PI License in the UK

In the long run, it should continue to grow despite a recent drop in fintech investments. Technological innovations, changing customer behavior, and the government’s flexible approach continue to keep presenting business opportunities both for established payment service providers and new market entrants. In this context, the license of a PI in the UK means a lot in terms of compliance with the national regulatory framework, providing an avenue for legitimate growth in the UK, and increasing credibility and trust from customers, partners, and other key stakeholders.

If you are considering a UK PI license as a viable solution for your payment services business, it is important to bear in mind that expert assistance will mean the difference between confidence and uncertainty when approaching such a complex regulatory framework, and that will maximize the probabilities of a smooth and compliant licensing process. We can help you with this. Our specialized lawyers at Regulated United Europe have rich experience in arranging new payment licenses and ready-made companies with a payment license in the UK. We provide insight into the regulatory landscape of the UK, expert views, and bespoke solutions for a seamless and successful payment license acquisition experience with a proven track record of helping and guiding various businesses through these complex license issuance processes.

What Is a Payment Institution (PI) License?

A payment institution license is an authorization from the regulator to businesses intending to offer payment services within a particular jurisdiction—for instance, the UK. It is a license to operate, established by law in countries where a PI intends to operate to ensure regulation, consumer interest, and trust in the financial ecosystem. In addition, these licenses further stimulate innovation and competition by paving the way for new entrants into the market and offering novel payment solutions.

Strong UK PI license holders are able to provide a range of payment services, including:

• Payment transactions—executing direct debits, credit transfers, and card payments
• Issuing debit cards, credit cards, and other forms of payment instruments
• Domestic and cross-border money transfers
• Currency exchange or foreign exchange
• Provide account information service (AIS) related to accessing and consolidating account information from different financial institutions with the customer’s consent
• Provide payment initiation service (PIS) which involves initiating payment transactions on behalf of the customer, with the customer’s consent, often associated with open banking and fintech solutions

Types of PI Licenses Available in the UK

The UK provides different payment license types for businesses of different sizes and operational capacities. You are free to choose a license type that aligns with your current operational scale and may also lead to future expansion. Even being a fintech startup or running a small payment business, you can enter this leading market based on requirements set for companies of your nature.

You can get one of the following PI licenses:

• Small Payment Institution – SPI, as the name suggests, is for small businesses with limited operations and allows license holders to offer any payment services which are not classified as AIS or PIS.
• API is a standard payment license which enables all payment services and can support more extensive activities.

Your business will fall under SPI if:

• Its average monthly payment transactions in the last 12 months do not exceed 3 mill. EUR
• In case you have been offering payment services for a period less than 12 months or you have not yet started providing them, your projected average monthly payment transactions shall not be more than 3 mill. EUR
• It’s not involved in AIS or PIS activities

In case your firm’s actual or projected average monthly payment transactions in the past 12 months exceed 3 mill. EUR, you will have to apply for an API license, which is more difficult to obtain, and a much more cumbersome application process. You might be allowed to have an interim status of restricted authorization pending approval for the license, enabling you to exercise under certain restrictions and conditions while you are completing the authorization.

Advantages of Holding a UK PI License

The UK is not an EU member state anymore, but it remains one of the most significant financial hubs in the world. It continues to promote itself as an international financial services player and does much to resolve post-Brexit complications through the introduction of new measures aimed at supporting the innovative spirit of the jurisdiction, the clarity of its regulation, and good repute. As a UK payment services licensee, you would enjoy enormous prospects, as the total transaction value in the digital payments market in the UK is expected to see an annual growth rate of 13.97% (CAGR 2023-2027) and will reach an expected total amount of approximately 594.70 billion GBP or 682.56 billion EUR by 2027.

Advantages of UK Payment License:

• The UK has a renowned, well-established regulatory regime; it therefore offers clarity and stability to PI license holders. In that respect, London is also a global financial hub offering access to robust financial infrastructure and new business opportunities opening within the Fin-tech ecosystem. Holding a UK PI license symbolizes compliance with robust regulatory standards and builds consumer trust and confidence in the services offered by license holders.
• The presences with a UK PI license may open up future relationships and collaborations in the UK and internationally.
• To this end, the UK has an attractive tax regime for businesses, with an extensive list of double taxation agreements, generous research and development tax credits, and incentives that will enhance the profitability and innovation capability of your payment institution.
• The UK can draw from a very diverse talent pool, comprising professionals skilled in finance and technology who can help drive continuous improvement and resilience in the payments industry.
• Business operations and interactions are more accessible and easier for many international payment businesses because of the use of English as a main language and a familiar legal system.
• Regulatory support by the UK government and the regulatory body has been extended, among others, through a regulatory sandbox, product testing in a controlled environment, Fintech Bridges to support collaboration and international expansion, and providing licensees with resources to enhance their cybersecurity frameworks.

