What is the FCA?
The FCA stands for the Financial Conduct Authority in the UK. The FCA is essentially the most important financial regulatory body in the UK, despite it operating independently from the UK government. It operates using the revenue generated from its member fees (annual budget of £600 million), essentially, and was founded in 2013.
The FCA was born from the ending of FSMA — Financial Services and Marketing Act 2000. This was essentially split into two separate authorities: the FCA and the PRA. Currently, the FCA overseas the day-to-day of FCA money transfer providers. As a result, they issue warnings to highlight unsafe providers, as well as hold regulation committees and escalate issues to the upper tribunal. Importantly, they supervise over Anti Money Laundering, which is a huge factor in some of the protocols and regulation that firms have to comply with.
The FCA regulates 59,000 financial firms and financial markets, and it’s vital to be authorised and comply under their registration if you want both legal and reputation credibility. If you’re a financial services firm of any sort, it’s likely that you’re going to have to be authorised by the FCA.
Money Transmitter status in the UK
If you’re looking to provide e-money payment services, then you’re going to need to get approval by the FCA to become a FCA approved money transfer firm. This means getting authorised or registered. The first step is to apply to become a payment institution.
Payment institution application
Becoming a payment institution under the FCA is a prerequisite if you want to provide payment or remittance services in the UK. If your payment transactions result in under €3 million per month, then you can choose to be registered as a SPI — Small Payment Institution. Registration is certainly faster and cheaper than authorisation, but SPIs cannot provide such payment services to the EEA member countries.
Electronic Money Institution
Many remittance companies are purely remittance — one service company. If you’re not providing payments per se, but just transferring funds electronically, then you can just apply to become an EMI. For example, Currencies Direct are authorised under FCA as an EMI. Likewise, if you’re a bank or building society, you’re exempt from registering for an EMI because you’re already authorised under a more broad regulation.
E-money institutions have to pay a lot of different FCA fees. Here are some of the most relevant FCA e-money institution fees:
- Re-authorisation: £750
- Re-registration: £250
- New Small PI or EMI: £1000
- New Authorised PI or EMI: £5,000
- Notification of the use of the limited network exclusion (LNE): £300
- Notification of the use of the electronic communications exclusion (ECE): £200
- Change of legal status: £500 – £2500 (half of original application fee)
- PSD or EMD Variation of authorisation/registration: £750
- Annual fee: varies
As we can see, it’s not cheap getting authorised, but it’s a necessity. Most consumers will only use FCA approved firms. Money transfer companies are in the business of dealing with large amounts of personal assets. Sometimes, they may perform transactions worth 95% of the consumer’s total personal assets.
The above is only relevant if you want to get REGISTERED with the FCA but the regulatory requirements are much higher if you are transferring significant amounts of money for your clients. To get to transfer billions every year like Transferwise money transfer or OFX money transfer, you will need to meet a whole different set of requirements in every department – compliance, legal and accounting.
Remember, scams are rife in any industry that has such a great opportunity to “temporarily” hold large portions of money. Being a victim of fraud can be extremely distressing, and you’re going to be a lot more exposed if the company is not FCA approved. Not only will the FCA help prevent this happening in the first place, but the reactions will be much more helpful if it somehow happened under a FCA regulated transfer company. It would be their duty to work on behalf of you to recoup your money.