EMI License, Become a Bank - Almost

Saturday, April 11, 2020
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As the saying goes, money makes the world go round. And the world is becoming more and more digital.

With this thought, Fintech companies are growing in influence the world over. Particularly in the case of digital banks such as Revolut, N26 and Monzo, amongst others. The power these companies hold is based firmly within the digital and online services. The agility of their online business models has caused real disruption to traditional institutions, meaning more and more companies are looking to enter the sector.

However, banking and financial institutions are highly regulated industries, and a company can’t just set up and begin trading with other people’s money. They have to become authorised and approved to do so. Which is why they must gain an EMI license.

What is an EMI?

An EMI license stands for Electronic Money Institution license. Electronic money, e-money, or emoney is a digital version of physical cash, which can be based on either software or hardware. For example, the funds can be stored in a payment account, as well as a prepaid card or wallet.

In the UK, if a company wants to become an electronic money institution, they will have to apply for authorisation by the Financial Conduct Authority (FCA).

A company that holds an EMI has the permission to issue e-money. This e-money is not restricted to the company’s ecosystem but can be used outside of the payment system as well. This means it can be used and converted to another currency if desired. An EMI license makes a company almost a bank. They have some of the powers of traditional institutions, but are not licensed to issue loans.

An institution looking to deal in digital currency or electronic money must meet a set of requirements to be allowed to trade.  

How Do you Become an EMI?

There are strict measures in place to make sure only the most well organised and compliant organisations can work within this sector.

Some key requirements to become an Electronic Money Institution in the UK are:

  • The applying organisation must have at least €350,000 as a minimum capital requirement
  • An insurance policy or segregated client bank account that can safeguard client funds
  • The people in charge of the applying organisation must be well respected and hold the experience and qualifications to complete duties in this sector.

An application must be made with the following details included:

  • Company identity proof
  • The operations program
  • Financial forecasts as well as the company business plan
  • An outline of the structure of the business and how it is organised
  • Proof of initial capital investment
  • Security measures that are in place to secure user funds
  • Explanations of compliance, governance and risk management procedures
  • Details around the management of security and customer related security , including how they will be monitored, handled and followed up on
  • How sensitive data will be stored securely, tracked, abd restricted
  • Measures for business continuity
  • How measures and boundaries will be defined around statistics and data on transactions, fraud, and performance
  • What processes the company has in place to comply with government rules on money laundering and funding of terrorism
  • An explanation of qualifying holding
  • Outlining any outsourced contracts in place

However, there are different requirements depending on the jurisdiction a company is applying for a license with. The above details outline the UK market, as it is the most popular jurisdiction for EMI licensing in Europe. If a company was making an application for a license in Singapore, they would apply for a Stored Value Facilities license.

Image by Mohame Hassan from Pixabay

If a company was looking to make an application to another area of Europe, they would potentially be looking for an application with the Central Bank as an alternative to the FCA.

The area that a company receives permission for is very important because regulators apply strict measures around the geographical locations of the company and its customer base.

With the importance of the economy in driving the world's carefully balanced societal ecosystem, it is vital that there is regulation around companies that are in control of people and businesses’ finances. The regulations are tight firstly to protect, but also to ensure that development and improvement can still fostered. This has to be done sustainably, without consumers losing trust in services because they were poorly licensed in the first place.