Why Enter the UK Payments Market Now?

It is very well talked about that in the UK, Fintech investment decreased to 4.6 bn. To be precise, GBP 5.3 billion EUR in the first half of 2023 alone, a 57% drop from the 10.8 billion GBP, approximately 12.3 billion EUR, which was recorded for the same period last year. This should, however, not discourage you from making your business idea a reality, since such jumps and slumps of investments are quite normal within such a high-pulsar sector as Fintech. This would, therefore, imply that the present decline reflects a short-term correction and not a long-term direction, hence making it an opportune period to invest even more in defining the needs of consumers and perfecting their innovative services and products. Now, at this juncture, we request you to look at the long-term prospects without getting distracted by short-term markets.

Though the instances of lower investments may appear to be a thing to worry about, in reality, such times do bring a perfect opportunity to make a strategic entry because the competition will be thin. Preparing your payments business for success demands setting aside a good deal of time in designing your lean business model, building strategic partnerships, and creating a flexible business strategy that allows quick adjustments to evolving market changes or opportunities. Our lawyers, business developers, and financial accountants have experience in helping six-plus year-old fintech businesses get into compliant and efficient operations and would be delighted to share this expertise with you. Begin with a custom consultation in which we will delve into your business case to drive the beginning of a roadmap for your successful market entry despite the current investment challenges.

How Does the UK Regulate Payment Institutions?

Following Brexit, the United Kingdom has formulated and implemented its own regulatory regime through supervision by the Financial Conduct Authority (FCA), a highly regarded financial regulator in the United Kingdom, within its borders and beyond, for its dedication to the integrity of the markets, protection of consumers, and fairness and transparency of financial markets. What this means in practice is that UK payment licensees do not benefit from passporting rights to obtain automatic access to the entire European Economic Area, and the UK is a third party as far as the European Union is concerned.

That being said, the United Kingdom’s framework remains one of the friendliest anywhere in the world, and its law has always ensured consistency with the principles of transparency, security, protection of consumers, and integrity of the financial markets. The government remains committed to enhancing the competitiveness of its financial industry through a further adaptation of relevant regulations to the needs of the consumer and such innovative businesses as electronic money institutions. That is, regulations around payment licensing are in constant flow within the UK, and you need to keep watch and be agile in their adaptation to keep control over compliance and minimize risks arising in your business.

Currently, UK-based PI license holders are regulated under the following laws and regulations:

• Payment Services Regulations 2017 (PSRs)  – the key piece of regulations governing the authorization and conduct of payment service providers, including PIs
• The Payment Card Interchange Fee Regulations 2015 (PCIFR) – primarily regulate the interchange fees applied to payment card transactions
• Electronic Money Regulations 2011 (EMRs)  – are relevant to PIs intending to offer e-money services, as they are obligated to adhere to EMRs’ licensing requirements and ongoing compliance obligations relating to e-money issuance
• The Electronic Money, Payment Card Interchange Fee and Payment Services (Amendment) Regulations 2023 amending PSRs, PCIFR, and EMRs
• The Financial Services and Markets Act 2023 (FSMA) stands out as a pivotal legislation recently implemented within the UK’s financial services industry, laying the groundwork for repealing retained EU laws while introducing fresh objectives for regulators concerning financial services
• The Data Protection Act 2018 is the UK’s implementation of the EU’s General Data Protection Regulation (GDPR), however, a few months ago, the UK government introduced a new version of the UK Data Protection and Digital Information Bill No. 2 aiming to eliminate the need for compliance with the EU’s GDPR and create a new UK data rights regime tailor-made for the UK business and consumers
• Consumer Rights Act 2015 contains provisions relevant to consumer protection in payment services, impacting how PIs interact with consumers
• Money Laundering Regulations (MLRs), including the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLR 2017), The Money Laundering and Terrorist Financing (Amendment) Regulations 2019, and the Proceeds of Crime Act 2002 (POCA), are designed to prevent and detect activities related to money laundering and terrorist financing and provide the framework of internal controls for PIs and other businesses

How to Obtain a PI License in the UK?

