When looking for a payments partner, you might notice that some firms describe themselves as being ‘regulated’, ‘authorised’ or ‘licensed’ while some are not. But what does that really mean for you when looking for a company to trust with your card payments?
Payment service providers have to operate to a strict set of rules that protect the consumer, encourage competition and help create stability throughout the marketplace. In this article, we cover how regulation works, what Authorised Payment Institutions and Authorised E-Money Institutions are in the United Kingdom and the role of the Financial Conduct Authority.
HOW DOES FINANCIAL REGULATION WORK?
Firms that want to provide payment services and e-money services in the UK must obtain a license from the Financial Conduct Authority.
To obtain a license, firms must undergo an intensive review of how they operate, which include:
- Framework and controls
- IT Systems
This review determines whether the company’s conduct is sufficiently robust to deliver a high standard of service to its customers and is capable of providing service without disrupting the market or compromising its integrity.
WHAT IS AN AUTHORISED PAYMENT INSTITUTION?
Payment service providers based in the UK must apply with the FCA to become an Authorised Payment Institution (API) if they want to offer one or more of the following payment services:
- Services enabling cash placement and withdrawals connected to a payment account
- Execution of payment transactions
- Issuing payment instruments
- Acquiring payment transactions
- Money remittance
- Payment initiation services
- Account information services
WHAT IS AN AUTHORISED E-MONEY INSTITUTION?
Payment service providers based in the UK must apply with the FCA to become an Authorised E-Money Institution (AEMI) if they want to offer all the payment services allocated to an API on the top of the following e-money services:
- Prepaid cards
The key difference between these two licenses is that an e-money license provides the authorisation for companies, not only provide payment services, but also to issue electronic money in exchange of physical funds received. Electronic money is a stored value that can be used to pay for goods and services with a third party. That being said, both APIs and AEMIs will need to comply with PSD2 standards and Money Laundering, Terrorist Financing and Transfer of Funds regulations.
WHAT IS THE FCA?
The Financial Conduct Authority (FCA), regulates the financial services industry in the United Kingdom and operates as an independent public body, even though it’s accountable to the Treasury. The FCA supervises more than 59,000 businesses in the UK and is funded entirely by the firms that they regulate.
WHY DOES IT MATTER?
Firms that provide regulated services without the support of a license or violate their obligations may face repercussions from their local regulator. This could mean fines, their license being revoked or even criminal charges against the senior management of the business.
By using a payment service provider that has been authorised by the FCA, you can be confident that your customers’ payments will be in safe hands.