How To Obtain A Money Transmitter License In The UK?

By Last Edited Mar 28, 2023

Money plays a crucial role in both local and international trade, shaping everything from daily grocery shopping to the global economy. The rise of online applications, e-commerce, and digital wallets has made peer-to-peer transfers and digital transactions increasingly common.

In countries with significant immigrant populations, money transfers are essential, leading to a high flow of cross-border currencies. Various organizations and individuals in these nations handle monetary transactions, ensuring a seamless flow of funds and generating income for themselves.

To become a money transmitter in the UK, acquiring a money transmitter license is a prerequisite. Compliance with numerous rules, regulations, and FCA laws is also mandatory. Read on to learn more about the process of obtaining a money transmitter license.

What Is A Money Transmitter License?

A money transmitter license is necessary for a money service business (MSB).

So, what is an MSB?

An MSB is a person or business whose business includes money remittance services like check cashing, currency exchanging or dealing, and issuing or selling money orders, traveler’s check, or other stored value. So, it is essentially a bank’s work—outside a bank set up.

An MSB must make their business legal by obtaining a money transmitter license. They will have to do so by getting a PI or EMI license by applying to the FCA.

An MSB is quite helpful as it offers financial services to organizations and institutes that do not have access to banking services. It also supports economic development in the UK and developing countries due to cross-border remittance.

However, there is always risk involved when it comes to money transactions. The institutes and individuals registering as MSB must follow strict regulations to avoid risks like money laundering.

Some MSBs are set up specifically for money laundering. Some examples of money laundering include:

People not allowed to work in the UK, submitting illegal working income to other countries.
Transferring money on someone else’s behalf.
Depositing cash is some other person’s bank account.
Converting currency with small denominations into large denominations to carry large amounts of illegal cash.
Using a third-party cash check to avoid taxes payable by the business owner.

What Is The FCA?

FCA, aka Financial Conduct Authority, is the UK’s financial regulator. The organization ensures the financial markets of the country are functioning appropriately.

FCA regulates financial firms to ensure fair dealings for businesses, individuals, and the country’s economy. It protects the financial market and the consumers and promotes competition between the service providers and the consumers.

FCA was established in 2013 as the FSA (Financial Services Authority) successor. It works alongside the Financial Policy Committee and the Prudential Regulation Authority and sets requirements for the financial sector.

FCA is responsible for around 59,000 businesses with over 2 million employees and contributes more than £65 billion in annual tax revenue to the UK.

The FCA makes rules and has powers like enforcement, investigation, and fee rise. It is an independent body that does not receive any funding from the government and charges fees to members of the financial services industry, that is, the firms it regulates. The periodic fees the firms pay fund most of the firm’s statutory duties.

The fees are different for every MSB and depend on factors like the type and scale of regulated activities conducted by the firm and its cost.

Money Remittance Licenses

Money remittance service is the act of transferring money from the payee to the receiver without the need for a payment account in the name of either of the persons.

To provide money transfer services in the UK, you need an EMI or PI license, depending on your offered services.

E-Money Institution (EMI) License

An institute that wants to be authorized to issue electronic money requires an EMI license. They will perform the same functions as a bank or a payment institution, along with many other facilities like IBAN accounts, e-wallets, and payment cards.

The institute will be able to issue electronic money. Depending on the amount of money generated, the institute will either have a small EMI license or an authorized EMI license.

Businesses generating more than €5 million in e-money just before registration are eligible for small EMI. And when the amount of e-money generated is more than €5 million, the business has to register as an authorized EMI.

Example: Wise, one of the leading Money Transfer Business industries in the UK has an EMI. EMI license is considered better than PI accounts as they offer greater flexibility to the clients in how they want to use their money.

Payment Institution (PI) License

The PI license is for an institution working as a payment service provider. It is quite similar to an EMI license, the only difference being that it cannot issue electronic money.

So, a PI will work on sending money to and receiving money from the UK. That is, it only provides money remittance services. To summarize, the services a PI provides are:

Depositing cash in a payment account
Undertaking necessary operations for the running and maintenance of the payment account.
Payment initiation services
Account information services
Safe-keeping activities
Foreign exchange services.

Just like EMI, there are two types of PI licenses—Small PI and Authorized PI. The license you get will depend on the average monthly turnover of the last 12 months before your application. The threshold amount is €3 million per month. You can register as an SPI if your average monthly turnover is lower than the threshold. If it is higher, you register as an API.

To acquire an API license, you need to open a payment account for a payment service user (PSU). And for an SPI account, along with the FCA, you also need to register with the HMRC. But if you want more services, you must only register with the FCA.

Process For Getting A Money Transfer License In The UK

If you want to become a money transmitter and apply for a license, here is a step-by-step guide to getting one.

1. Evaluating The Type Of License Best For Your Company

Before applying for a license, you must ensure you apply for the correct one. You also need to ensure you are eligible for the license you are applying for.

2. Prepare Documents

Acquiring a license is a legal procedure and thus requires a lot of documentation. You will need documentation explaining your company’s services, its working, turnover, etc.

You will require the following documentation, among others:

Company identification details
Evidence for your initial capital
Business plan and financial forecasts
Business continuity measures
Security policy
A description of your business’s organizational structure
Proof that the key personnel engaged in the management have the required qualification and are competent enough to accomplish their required duties.

3. Setting Up A Corporate Bank Account

The company must be registered with the local entities, set up a business bank account, and do other corporate matters. This can take anywhere between a few days and several weeks.

The bank account will hold the minimum deposit required to secure a license.

4. Apply To The FCA For The License

You must register an account with the FCA’s online portal for license applications and related matters.

5. Completion Of Application

Depending on what you are eligible for, you will fill out the forms and submit all the required documents.

6. Application Fee

Your application fee will depend on the license you are applying for. Application fee details are listed in the FCA Handbook Annex 8.

7. Inquiry

Once you have followed all the above steps, your work is complete. Now, the FCA will thoroughly search and inquire about the submitted data and decide whether to grant you the license. This can take anywhere between three and twelve months and sometimes even more.

Cost Of Getting A Money Transmitter License

Along with the licensing fees, many other costs are associated with getting a money transmitter license. You need to run an office with employees and facilities, contributing to the cost. Plus, your company must have an authorized capital sum of up to €35,000.

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 the original application fee)
PSD or EMD Variation of authorisation/registration: £750
Annual fee: varies
Internal costs for appropriate KYC and banking process: varies

Conclusion

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.

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 from 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.

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