In order to obtain the status of a fully licensed payment institution in the UK, you can apply for a new license or purchase a ready company with a UK PI license. Our team is qualified enough to provide both solutions and therefore help you launch your payment operations in the UK in the shortest possible terms. You should consult our lawyers, who can closely evaluate your business model and develop an actionable plan to address the UK payment services market.

Meanwhile, here are some of the aspects involved with a new PI license:

• The inception of a license holder in better control of the structure and operations of the business and compliance frameworks tailored to specific business needs
• The normal process of getting a new license takes longer due to the application, review, and approval stages, which take a period of more than a few months to over a year.
• Licensing a new facility requires very careful planning, elaborate documentation, and sizeable upfront investments in infrastructure, compliance measures, and operational setup.
• A new license presents a greenfield opportunity to enter the market with a fresh approach, allowing for unique positioning and differentiation strategies compared to existing players
• There’s the risk of the license application being denied

The most noteworthy aspects of buying a ready-made company with a PI license:

• The acquisition process may be shorter in time, since the company already has a valid license which could reduce the authorization time and thus enter the market sooner.
• This route does reduce the risk of license approval but does increase complications with respect to integration and alignment of operations and possible hidden liabilities within the firm being acquired.
• This option limits customization compared to starting anew.
• It requires thorough due diligence to ensure the acquired company meets regulatory requirements and the license aligns with the buyer’s intended services
• Needless to say, it involves the cost of purchasing an existing company with an established license, which may vary significantly based on the company’s value and the scope of its operations

Requirements for Obtaining a PI License in the UK

With a payment license in the UK, you will be obliged to prove your business can continue to run inside the national regulative regime. That means implementing appropriate internal processes focused on compliance with the law and relevant industry codes, as well as recruiting demonstrably suitable staff with the experience and skills necessary to comply with relevant regulations. You will be required to document all the processes carefully and provide verifiable documents supporting the information you have provided. If your original documents are not in English, we can help you find efficient certified translation services.

While we go through general requirements for UK PI license applicants, many of them apply only to APIs. Broadly, SPIs are exempt from the requirements in Part 3 of the PSRs 2017 but are subject to a registration regime and the conduct of business provisions in Parts 6 and 7. For detailed requirements specific to the scale and scope of your business, please contact our team, who will give a clear picture of eligibility with the information provided.

Generally, you need to have the following to be able to apply for a UK payment institution license:

• You must incorporate a company in the UK, with its head office and registered office in the UK.
• You must have sufficient initial capital.
• You must conduct at least some of your payment services business in the UK.
• At least two directors or a director and an MLRO are appointed in the Company.
• Be properly fit and proper; that is, honest, of good repute, competent, and in a position to effectively manage the business by those individuals holding a qualifying stake and in control of the business. The proper governance arrangements, internal controls, and risk management procedures should be set out. Have adequate measures for safeguarding the funds of users of your payment services.
• Elaborate and put in place adequate AML/CFT measures, including CDD requirements, record keeping, and reporting to competent authorities. APIs shall also maintain adequate indemnity cover if they also provide AIS and/or PIS.
• Close links should not prevent the FCA from effectively supervising your business if you have close links with another person, foreign laws must not prevent the FCA from supervising your business effectively in case of links outside the UK.

Low expenses regarding acquiring a license of PI in the UK:

• Minimum initial capital: 20,000 EUR, 50,000 EUR, or 125,000 depending on the services you are going to provide API’s only – no capital requirements for SPI’s
• License application fees – ca 2,000 GBP, around 2,300 EUR
• Company registration fee – 12 GBP, around 14 EUR

You need to register with the FCA people who will be in charge of your API or SPI:

• Members of your management board, meaning directors if you are a LTD or members if you happen to be an LLP;
• The management staff will normally include the Head of Compliance and/or MLRO;
• Any other person who is responsible for managing your PI’s regulated or registered activities

UK Payment Institution License Application Process

Familiarize yourself with the key application steps of a UK Payment License, in case you are not sure where to start. Each of these steps needs deep legal experience that could maximize your possibilities of successful application. The efficiency of the application process largely depends on the workload of the FCA, quality of your application, and the overall adherence to the regulatory guidelines provided by the FCA. Once your application has been submitted, this may take 3-12 months for a final decision.

