There is an ever-growing list of businesses who offer some form of payment service. Depending on the nature and scope of the service, the business may be subject to the Payment Services Regulations 2017 with the resulting requirement to become authorised or registered with the Financial Conduct Authority (“FCA”). This article explores how FCA recognition can provide positive returns to a payment services business, through increased market exposure, growth opportunities, trust and access whilst avoiding regulatory fines, criminal sanctions, redress orders and reputational damage for failing to be registered or authorised by the FCA when required. While the decision to become regulated may seem onerous, there are benefits. This article will therefore highlight the steps needed to obtaining authorisation or registration with the FCA.
Why set up an FCA-authorised or registered payment services business?
1. Regulatory Trust:
Operating under the FCA banner provides an added layer of comfort to potential clients. With digitised services being normalised throughout the payment services industry, trust and legitimacy is a paramount concern for clients. The FCA register provides primary-source evidence of a business’s intention to comply with applicable regulatory requirements. Potential clients and customers can act with more confidence if they see that a business is regulated. The FCA’s reputation is globally known within the financial services sector and as a result, appearing as an FCA registered/authorised business is seen as a ‘gold standard’ for businesses wishing to offer their services within or to the UK market.
2. Access:
Gain access to the robust UK financial services market. With FCA authorisation, businesses can offer a wide array of services, from money remittance to payment processing, in one of the world’s most dynamic financial hubs.
3. Growth Opportunities:
As digital transactions continue to rise, payment services businesses can position themselves at the forefront of the current payment revolution. If a payment services business aims to seek investment from third parties, the status as FCA registered or authorised may open more doors as a business’s regulatory status will often be reviewed as part of pre-investment due diligence.
4. Compliance with regulations:
Businesses may be providing payment services without even knowing it. It may mean criminal offence(s) are being committed under regulation 138 of the Payment Services Regulations 2017 (“PSRs”) where a business is not registered or authorised by the FCA. All businesses providing payment services must comply with the conduct of business requirements under the PSRs. We can help businesses maintain ongoing compliance under the regulations.
The regulatory environment surrounding payment services is rapidly evolving, with the most recent decision in this area being taken by the UK government to abolish the Payment Services Regulator in an attempt to reduce regulatory burdens in order to boost growth. The Payment Services Regulator will mainly be consolidated in the FCA, thereby reducing red tape and giving firms one port of call.
How can we help?
With a track record of getting FCA applications approved quickly, Herrington Carmichael’s expert regulatory law team have the skills and experience to assist you with your FCA projects across a wide range of sectors including payment services, insurance, wealth management, IFA and funds. We have successfully assisted many clients with FCA processes in the past, and do not restrict our advice to clients who find themselves at the beginning of the process. We can provide dedicated advice across the life-cycle of the FCA application process, and the subsequent ongoing compliance obligations required following approval.
If you are considering applying for FCA authorisation and would like to speak to someone in our regulatory team, please contact us.
FAQs:
How long does the FCA authorisation process take?
For payments services, applications are typically decided by the FCA within three months of the submission. This, however, doesn’t account for any further time it takes for you to respond to additional queries the FCA may have regarding your initial application. The FCA website offers top tips on how to avoid delays. However, in short, it depends on how well prepared and comprehensive your initial application is, and your responses to any follow-up questions that the FCA may have.
What are the capital requirements?
In general, the term “capital requirements” refers to the amount of capital that must be held by a firm for regulatory purposes. Depending on what sort of payment services a business provides, a firm may be required to hold a minimum capital amount at all times. This amount varies based on the type of payment service provided and the nature of the FCA registration/approval sought. We analyse the services you provide and advise on your ongoing capital requirements.
What are common pitfalls?
Insufficient documentation and unclear compliance plans are key reasons applications are delayed. The FCA alludes to applicants needing to be ‘ready, willing and organised’ in preparation for submission. To reinforce the standards of the FCA, its regulatory procedure requires applicants to be ready to comply with their principles of business, the rules in their Handbook, and to meet the FCA’s minimum standards. The FCA expects applicants to take regulation seriously. Any missing documentation, data, metrics, reports, policies and procedures regarding an application will be scrutinised with a fine-tooth comb, so be prepared to brush up on these!
