing a robust risk architecture that includes all the risk components specific to their business model and e-money activities
- Creating a centralised register of all risks, including residual and inherent risk ratings
- Establishing risk identification and assessment methodologies and effective controls inventory and environment (risk taxonomy)
- Having three clear lines of defense, comprising of experienced pre-approved control functions (“PCF”), risk owners, control owners, and senior management in place that maintain risk.
- Establishing robust reporting and governance processes to oversee and monitor risks on an ongoing basis, particularly at Board and Risk Committee levels, using management information metrics and risk health metrics.
- Developing governance and risk management processes that proportionally fit the risk profiles and evolving business activities of the EMI.
EMIs are facing increased regulatory attention and could be subject to reviews by regulators in the coming months due to the Covid-19 crisis, concerns about their financial stability, and the significant growth of EMIs in Ireland. Although the rules and supervision for managing risks for financial services firms are established, the unique characteristics of EMIs, many of which have parent companies in the technology sector, pose challenges for both regulators and the EMIs themselves. EMIs risk management has become a priority for regulators in Europe.
A strong EMI risk management architecture encapsulates the following:
- Robust risk management architecture (including risk management framework, comprehensive risk register, appropriate risk appetite, risk policies, and procedures).
- Three clear lines of defence and adequately resourced risk and compliance teams.
- Governance processes and procedures so the EMI can make prudent decisions about the EMIs identified risks and monitor risks that are managed and controlled.
- Control inventory and environment.
- Risk identification and methodologies for assessment and challenge.
- Risk identification and methodologies for assessment and challenge.
- Governance and risk management processes fit their risk profiles and evolving business activities.
EMIs can take advantage of the increased scrutiny from regulators to develop effective risk management processes and systems that are integrated into their entire business operations, including at the international level. This will lead to a positive relationship between the EMI and regulatory bodies, improve the EMI’s ability to cope with risks and stressful situations, and ultimately benefit consumers and the market.
External AML Audit for Emoney
ABM Global Compliance’s rapid AML audit service helps you meet all regulatory requirements of 2023 quickly and easily. We offer support to Emoney and Payment Institutions through expert advice from professionals who are members of the APCC.
We assist with AML audits, whether it’s for a bank request, liquidity provider, or regulator.
Financial services firms are required to conduct regular independent audits of their AML controls and annual audits of their safeguarding policies and procedures, according to the Money Laundering Regulations 2017. Banks may also require their account holders to have an annual audit of their AML framework. With the new 6th Money Laundering Directive (6MLD), firms must further tighten their controls.
The objective of the AML audit is to:
- Assess the quality of the firm’s existing financial crime controls
- Identify gaps where they exist
- Make recommendations for practical steps to be taken to close those gaps
We focus on all aspects of compliance, including:
- Customer Due Diligence (CDD, KYC, Ongoing monitoring)
- Suspicious Activity Reporting
- PEPs, Sanctions screening
- Enhanced Due Diligence
- Internal controls and governance
Fees:
We offer both qualified and affordable consultants with competitive fees. We provide flexible pricing based on the size and location of your operations, along with whether you prefer an on-site or remote audit. We guarantee that our fees are reasonable and fair without compromising the quality of our work.
AML Training for Emoney
Our web training course is all about teaching you how to safely and easily store money using digital accounts. We will show you the benefits of using electronic money and give you the tools to spot any illegal activity that involves converting physical cash into digital format.
This course teaches you how digital accounts are secure, accessible, and convenient for managing your money. We will also teach you how to detect and prevent financial crimes like money laundering.
Completing this course will provide you with valuable training and certification to showcase your skills to potential employers. You will have the opportunity to work with top regulatory firms who share the same goals and motivation as you to ensure compliance.
In this web training course, we will touch on eight important topics, including:
- Introduction to E-Money
- E-Money License Authorization and Capital Adequacy Requirement
- Client Money Safeguarding Requirement
- Use of Agents and Distributors
- Other Regulatory Activities
- Regulations are applicable for EMI Institutions
- Risk Assessment.
- AML Policy and Control.
As our world advances in digital technology, it’s becoming easier for criminals to launder money through digital means. Despite this growing threat, many businesses still use outdated compliance measures, leaving themselves vulnerable to attacks.
One way to protect yourself is to ensure that your employees are properly trained in AML compliance for electronic money.
Some key elements of this training should include understanding how electronic money is used in criminal activities, what red flags to look out for, and what reporting requirements are in place.
With this knowledge, your employees will be better equipped to identify and report suspicious activity, keeping your business safe from financial crime.
Importance of AML course for Electronic Money
AML training is important for Electronic Money because:
- They help protect against money laundering and terrorist financing.
- AML training provides employees with the knowledge and skills to identify and report suspicious activities.
- A company's compliance culture can be established through AML training.
- Proper AML training creates a safer and more secure environment for the business and its customers.
People who need AML training for electronic money:
Anti-money laundering training is required for any person or company involved in electronic money. This includes financial institutions, payment service providers, and e-money issuers.
A certified anti-money laundering specialist must complete the training and must be specific to the electronic money industry.
However, we recommend that all electronic money users receive some form of anti-money laundering training.
This will help them to understand better the risks associated with the use of electronic money and how to avoid becoming a victim of money laundering.
Aims of AML for Emoney course
The course of anti-money laundering training for Electronic Money has the following aims:
- To increase knowledge and awareness of money laundering methodologies, typologies, and trends
- To equip participants with the skills needed to identify and report suspicious transactions
- And to raise awareness of the importance of compliance with international anti-money laundering regulations
This course is created for people who work in the electronic money sector, including employees of e-money institutions, payment service providers, and money remitters. The course is also suitable for those working in related fields such as banking, securities, and payments.
Reason to choose our anti-money laundering training:
When it comes to anti-money laundering training for electronic money, there are a few reasons why you should choose us.
- We have a team of experts who are highly experienced in this field.
- We provide the most comprehensive and up-to-date training possible.
- We offer a variety of courses to choose from, so you can find one that best suits your needs.
- And lastly, we offer very competitive rates for our services.
We are the company you can trust to ensure compliance with anti-money laundering regulations. Contact us today to learn more about our services.
