Understanding UK Electronic Money Licensing
The United Kingdom maintains one of the world's most respected regulatory frameworks for electronic money institutions. The Financial Conduct Authority (FCA) oversees all EMI licensing, applying rigorous standards that have established UK-authorized firms as trusted operators in global financial markets.
For businesses seeking to issue electronic money, provide payment services, or operate digital wallet platforms, obtaining FCA authorization represents both a significant compliance achievement and a valuable commercial asset.
Legal Framework Governing UK EMI Operations
UK electronic money regulation derives from multiple legislative sources that collectively establish comprehensive oversight:
Electronic Money Regulations 2011: Transposed from EU Directive 2009/110/EC, these regulations define electronic money, establish authorization requirements, and set operational standards for EMIs.
Payment Services Regulations 2017: Implements the revised Payment Services Directive (PSD2), governing payment service activities that EMIs commonly provide alongside e-money issuance.
Financial Services and Markets Act 2000: Establishes the FCA's authority and the broader regulatory framework within which EMIs operate.
Money Laundering, Terrorist Financing and Transfer of Funds Regulations 2017: Mandates anti-money laundering controls and customer due diligence procedures.
Criminal Finances Act 2017: Strengthens corporate liability for failing to prevent money laundering and tax evasion facilitation.
Services Available Under UK EMI Authorization
FCA-authorized Electronic Money Institutions may conduct a broad range of financial services:
E-Money Issuance
The core EMI activity involves issuing electronic money in exchange for funds received. This includes prepaid cards, digital wallets, and stored value products where customers exchange traditional currency for electronic equivalents.
Payment Account Services
EMIs may operate payment accounts enabling customers to deposit funds, make withdrawals, and manage their electronic money holdings.
Payment Transactions
Authorized firms can execute various payment types including fund transfers between accounts, direct debit collections, standing orders, and card-based payment processing.
Money Remittance
Cross-border and domestic money transfer services fall within EMI authorization scope, enabling firms to serve the substantial remittance market.
Payment Initiation and Account Information Services
Under PSD2 provisions, appropriately authorized EMIs may offer services that initiate payments from customer accounts held elsewhere or aggregate account information across multiple providers.
UK EMI License Categories
The FCA offers two distinct authorization pathways, each suited to different business scales and ambitions:
Authorized Electronic Money Institution (AEMI)
The full AEMI authorization enables unrestricted operations with no turnover limits. Key characteristics include:
Capital Requirements: Minimum initial capital of €350,000 (approximately £305,000), plus ongoing capital calculated as 2% of average outstanding electronic money.
Application Fee: £5,000 payable to the FCA upon application submission.
Operational Scope: No restrictions on transaction volumes or geographic reach within the UK. Post-Brexit, AEMI authorization covers UK operations; separate arrangements apply for European Economic Area activities.
Passporting: While EU passporting ended with Brexit, UK EMIs may establish European operations through alternative structures or by obtaining additional EU authorizations.
Small Electronic Money Institution (SEMI)
For businesses with more modest initial ambitions, SEMI registration offers a lower-barrier entry point:
Turnover Limit: Average outstanding electronic money must not exceed €5 million, and monthly payment transactions cannot exceed €3 million on average.
Capital Requirements: No minimum initial capital, though firms must demonstrate adequate resources for their business model.
Application Fee: £1,000 payable to the FCA.
Limitations: Operations restricted to the United Kingdom. Firms exceeding the prescribed thresholds must apply for full AEMI authorization.
Commercial Advantages of UK EMI Licensing
FCA authorization confers significant commercial benefits:
Banking Infrastructure Access: UK EMIs can obtain SWIFT BIC codes and issue IBAN accounts (through banking partnerships), enabling full participation in international payment networks.
Multi-Currency Capabilities: Authorized firms typically support operations in 45 or more currencies, facilitating global commerce.
Correspondent Banking: FCA authorization facilitates relationships with correspondent banks worldwide, essential for international payment processing.
Tax Treatment: Certain financial services activities benefit from VAT exemption, improving commercial viability.
Regulatory Reputation: FCA oversight carries substantial weight globally, potentially easing business development and partnership negotiations.
Capital and Prudential Requirements
UK EMIs must satisfy both initial and ongoing capital requirements:
Initial Capital
AEMI applicants must demonstrate €350,000 in initial capital before authorization. This capital must be unencumbered and immediately available to the business.
