EMI License in the UK

Despite a drop in fintech investment, the UK remains a global hub for fintech innovation. Starting an  Electronic Money Institution (EMI) in the UK now will allow you to leverage the country’s expertise in fintech and access a deep pool of skilled talent in order to build innovative solutions and stay competitive in the evolving e-money industry. Consumers continue to increasingly adopt digital payment solutions, and you can get ahead by identifying specific market needs or underserved segments. Such an approach can enable your EMI to carve out a niche that will ensure its ​​long-term sustainability and resilience during market adjustments.

If you envision yourself disrupting or at least taking small steps forward in the UK’s e-money industry, start your journey by exploring the country’s regulatory framework, evaluating the benefits, and learning about the ways of getting a UK e-money license. This license will act as a facilitator, allowing you to access the lucrative market, and constantly innovate while ensuring the security and protection of consumer funds. Obtaining an EMI license requires robust preparation, and you can certainly count on us to help you launch an e-money institution in the UK. Our diverse team of lawyers here at Regulated United Europe has over six years of experience in fintech licensing and can offer the expertise necessary to navigate applicable regulations.

What Is an Electronic Money Institution (EMI) License?

An Electronic Money Institution (EMI) license, or e-money license, is a regulatory approval granted by a national financial authority to companies that intend to primarily issue electronic money, which is a digital representation of fiat currency, and provide associated financial services. In the UK, this license is a legal requirement and is essential for various businesses involved in electronic transactions and digital finance. While fintech companies are at the forefront of leveraging EMI licenses, they can be applied across various industries.

An EMI license can provide opportunities to innovate for such businesses as:

• E-commerce platforms that want to provide customers with secure and smooth electronic payment options, and reduce reliance on third-party payment processors
• Retailers can benefit from EMI licenses by incorporating electronic money services into their business models, including the implementation of prepaid cards and loyalty programs
• EMI licenses are also relevant to the gaming and entertainment industry as they can enable businesses to implement digital payment systems for in-game purchases, subscriptions, and event ticketing
• Small and medium-sized enterprises (SMEs) across various industries can benefit from EMI licenses by integrating electronic money services into their operations which could enable them to offer flexible payment solutions to customers and streamline financial transactions

A UK EMI license holder can engage in a variety of activities:

• Issue electronic money in various forms
• Safeguard customer funds to ensure their security and protection
• Process payment transactions, including transfers, direct debits, and standing orders
• Issue and manage payment instruments like prepaid cards or electronic wallets
• Accept cash deposits and withdrawals from payment accounts
• Offer currency exchange services related to electronic money issuance
• Operate payment accounts for customers, enabling them to receive, store, and transfer funds
• ​​Provide payment initiation service (PIS)
• Provide account information service (AIS)

Types of EMI Licenses in the UK

Whether you’re an e-money startup or a more established financial institution, you’ll find a licensing solution in the UK suited to your business needs. Based on your business model, resources, and other important factors, you can choose from two UK EMI licenses that will give you access to the UK’s competitive and promising market.

You may apply for one of the following EMI licenses:

• A small electronic money institution (SEMI) that permits license holders to issue e-money and provide payment services but doesn’t cover the provision of AIS and PIS
• An authorized electronic money institution (AEMI) which is a regular license

Your company will be classified as an SEMI if:

• It doesn’t project to issue an average outstanding e-money of more than 5 mill. EUR
• The company’s monthly average payment transactions in a 12-month period don’t surpass 3 mill. EUR
• The maximum limit for the amount stored in the customer’s payment instrument, where electronic money is held, doesn’t exceed 250,000 EUR

If your company projects to issue an average outstanding e-money of more than 5 mill. EUR, you’ll have to apply for an AEMI license which has stricter eligibility requirements and a more complex application process.

Advantages of Holding a UK EMI License

While Brexit introduced changes, the UK continues to stand out for a variety of reasons. UK e-money licensing advantages span a diverse range, including its robust and transparent regulatory framework, global financial prominence, and maintaining a resilient financial ecosystem. In essence, being a UK-based EMI means having a competitive edge, business opportunities, and strong governmental support for sustained business success in the progressive industry of electronic money services.