The major steps in the application of a UK PI license:

• Answer all the questions on the FCA’s application form—in fact, the key to avoiding delays with an application is to ensure a form is not incomplete.
• Log on to Connect, the FCA online system, and publish the form of application along with all the documents required therein.
• Provide additional information or clarification when requested by the FCA.
• Attend interviews in person, when called for by the FCA.

How to Buy a Ready-Made Company with UK PI License

If you want to smooth your way into the UK market and to buy a ready company with a fully operational PI license, take your time to learn the main issues and requirements that buyers of such companies should consider. The duration for buying a payment institution may range from several weeks to several months, which depends on the specific situation, negotiations, and regulatory procedures, and how effective the parties will be in performing all the required actions.

To purchase a readymade company with a UK PI license, you must:

• Confirm that you are aware of and agree to the resultant regulatory requirements and standards of compliance attendant to operating a UK payment institution, including
• Due diligence to verify the legitimacy and compliance of the readymade company, to be done through an assessment of its financial condition, history of compliance with regulators and the law
• Comply with all the legal requirements, including disclosure requirements and other additional regulatory requirements with respect to the acquisition of a firm holding an SPI or an API license. That you, as an acquirer, are considered fit and proper, which means that you have the integrity, competence, and qualifications to manage a UK payment institution.
• Prove that you have the financial stability necessary to take over the company and support the operations with ease.
• Assure that the operations of the company, after being taken over, will be kept in full compliance with all the existing and evolving regulatory requirements. You may also need to plan certain implementation to make your new operations compliant with the basic requirements.
• Depending on the circumstance, you may be obliged to seek approval from the FCA for completion of acquisition and/or post-completion certification to verify the ongoing validity of the PI license

READY-MADE COMPANIES WITH Pi LICENSE FOR SALE

Ongoing Payment Services Compliance in the UK

Once you are an authorized payment institution in the UK, you have ongoing obligations to ensure at all times compliance with relevant regulations and standards. Remember, ongoing compliance requires, but is not limited to, a commitment to stay current with regulatory changes, implement such adjustments, and keep proper records. Our team will guide you through each step of the ongoing compliance journey, offering consultation and expertise, with full support in facing constant regulatory changes for optimized operations and, if necessary, going international.

Main rules to keep the ongoing compliance:

• Establish an appropriate risk management framework that includes the identification, rating, and mitigation of various risks connected with the payment service relevant to fraud, money laundering, and operational risks;
• Periodic internal compliance audits to ensure that FCA guidelines are followed properly and to emphasize possible non-compliance with gaping or any issues that would have to be addressed.
• Advancing notice to the FCA of any changes, including changing personnel responsible for your Regulated or Registered Payment Services.
• Complying with the reporting requirements of the FCA by filing appropriate and timely reports, financial statements, and such other documents as may be required.

Lastly, we want to point out that it is very important to be compliant from the very beginning. By either providing payment services to UK consumers without an appropriate FCA license or failing to take into account ongoing compliance regulations, you expose the operation to possible legal actions, severe fines, and even FCA-ordered shutdowns. Non-compliance will also put your credibility under threat, undermine customer trust, and lead to a loss of growth opportunities, therefore limiting access to the market and hindering potential partnerships. Compliance with the FCA’s regulations is one effort that cannot be underrated if you are certain of developing a sustainable payments business both in the UK and beyond.

All things considered, obtaining a PI license from the FCA is a strategic move which may mean success for your business. It isn’t easy to achieve, and it’s highly recommended that you take professional advice from our legal team herein at Regulated United Europe who will be very pleased in assisting you with the incorporation of a company and also with an application for a PI license in the UK. Our experts will also be glad to advise on purchasing a ready company with an already obtained UK payment institution license. Having seasoned lawyers, business development professionals, and financial accountants by your side, you will find the opening of a payment services business in the UK efficient, smooth, and transparent. Do not hesitate to reach us now for a personal PI license consultation and set the stage to achieve long-lasting success.