PI License in the UK

In the long run, the UK’s digital payments industry should remain on a growth trajectory in spite of the recent drop in fintech investments. Technological innovations, changing customer behavior, and the government’s flexible and supportive approach continue to present business opportunities to established payment service providers and new market entrants alike. In this context, a UK payment institution (PI) license plays a significant role by ensuring adherence to the national regulatory framework, enabling legitimate expansion within the UK, and enhancing credibility and trustworthiness in the eyes of customers, partners, and other key stakeholders.

If you’re considering a UK PI license as a viable solution for your payment services business, it’s important to keep in mind that having expert help will ensure that you navigate the complex regulatory framework with confidence, maximizing your chances of a streamlined and compliant licensing process. This is where we can offer our assistance to you. Our team of specialized lawyers here at Regulated United Europe has extensive expertise in facilitating the acquisition of new payment licenses and ready-made companies with payment licenses in the UK. With a proven track record of guiding and assisting numerous businesses through these complex processes, we offer a robust understanding of the UK’s regulatory framework, expert insights, and tailored solutions to ensure a smooth and successful payment license acquisition experience.

What Is a Payment Institution (PI) License?

A payment institution (PI) license is an authorization granted by regulatory authorities to businesses that intend to offer payment services within a specific jurisdiction, such as the UK. Obtaining a PI license in the jurisdiction of operations is a legal requirement that ensures compliance with regulations, safeguards consumer interests, and builds trust within the financial ecosystem. These licenses also facilitate innovation and competition by allowing new players to enter the market and offer groundbreaking payment solutions.

UK PI license holders can offer a variety of payment services:

• Conduct payment transactions, including direct debits, credit transfers, and card payments
• Issue debit cards, credit cards, and other payment instruments
• Facilitate domestic and cross-border money transfers
• Offer currency exchange or foreign exchange services
• 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 offers payment license types catering to businesses of varying sizes and operational capacities. You can choose the type that aligns with your current operational scale and expansion plans. Even if you’re a fintech startup or a small payment business, you have an opportunity to enter this prominent market by meeting requirements that are tailored for businesses like yours.

You may obtain one of the following PI licenses:

• A small payment institution (SPI) is tailored for businesses with limited operations and permits license holders to provide any payment services that aren’t categorized as AIS or PIS
• An authorized payment institution (API) is a regular payment license permitting all payment services and can accommodate larger-scale operations

Your company will be classified as a SPI if:

• Its average monthly payment transactions in the preceding 12 months don’t exceed 3 mill. EUR
  • If you’ve been providing payment services for less than 12 months, or if you haven’t started yet, your projected average monthly payment transactions mustn’t exceed 3 mill. EUR
• It’s not engaged in AIS or PIS activities

If your company’s actual or projected average monthly payment transactions in the preceding 12 months exceed 3 mill. EUR, you’ll have to apply for an API license which has stricter eligibility requirements and a more complex application process. While waiting for the license to be granted, you might be given an interim status of restricted authorization which will allow you to operate under specific restrictions and conditions while completing the authorization process.

Advantages of Holding a UK PI License

Although the UK has left the EU, it remains a significant financial center, continuing to position itself as a global hub in the financial services industry. The government strives to overcome the complexities brought about by Brexit by launching various initiatives that promote innovation, regulatory clarity, and the jurisdiction’s reputation. As a payment services licensee in the UK, you would have access to immense opportunities as the total transaction value in the UK’s digital payments market is expected to show an annual growth rate (CAGR 2023-2027) of 13,97% resulting in a projected total amount of 594,70 bill. GBP (approx. 682,56 bill. EUR) by 2027.