Ongoing Capital
Once operational, EMIs must maintain own funds equal to at least 2% of average outstanding electronic money. The calculation uses a rolling average, typically based on the preceding six months.
Safeguarding Requirements
Customer funds must be protected through one of the prescribed safeguarding methods:
- •Segregation in designated accounts with authorized credit institutions
- •Investment in secure, liquid, low-risk assets
- •Coverage by an insurance policy or comparable guarantee
Documentation Required for EMI Applications
FCA applications require comprehensive documentation demonstrating business viability and regulatory compliance:
Business Plan: Detailed description of proposed activities, target markets, revenue projections, and growth strategy covering at least three years.
Governance Documentation: Organizational structure, reporting lines, and allocation of responsibilities among senior management.
Regulatory Business Plan: Specific description of how the firm will comply with applicable regulations, including systems and controls.
Financial Projections: Detailed forecasts demonstrating capital adequacy and business sustainability.
Safeguarding Arrangements: Explanation of how customer funds will be protected.
AML/CFT Framework: Policies, procedures, and controls for anti-money laundering and counter-terrorist financing compliance.
Outsourcing Arrangements: Details of any material functions to be outsourced, including due diligence on service providers.
Fit and Proper Information: Comprehensive background information on all directors, senior managers, and significant shareholders.
The FCA Application Process
EMI authorization follows a structured assessment process:
Stage 1: Pre-Application
Firms typically engage with the FCA's pre-application service to discuss their business model and identify potential issues before formal submission.
Stage 2: Application Submission
Complete applications are submitted through the FCA's Connect system, accompanied by the applicable fee.
Stage 3: Initial Assessment
The FCA conducts preliminary review to confirm application completeness. Incomplete applications may be returned or delayed.
Stage 4: Detailed Assessment
Caseworkers evaluate the application against authorization criteria, typically requesting additional information or clarification during this phase.
Stage 5: Senior Management Interviews
The FCA may interview proposed senior managers to assess their competence and understanding of regulatory obligations.
Stage 6: Decision
The FCA either grants authorization (potentially with conditions) or refuses the application. Statutory decision periods apply, though complex applications often require longer assessment.
Fitness and Propriety Standards
All individuals holding significant influence within an EMI must satisfy FCA fitness and propriety standards:
Directors and Senior Managers: Must demonstrate competence, capability, and suitability for their roles. The Senior Managers and Certification Regime (SM&CR) applies specific accountability requirements.
Significant Shareholders: Individuals or entities holding 10% or more of shares or voting rights must be approved as controllers, demonstrating they will not pose risks to the firm's prudent management.
Reputation Requirements: Individuals must have no history of financial crime, serious regulatory breaches, or conduct suggesting they may not act with integrity.
Ongoing Compliance Obligations
Authorization creates continuing obligations that EMIs must maintain throughout their operations:
Regulatory Reporting: Regular submission of financial and operational returns to the FCA.
Capital Monitoring: Continuous compliance with capital requirements, with notification obligations if breaches occur or appear likely.
Safeguarding Compliance: Maintaining proper protection of customer funds with regular reconciliation and verification.
AML/CFT Compliance: Ongoing customer due diligence, transaction monitoring, and suspicious activity reporting.
Change Notifications: Informing the FCA of material changes to the business, ownership, or management.
Practical Considerations for Applicants
Businesses pursuing UK EMI authorization should consider several practical factors:
Timeline: FCA processing times vary based on application complexity and quality. Well-prepared applications with complete documentation typically progress more smoothly.
Professional Support: Given the complexity of regulatory requirements, most applicants engage specialist legal and compliance advisors to support their applications.
Banking Relationships: Securing banking facilities can prove challenging for new EMIs. Early engagement with potential banking partners is advisable.
Technology Infrastructure: Robust systems for transaction processing, customer management, and regulatory reporting are essential. The FCA assesses IT capability as part of authorization.
Staffing: Adequate qualified personnel must be in place, including compliance expertise and operational capability appropriate to the proposed business scale.
Conclusion
UK EMI authorization provides a robust foundation for electronic money and payment services operations, backed by one of the world's most respected financial regulatory frameworks. While the authorization process demands substantial preparation and resources, successful applicants gain access to valuable commercial opportunities and the credibility that FCA oversight provides.
Businesses considering UK EMI licensing should invest in thorough preparation, engage appropriate professional support, and ensure their business models genuinely align with regulatory expectations. The FCA's focus on consumer protection and market integrity means that only well-prepared applicants with sustainable business models are likely to achieve authorization.