The key benefits of holding an e-money license in the UK:

• The license can provide you with access to a well-connected UK financial market, including strong partnerships and a diverse customer base, facilitating expansion and growth opportunities
• The UK has a well-established and clear regulatory framework for financial services, combining rigor with adaptability, which allows EMI licenses to remain compliant while constantly innovating in order to adapt to evolving consumer preferences
• London, the capital of the UK, is one of the most reputable global financial centers with a sophisticated infrastructure and a strong reputation for financial services, including e-money, which can add a layer of legitimacy and reliability to your EMI’s operations
• The UK boasts a diverse and highly skilled workforce in finance, technology, compliance, and other relevant fields which can provide your EMI with a breadth of specialized knowledge crucial for business operations
• With historical ties and connections to various regions, the UK offers EMIs access to international markets and facilitates global expansion strategies
• The UK has double taxation agreements with over 130 countries worldwide which will allow you to reduce your tax burden by avoiding being taxed in two countries when your EMI engages in cross-border business
• The UK puts a very strong emphasis on innovation, and if your EMI is engaged in innovative activities or technology development, it may qualify for research and development (R&D) tax credits which can help offset R&D expenses and this way significantly reduce the overall costs associated with these activities

EMI Regulations in the UK

Post-Brexit, the UK has implemented its own regulatory framework which is enforced by the Financial Conduct Authority (FCA). Before we dive into the UK’s national regulations, it’s important to address one key change relating to access to the European Economic Area (EEA). UK EMI license holders no longer have automatic access to passporting privileges within the EEA, and you would have to find other ways to offer your services to consumers in the EU/EEA.

To provide services in the EU/EEA post-Brexit, UK-based EMIs now need to either:

• Establish a presence by setting up a company or branch within an EU/EEA member state and apply for an EMI license from the relevant regulatory authority in that country
• Rely on specific agreements or equivalency regimes negotiated between the UK and the EU/EEA countries which allow limited access to EU markets in certain financial areas if the EU deems the UK’s regulatory standards comparable to its own
• Some UK-based EMIs might opt to relocate their headquarters or a significant part of their operations to an EU/EEA member state to have access to the EU/EEA market

Bear in mind that we have an experienced team of lawyers, business developers, and financial accountants who can advise you on the best approach in this situation. If availing yourself of the EU’s passporting rights is of paramount importance to you, we can help you obtain a license from any EU jurisdiction of your choice. However, by no means be discouraged from further exploring the UK’s regulatory environment and the opportunities an FCA EMI license can offer. It remains a prestigious jurisdiction, attracting international investment, hosting a wide array of financial services, and continuously evolving to meet the needs of innovative businesses.

All UK-based EMI licensees are governed by various laws and regulations relating to UK financial licensing:

• Electronic Money Regulations 2011 (EMRs) –  outline the requirements for issuing electronic money, safeguarding customer funds, conducting business operations, and compliance standards
• Payment Services Regulations 2017 (PSRs) – are applicable to UK EMIs providing payment services and cover such aspects as payment processing, security requirements, and customer protection
• The Payment Card Interchange Fee Regulations 2015 (PCIFR) –  regulate interchange fees charged between banks for card-based payment transactions by imposing such measures as caps on interchange fees and differentiation of caps
• The Financial Services and Markets Act 2023 (FSMA) –  is one of the most significant pieces of legislation introduced to the UK’s financial services sector in recent times as it established the framework for the revocation of retained EU laws, adding new objectives for regulators relating to financial services
• The Electronic Money, Payment Card Interchange Fee and Payment Services (Amendment) Regulations 2023 amend EMRs, PCIFR, and PSRs
• The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLR 2017) and The Money Laundering and Terrorist Financing (Amendment) Regulations 2019 aim to prevent money laundering and terrorist financing and include rules for a risk-based approach, customer due diligence (CDD) procedures, record-keeping, and internal controls
• The Proceeds of Crime Act 2002 (POCA) sets out the legislative scheme for the recovery of criminal assets with criminal confiscation and provides for a number of investigative powers, such as search and seizure powers
• The Data Protection Act 2018 is the UK’s implementation of the General Data Protection Regulation (GDPR), and it controls how customer’s personal information is used by organizations, businesses, or the government

The UK’s government continues to work on improving the competitiveness of the UK financial sector by implementing such initiatives as the HM Treasury’s program focused on delivering a better regulatory framework and improving the UK’s position in a post-Brexit world. Recently, the government actively sought input from the payment services industry through the Future of Payments Review 2023 looking for recommendations on the steps needed to successfully facilitate world-leading retail payments, and boost the UK’s fintech competitiveness. There are more changes to come in this exciting and promising market, and we strongly recommend speaking with our lawyers who can help you keep up with ever-evolving fintech regulations in this prestigious jurisdiction.