UK payment license benefits:

• The UK is widely known and respected for its well-established regulatory framework, providing clarity and stability for PI license holders
• London, the UK’s capital, is a global financial hub, offering access to a robust financial infrastructure and new business opportunities within the fintech ecosystem
• Holding a UK PI license signifies compliance with robust regulatory standards which enhances consumer trust and confidence in the services offered by license holders
• Establishing a presence with a UK PI license can pave the way for potential future relationships and collaborations within the UK and globally
• The UK provides an attractive tax regime for businesses, including an extensive list of double taxation agreements, generous research and development (R&D) tax credits, and incentives, which can improve your payment institution’s profitability and the capacity for innovation
• The UK boasts an exceptionally rich talent pool, with access to skilled professionals in finance and technology which can drive continuous improvement and resilience within the payments industry
• The use of English as a primary language and a familiar legal system make business operations and interactions more accessible and straightforward for many international payment businesses
• To promote innovation and compliance, the UK’s government and the regulatory body offer regulatory support and initiatives, including the regulatory sandbox for product testing in a controlled environment, Fintech Bridges to promote collaboration and international expansion, and resources to licensees for bolstering their cybersecurity frameworks

Why Enter the UK Payments Market Now?

It’s widely discussed that fintech investment in the UK decreased to 4,6 bill. GBP (approx. 5,3 bill. EUR) during the initial half of 2023, which is a 57% decline from the 10,8 bill. GBP (approx. 12,3 bill. EUR) recorded in the corresponding period of 2022. However, you shouldn’t be discouraged from making your business idea a reality as such investment fluctuations are common in dynamic industries like fintech. The current drop might indicate a temporary adjustment rather than a long-term trend, which makes this period ideal for putting even more effort into defining consumer needs and perfecting groundbreaking services and products. At this time, we urge you to consider the long-term outlook rather than short-term market fluctuations.

While lower investments might seem like a cause for concern, they often present opportunities for strategic entry in the face of decreased competition. To prepare your payment business for success, you should dedicate considerable time to designing a lean business model, building strategic partnerships, and creating a flexible business strategy that allows quick adjustments in response to market changes or opportunities. Our team of lawyers, business developers, and financial accountants have over six years of experience in helping fintech businesses launch compliant and efficient operations, and would be delighted to share this valuable expertise with you. Start with a personalized consultation where we’ll delve into your business case to kickstart the roadmap for your successful market entry despite the current investment challenges.

How Are Payment Institutions Regulated in the UK?

After Brexit, the UK has established and enforced its independent regulatory framework through the supervision of the Financial Conduct Authority (FCA) which is a financial regulatory body in the UK, widely respected both domestically and internationally for its commitment to maintaining market integrity, protecting consumers, and ensuring fair and transparent financial markets. The introduction of the independent regulatory framework means that UK payment licensees aren’t entitled to use the passporting rights for automatic access to the entire European Economic Area (EEA), and from the EU’s perspective, the UK is considered a third party.

That being said, the UK’s regulatory framework remains among the most favorable ones globally, continuing to ensure transparency, security, consumer protection, and market integrity within the financial ecosystem. The national government remains committed to improving the competitiveness of its financial industry by further adapting applicable regulations to the needs of consumers and such innovative businesses as electronic payment institutions. This means that payment licensing regulations in the UK are in constant flux, and you should remain vigilant and adaptable to maintain compliance and mitigate risks inherent to your business.

Currently, UK-based PI license holders are governed by 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 Get a PI License in the UK?

To become a fully licensed payment institution in the UK, you can either apply for a new license or buy a ready-made company with a UK PI license. Our team has expertise in providing both solutions and can help you launch your payment operations in the UK in the shortest possible time. To make an informed decision, you should consult with our lawyers, who will review your business model and devise an actionable plan for entering the UK payment services market.

