The digital age has ushered in a new era of financial services, with electronic money institutions (EMIs) at the forefront of this financial revolution. EMIs are pivotal in driving innovation in payment processing and banking, offering natural and legal persons a range of services that are efficient, secure, and often more cost effective than traditional banking methods. In the UK and across the EU, the demand for EMI services is growing exponentially, as the convenience of electronic money aligns with the increasing preference for digital transactions. Below is an overview of the cost related to the purchase of an EMI in the United Kingdom.
What is an EMI?
An EMI is a financial entity authorized to issue e-money. This is the digital equivalent of cash, stored on an electronic device or remotely at a server, which enables users to conduct electronic transactions. EMIs can provide services such as issuing e-money, facilitating payments, and offering cards without being a full-scale bank.
While an EMI and an online bank or a correspondent bank may offer overlapping services like debit cards, there are clear distinctions between the two. An online bank or correspondent bank are deposit-taking institutions that can offer a full range of banking operations, including lending and credit facilities, which EMIs are not eligible to carry out. Furthermore, banks are often subject to more stringent regulative and organizational obligations and terms compared to EMIs, reflecting the broader scope of their services and the risks involved.
Benefits of becoming an EMI in the UK
Becoming an EMI comes with a plethora of benefits:
- Access to the growing market of digital payments: alternative banking is gaining more and more popularity;
- Flexibility to innovate products in the sphere of finance: for instance, issuance of debit cards;
- Economy: Lower operational costs compared to traditional banks;
- All-in-one: Ability to operate across the EU with a single license, thanks to the ‘passporting’ system;
- Operating in global center for fintech: London has climbed ahead of San Francisco and New York to become the world’s biggest center for FinTech investment, according to a report by Dealroom. “It’s got the unique combination of a financial-services heritage, with 300 of the world’s banking headquarters based here, plus progressive policy-makers who support fintech innovation,” says Eileen Burbidge, one of the UK’s biggest Tech personalities and one of London’s most influential venture capitalists.
Businesspersons looking to enter the UK fintech market may apply for a license from scratch or consider ready-made EMIs for sale. The ready-made company providers sell pre-registered firms with an established corporate history. They sell already formed entities which normally have physical offices (for example, in London), compliance, and a full set of documents. Those who decide to buy such structures listed on sale benefit from a simpler authorization procedure and immediate start of operation. If you are looking to buy an EMI license, it is recommended to apply for the services of a local lawyer who will assist with navigating the legal landscape of the jurisdiction.
Classification of EMI in the UK
In Great Britain, there are different types of EMIs, each with its own set of characteristics and regulatory obligations. These include API, AEMI, EMI with full banking licenses, restricted banking licenses, and small e-money institution licenses. The distinctions between these types are vital for firms looking for an EMI that aligns with their specific needs and goals. For example, API and AEMI hold authorizations to perform a wider range of services.
Obtaining an EMI license in England
Unlike EU licenses, EMI licensing in the UK is subject to a singular jurisdiction. UK EMIs are regulated by the FCA. To become an EMI, your business must meet several criteria:
- Sufficient initial capital (350,000 euros);
- Corporate bank account;
- Robust governance structures;
- Sound operational risk management;
- Adequate internal control mechanisms;
- Compliance with Anti-Money Laundering (AML) and Countering Financing of Terrorism (CFT) regulations.
The process of securing the status of a licensee involves:
- Forming a legal entity, opening a bank account, appointing a director (the director should be a resident);
- Preparing a detailed business plan and economic forecasts;
- Applying to the relevant authority, such as the FCA in England;
- Undergoing a rigorous assessment of your business model, systems, and controls
- Demonstrating compliance with regulative and organizational obligations set by the UK law;
The timeline for becoming an EMI can vary, but it generally takes around 6 to 12 months from the initial application to the final decision by the regulatory authority.
For EMI in Great Britain, there are restrictions for the overall amount of financial liabilities related to e-funds in the issuance of 5,000,000 euros per month and in terms of overall payment operations processing – they should not constitute more than 3,000,000 euros per month.
Cost of purchasing an EMI in the UK
The value of an EMI purchase can vary subject to a number of aspects. Fees and costs for applying are a crucial part of the process, ensuring conformity with the FCA regulations. For instance, if you are considering obtaining a small EMI license, there are fees for application in the amount of £500 while for licensing for an AEMI the fee payable is £5000.
Additionally, businesses must consider the capital requirements necessary to operate an EMI effectively. Ongoing operational expenses, such as staffing, technology infrastructure, and security measures, also contribute to the overall cost.
Choosing the best EMI for your business
Deciding on the authorization type that will best fit your entity requires thorough analysis. Aspects such as your business objectives, target market, and regulatory conformity play a significant role in the decision-making process. It is crucial to assess the long-term viability of prospective partnerships within the wider financial landscape. Seeking expert advice can help businesspersons make well-thought-out decisions.
Final words
The journey to becoming an electronic money institution in the UK is intricate, demanding a deep understanding of the legal landscape and a commitment to stringent normative standards. By navigating these complexities, EMIs can unlock extensive opportunities in the vibrant fintech sector.
