Starting a Financial Services Business in the UK

When it comes to starting a financial services business in the UK, it is essential to navigate the licensing process to ensure legal compliance. In this article, we'll explore the types of licenses available for financial services institutions and the process of obtaining them.

The Financial Conduct Authority (FCA) is responsible for issuing licenses for businesses dealing with payments, money transfers, accounts, or digital wallets. Under the Payment Services Regulation, there are two main types of licenses available: Payment Services Institution (PI) and Electronic Money Institution (EMI).

Payment Services Institution (PI) licenses come in two forms: Small Payment Institution (SPI) and Authorized Payment Institution (API). SPI licensing is suitable for financial services that don't expect to exceed €36 million in money transactions annually. The fees for SPI licensing are £500, with no mandatory capital requirement. However, SPI license holders do not have passport rights.

API licensing is for financial service providers capable of carrying out unrestricted money transfers. These license holders have passport rights, enabling them to attract customers from the entire European Economic Area (EEA). To obtain an API license, firms must pay a fee of £5,000 and maintain a capital of £350,000.

Electronic Money Institution (EMI) licenses are required for companies looking to issue digital cards or wallets. Similar to PI licenses, there are two types of EMI licenses: Small Electronic Money Institution (SEMI) and Authorized Electronic Money Institution (AEMI). The application fees for SEMI and AEMI licensing are £500 and £5,000, respectively. SEMI licensing is considered entry-level, with limited benefits compared to AEMI licensing.

To acquire licenses, companies must meet specific provisions and follow FCA guidelines. For instance, when applying for an SPI license, a company's money transactions from the previous 12 months must not exceed £3 million. To apply for a small EMI license, the outstanding E-Money must not exceed £5 million.

Many money transfer services initially obtain an SPI license and upgrade to an API license if the business performs well and meets API licensing requirements for capital and fees.

The process of obtaining an SPI license from the FCA involves completing an application on their website, answering a set of questions, and waiting for approval. If approved, the license should be granted within three months. In contrast, obtaining API licensing in other European Union states requires significant capital and can take between 6 to 18 months.

The UK's financial services industry is booming due in part to the relatively easy and hassle-free application process for PI and EMI licenses. As a brave fintech columnist, it is encouraging to see the UK embracing innovation and fostering a conducive environment for new financial services businesses to thrive.