For now, consider the following aspects of obtaining a new PI license:

• Starting from scratch allows greater control over the business structure, operations, and compliance frameworks tailored to specific business needs
• The process to obtain a new license usually takes longer due to the application, review, and approval phases, which can range from several months to over a year
• Obtaining a new license requires meticulous planning, detailed documentation, and substantial initial 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 have a shorter timeline as the company already holds a valid license, potentially reducing the time needed for authorization and speeding up the entry into the market
• This option reduces the risk associated with the license approval process but may introduce complexities related to integration, alignment of operations, and potential hidden liabilities in the acquired company
• It 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

To be eligible for a payment license in the UK, you’ll have to ensure that your business is capable of continually operating within the national regulatory framework. It includes designing appropriate internal processes that prioritize adherence to legal guidelines and industry standards and hiring a demonstrably competent team with the expertise to navigate applicable regulations. You’ll have to meticulously document all the processes, and provide verifiable documents that back up your provided information. If your original documents aren’t in English, we can help you find efficient certified translation services.

While we discuss general requirements for UK PI license applicants, many of them apply only to APIs. Broadly, SPIs aren’t subject to the requirements in Part 3 of the PSRs 2017, but they are subject to a registration regime and the conduct of business provisions in Parts 6 and 7. To learn about detailed requirements specific to the scale and scope of your business, please reach out to our team, and we’ll present a clear eligibility picture based on your provided information.

Generally, to be eligible for a UK payment institution license, you should fulfill the following requirements:

• Establish a company in the UK with a head office and registered office in the UK
• Hold adequate initial capital
• Carry on at least some of your payment services business in the UK
• Appoint at least two directors or a director and a money laundering reporting officer (MLRO) in the company
• Ensure that individuals holding a qualifying stake and managing the business meet the criteria of being fit and proper, including being honest, of good reputation, competent, and capable of running the business effectively
• Have robust governance arrangements, internal controls, and risk management procedures
• Implement sufficient measures to protect the funds of users of your payment services
• Design and implement robust AML/CFT measures, including customer due diligence (CDD) procedures, record keeping, and reporting to authorities
• APIs must also hold adequate indemnity cover if they engage in AIS and/or PIS activities
• Don’t hinder the FCA’s effective supervision of your business if you have close links to another person (if the links are outside the UK, foreign laws mustn’t obstruct the FCA’s capacity to supervise your business efficiently)

Minimal costs involved in getting a UK PI license:

• Minimum initial capital – 20,000 EUR, 50,000 EUR, or 125,000 depending on the services you intend to offer (APIs only, no capital requirement for SPIs)
• License application fees – around 2,000 GBP (approx. 2,300 EUR)
• Company registration fee – 12 GBP (approx. 14 EUR)

You must register people intending to manage your API or SPI with the FCA:

• Members of your management board, i.e., the directors if you’re a Limited Liability Company (LTD) or the members if you’re a Limited Liability Partnership (LLP)
• Management staff (usually this includes Head of Compliance and/or MLRO)
• Other people who are responsible for managing your PI’s regulated or registered activities

Key documents required to apply for a UK PI license:

• Business formation documents (registration certificate, articles of association, or equivalent)
• A business plan defining the future goals and outlining the strategies to accomplish them for your business
• Details about the ownership structure, key personnel, and governance arrangements within the company
• Well-documented and complete policies and procedures of your company, including customer protection and AML/CFT (these shouldn’t be generic templates, instead they have to be tailored to your business model)
• Well-documented information in relation to identifying and mitigating risks to your company’s regulated business that arise from any unregulated activities that your firm carries out
• Evidence that the individuals have suitable knowledge and experience in payment services (CVs, diplomas, etc.)
• Evidence that company owners, directors, and other key personnel aren’t convicted of financial crime
• Your company’s financial forecasts (including balance sheet forecasts), and two stress-tested scenarios (if applicable)
• Documentation detailing arrangements on capital, safeguarding, and professional indemnity insurance, if applicable, within the statutory deadline

PI License Application Process in the UK

If you’re not sure how to apply for a UK payment license, start by familiarizing yourself with the main steps of the application process. Every one of these steps requires thorough legal expertise that can maximize your chances of successful application. The efficiency of the application processes heavily depends on the FCA’s workload, the quality of your application, and the overall adherence to regulatory guidelines set out by the FCA. Following the submission of your application, it can take 3-12 months to receive a final decision.