How to Get a UK EMI License?

There are two ways of getting an EMI license in the UK – obtaining a new EMI license and buying a ready-made company with an EMI license – and we offer both solutions. Before deciding, you should consider a variety of aspects, including your financial resources, business goals, operational capabilities, risk tolerance, and timelines. Below we’re sharing the essential considerations of each option that are necessary to make an informed decision. If you wish to weigh these features and other crucial conditions against your specific business model, set up a personalized consultation with our team who will be delighted to carefully analyze your situation and provide you with actionable insights.

The key considerations of obtaining a new EMI license:

• Ability to tailor business strategies and compliance measures from the ground up
• Right from the beginning, complete control over the company’s structure, policies, and operational setup
• Applicants must be prepared to invest time, effort, and resources into the lengthy license application process that could take several months or a year to complete
• A lot of expertise is required to navigate the complex regulatory application requirements
• It’s necessary to accept the risks associated with uncertainties during the application process, including potential revisions or delays by regulatory authorities

The key considerations of buying a ready-made company with an EMI license:

• It’s an opportunity to enter the market quickly without undergoing the lengthy application process
• A buyer must have the financial ability to bear the potentially higher upfront costs associated with purchasing an established company with an EMI license compared to the expenses of a new application
• Buying a company requires comprehensive due diligence to ensure the authenticity, compliance status, history, and financial stability of the acquired company
• A buyer would have to adapt to the acquired company’s existing structures, policies, and operational methods inherited through the purchase, which may not align perfectly with the buyer’s vision

READY-MADE COMPANIES WITH EMI LICENSE FOR SALE

Requirements for UK EMI License Applicants

To apply for an EMI license in the UK, you’ll have to meet eligibility criteria concerning your EMI’s capability, credibility, and commitment to operating a compliant and trustworthy electronic money business in the UK. To demonstrate adherence to these requirements, you’ll be asked to provide an extensive list of documents and information detailing your compliance procedures, risk management strategies, organizational structure, and other relevant details essential to assess your suitability for an EMI license in the UK.

Eligibility criteria for UK EMI license applicants:

• Incorporate a company in the UK under the Companies Act
• Possess sufficient initial capital
• Pay application processing fees
• Maintain adequate levels of own funds to cover operational risks, safeguard client funds, and meet ongoing regulatory requirements
• Establish robust governance structures, internal controls, and risk management procedures
• Ensure the suitability of individuals holding significant ownership
• Appoint directors and responsible personnel with reputable backgrounds, possessing relevant expertise for issuing e-money and providing payment services
• Design and implement adequate measures to safeguard funds held for e-money holders and, if applicable, payment service users (including segregated client funds accounts)
• Design robust compliance procedures, policies, and systems in line with AML/CFT regulations
• Demonstrate a suitable infrastructure, technology systems, and operational capacity to provide electronic money services efficiently and securely
• Arrange adequate insurance coverage to protect against potential risks and liabilities associated with the business operations
• Avoid hindering FCA’s effective supervision of your business, particularly if there are close associations with other persons (if these associations are international, ensure foreign laws don’t impede FCA’s supervision)

EMI initial capital requirements in the UK:

• 50,000 EUR for SEMIs generating an average outstanding electronic money of less than 1 mill. EUR
• 100,000 EUR for SEMIs generating an average outstanding electronic money of 1-2 mill. EUR
• 350,000 EUR for AEMIs

EMI own funds requirements in the UK:

• SEMIs – 2% of the average outstanding electronic money of the institution
• AEMIs must calculate their own funds in accordance with specific methods instructed by the FCA

EMI license application fees in the UK:

• SEMIs – 5,000 GBP (approx. 5,750 EUR)
• AEMIs – 15,000 GBP (approx. 17,200 EUR)

Regulatory documentation required for a UK EMI license application:

• A detailed business plan specifying EMI’s products or services, financial projections, and other key information
• A certificate of incorporation from Companies House
• A memorandum of association
• Articles of association
• Description of the company’s ownership structure, including shareholders, directors, and key personnel
• Documentation describing the background information, qualifications, and responsibilities of directors and officers involved in the EMI (CVs, certificates, etc.)
• Due diligence reports on key individuals, shareholders, and beneficial owners
• Evidence of possessing the required initial capital
• A calculation of ongoing capital requirement
• Evidence of paid application fee
• Forecasted financial statements, including profit and loss (P&L) statements, balance sheets, cash flow projections, and capital adequacy calculations
• A detailed description of control mechanisms to meet AML/CFT regulations
• Documentation demonstrating compliance with other regulatory requirements, including consumer protection, data privacy, and regulatory reporting
• Documentation outlining the EMI’s risk management policies, procedures, and systems for identifying, assessing, and mitigating risks
• Proof of arrangements on professional indemnity insurance or comparable guarantee (if you’re also providing AIS and/or PIS)
• Business continuity and disaster recovery plan
• Security policy and security-related customer complaints policy
• Documentation of outsourcing arrangements (if applicable)

The list of the required documentation isn’t exhaustive but we hope it’s enough for you to understand the level of preparation you need to obtain an EMI license in the UK. You can rely on us when it comes to compiling, organizing, and drafting the required documentation. We possess in-depth knowledge of the specific documentation and compliance standards enforced by the FCA for financial licensing and can help you perfect your application package.

How to Establish a Company for EMI Activities in the UK?

Registering a company in the UK involves several relatively simple steps that can be completed online within 24 hours, provided that all the documents are duly prepared in advance. For your EMI, you can choose from such legal business structures as a Private Limited Company (LTD), a Public Limited Company (PLC), and a Limited Liability Partnership (LLP). The former is the most common legal structure for EMIs in the UK due to such factors as flexibility in structuring management and operations, and suitability to the regulatory framework.

The minimum requirements to register a Private Limited Company (LTD):

• At least one shareholder
• At least one director (at least 16 years old)
• A registered office address in the UK where official communications can be sent
• The chosen company name must be unique and not similar to any other company name currently held on the register at Companies House
• The company must issue at least one share at the time of incorporation

The main steps of establishing a Private Limited Company (LTD) for EMI licensing in the UK:

• Prepare documents, required by Companies House
• Set up a business bank account in the UK
• Appoint key staff members
• Pay the incorporation fee which is only 12 GBP (approx. 14 EUR)
• Submit the documents either online via the Companies House website or send paper copies by post
• Set up company and accounting records
• Register with HM Revenue & Customs (HMRC) for tax purpose
• Apply for an EMI license

EMI License Application Process in the UK

The typical review and processing period for an EMI license application by the FCA is approximately six months following the submission of the application package. Nevertheless, this duration might differ quite significantly based on the complexity of the application and the level of readiness demonstrated by the applicant. To avoid delays or even rejection, you should ensure that all legal requirements are duly and expertly met prior to submitting the application.

The main UK e-money license application steps:

• You’ll have to complete and submit the EMI license application form along with the required documents through the FCA’s online portal
• The FCA will conduct a thorough review of your application, assessing the compliance, financial, and operational aspects
• The FCA may request additional information or clarifications during the review process
• In some cases, the FCA may conduct interviews with individuals involved in your EMI

Requirements for Buyers of a Ready-Made Company with a UK EMI License

If you’re leaning towards acquiring a ready-made company with an e-money license in the UK, you should be aware of several key requirements for potential buyers. First, buyers should demonstrate financial stability and the ability to manage EMI operations. Just like during the license application process, directors, officers, and shareholders must pass the FCA’s fit and proper criteria.

To fulfill EMI’s ongoing legal obligations to the FCA, you should ensure your chosen ready-made EMI company operates within the applicable regulatory framework. It includes verifying the effectiveness and adequacy of existing anti-money laundering and counter-terrorism financing procedures, customer protection, data privacy, and other legally required measures. Along with the verification of operational processes and documents, you should develop a transition plan to integrate the purchased company into your operational framework effectively.

Obtaining an EMI license from the FCA can be your strategic move that determines your business’s success. It’s not an easy goal to accomplish, and you should seek guidance from our legal team here at Regulated United Europe who will be delighted to support you in incorporating a company and applying for an EMI license in the UK. Our dedicated specialists can also guide you through the acquisition of a ready-made company with an existing UK e-money license. With experienced lawyers, business development professionals, and financial accountants at your side, you will find the process of starting an EMI business in the UK efficient, seamless, and transparent. Contact us now to schedule a personalized EMI license consultation and set the stage for long-lasting success.