UK Payment Services Regulations and Anti Money Laundering Regulations

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Advice on how to comply with regulatory obligations associated with PSR’s and AML.

The major pieces of legislation impacting UK PI’s are the UK payment services regulations and the anti-money laundering regulations.

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.

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 April 2016, there are around 370 Authorised Payment Institutions and 750 small Payment Institutions regulated by the FCA in the UK.

Authorised Payment Institution

Prior to granting authorisation, the FCA 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, etc

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 FCA (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 FCA 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 FCA 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
  • The firm must satisfy the Authority that any persons having a qualifying holding are fit and proper persons. This is to ensure the sound and prudent conduct of the affairs of a small payment institution. This extends to possessing appropriate knowledge and experience to provide payment services. 
  • HMRC may cancel the registration of a money service business if it is not included on the register of Payment Service Providers maintained by the Financial Conduct Authority.

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 FCA.

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

Anti Money Laundering Legislation

HMRC are the supervisors of the money laundering regulations as they relate to MSB.  All firms which offer money transfer services need to register with HMRC. Details on the HMRC supervisory regime can be found at: www.hmrc.gov.uk/mlr.

The key points of the Regulations that came into force on 15th December 2007 mean that firms:  

  • need to have a risk assessment in place, and conduct their client due diligence on the basis of that assessment including:
  • simplified due diligence
  • enhanced due diligence (including provisions regarding politically exposed persons)
  • need to identify the beneficial owner of a client
  • are required to monitor, on an ongoing basis, their relationship with the client and have evidence of identity in place for all clients, even those which have been on the books for many years.
  • need to monitor their firm's compliance with the regulations

The UK money laundering regulations are now subject to further amendment, as a result of the decision of the EU to implement a 4th Money Laundering Directive. However, it is not likely that revised UK MLR’s will come into force before 2016.  A summary of 4MLD by leading regulatory solicitors, Clifford Chance, is attached The_EU_4th_Money_Laundering_Directive