The main UK PI license application steps:

• Complete the FCA’s application form by providing answers to every question on it (incomplete forms lead to application processing delays)
• Register on Connect, the FCA’s online system, and submit your application form along with the required documents therein
• If requested, provide additional information or clarifications to the FCA
• If requested, attend in-person interviews conducted by the FCA

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

If you’re interested in streamlining your entry into the UK market and acquiring a ready-made company with a fully functioning PI license, take the time to learn about the essential considerations and requirements for buyers of such companies. The process of purchasing a payment institution might take from several weeks to several months, depending on the specific circumstances, negotiations, regulatory procedures, and the efficiency of the involved parties in completing the necessary steps.

To acquire a ready-made company with a UK PI license, you’ll have to:

• Ensure you understand and are committed to upholding the regulatory obligations and compliance standards associated with operating a payment institution in the UK
• Conduct thorough due diligence to ensure the legitimacy and compliance of the ready-made company which includes assessing the company’s financial standing, regulatory history, and adherence to legal requirements
• Comply with all legal obligations, including disclosure requirements and any additional regulatory stipulations related to the acquisition of a company holding an SPI or an API license
• Demonstrate that you as a buyer meet the fit and proper criteria, i.e., possess the integrity, competence, and qualifications necessary to run a payment institution in the UK
• Prove your financial stability required to acquire such a company and run its operations smoothly
• Ensure that the operations of the acquired company will remain compliant with all existing and evolving regulatory requirements (you might need to plan the implementation of necessary adjustments within your new business operations)
• Depending on the circumstances, you might need approval from the FCA to finalize the acquisition and ensure the continued validity of the PI license

READY-MADE COMPANIES WITH Pi LICENSE FOR SALE

Ensuring Ongoing Payment Services Compliance in the UK

Once you’re a fully-fledged payment institution in the UK, you’ll be obligated to maintain compliance with applicable regulations and standards at all times. Keep in mind that ongoing compliance requires a commitment to staying updated on regulatory changes, implementing necessary adjustments, and keeping meticulous records. Our team will stand by your side during every phase of the continuous compliance journey, offering guidance, expertise, and dedicated support to navigate the ever-changing regulations, maintain optimized operations, and, if needed, prepare for international expansion.

The key rules to maintain ongoing compliance:

• Maintain a robust risk management framework, identifying, assessing, and mitigating various risks associated with payment services, including fraud, money laundering, and operational risks
• Conduct regular internal compliance audits to ensure adherence to FCA guidelines and identify any potential compliance gaps or issues that require rectification
• Notify the FCA in advance of any changes, including changes in the people responsible for your regulated or registered payment services
• Adhere to reporting requirements stipulated by the FCA, submitting accurate and timely reports, financial statements, and any other required documentation

Lastly, we’d like to emphasize the vital importance of staying compliant right from the start. By offering payment services to UK consumers without a proper FCA license or failing to adhere to ongoing compliance regulations, you expose your operations to potential legal actions, hefty fines, and even shutdowns ordered by the FCA. Non-compliance can also threaten your credibility, undermine customer trust, and result in missed growth opportunities, limiting your market access and hindering potential partnerships. Maintaining compliance with the FCA’s regulations is an effort that can’t be underrated if you’re certain about the intention to develop a sustainable payments business in the UK and beyond.

All things considered, obtaining a PI license from the FCA is a strategic move that can determine your business’s success. It’s not an easy goal to accomplish, and you’re strongly encouraged to 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 a PI license in the UK. Our dedicated specialists can also guide you through the acquisition of a ready-made company with an existing UK payment institution license. With experienced lawyers, business development professionals, and financial accountants at your side, you will find the process of starting a payment services business in the UK efficient, seamless, and transparent. Contact us now to schedule a personalized PI license consultation and set the stage for long-lasting success.