Electronic Money Institution (EMI) license
What is Electronic Money Institution license?
- debit and credit cards;
- possibility for merchant services that accept debit, credit and electronic money;
- money transfers for cross-border payments;
- different payment services, where customers can initiate payments through their bank account.
- Customer focus. EMI payment license holders can provide customers with cost-effective payment solutions. This allows you to transfer money to customers within the country or abroad at affordable prices;
- Level of customer confidence and customer trust. This condition means that EMI license guarantees customers the security and protection of their funds. This is because EMI’s licensing documents are carefully reviewed and have strict requirements.
- Service flexibility. In this case EMI license holders can provide customers with various payment methods. These methods include online payments, mobile payments and e-wallets;
- Regulatory Compliance. EMI licensees are required to comply with regulatory requirements. Compliance with these requirements is a guarantee that business is conducted ethically;
- The possibility of conducting fast banking services and international transfers. This means that a full license for electronic money is not limited either in time or in the field of activity. For example, an EMI license holder in Cyprus can provide any service in the European Economic Area (EEA). Additional licensing in any other EEA member state – not required. After obtaining a license in Cyprus, EMI can provide services in other EEA member countries. This became possible through passportization (using the freedom to provide services).
- offer bank accounts – they cannot accept deposits;
- have deposit guarantees. For example, client funds up to €100,000 are not protected by the European Deposit Insurance Scheme;
- ensure limitless execution of payment transactions. This means that money transfers may be regulated by certain jurisdictions and certain currencies.
Why should you choose fintecharbor.com to get EMI license?
EMI license obtaining process
Step 1 – research and planning. To obtain an EMI license in a particular jurisdiction, you must read legislation governing the licensing process. For example, you must meet the FCA Threshold Conditions in UK;
Step 2 – regulatory Compliance. Before registering an EMI, carefully review the obligations under which an EMI is required to comply. EMI must demonstrate that it has high quality software. It is also important to confirm the existence of a strong technological infrastructure. First of all, we are talking about AML/CFT obligations. Secondly, it is compliance with the rules “know your customer” (KYC) and data protection requirements. Compliance with operational security measures and tax reporting obligations is also important. To accomplish the above, you will need to establish robust policies and procedures that meet these requirements. It is also important to remember the need for strict accounting;
Step 3 – development of a business plan and financial projections. You will need to create a business plan that outlines the goals of your EMI. This business plan should spell out the operating model for the future EMI. You must have risk management strategies and EMI compliance measures in place. The business plan must comply with the regulatory requirements of the licensing authority;
Step 4 – corporate structure. You need to register a legal entity to obtain an EMI license. In addition, you will need to conduct a due diligence of the company’s shareholders. The structure of the company must clearly comply with the legal and regulatory requirements of the jurisdiction;
Step 5 – aapplication. Prepare and submit an EMI license application to the appropriate regulatory authority. Pay attention to the documents that must be attached to the application. Such Moena documents include a business plan and compliance policies. In addition, you will need to provide information about key personnel. We should not forget about the financial statements of a legal entity;
Step 6 – Prepare for employee background checks. The Regulator will conduct a thorough background check of applicants, their directors and shareholders. This check may include a background check for education. Additionally, the required professional experience may be checked. The list of requests and questions in this context is non-exhaustive;
Step 7 – review and approval. The regulator will review your application and the supporting documents provided. This check will concern compliance with approved licensing requirements;
Step 8 – capital requirements. The minimum capital of an EMI must meet the requirements set by the regulator. For example, if we are talking about the UK, the applicant must meet the minimum capital requirements. Capital requirements are set by the Financial Conduct Authority. It can range from several hundred thousand to several million pounds depending on the type of fca emi license required. In Lithuania, the initial capital for EMI is 350,000 euros. However, the Bank of Lithuania needs a capital buffer. The buffer size is based on business plan calculations. However, it is important to note that small EMIs are not subject to minimum seed capital requirements.
The cost of an EMI license depends on the country, type of license, license term, and other services provided).
In general, the costs that will be incurred in connection with obtaining an EMI license can be divided into the following types:
- payment of the registration fee to the financial regulator. This fee can range from several thousand to tens of thousands of dollars, depending on the country;
- the applicant must meet the minimum capital requirements set by the financial regulator. The amount of capital can be from several hundred thousand to millions of dollars;
- operating expenses: expenses for the effective management of the institution. These include: wages, rent, utility bills and other expenses;
- compliance costs: the applicant must comply with all the rules and recommendations of the financial regulator. This may entail: hiring compliance professionals, specialized lawyers and auditors, which can significantly increase costs;
- other costs: translation costs when the regulator requests documents in the local language. This also may include travel expenses that business owners need to make to travel to the country in which they plan to obtain a license.
The term for obtaining an EMI (Electronic Money Institution) license may vary. It depends on the jurisdiction and specific requirements of the licensing authority. It should be emphasized that the timing of obtaining a license can also be influenced by the completeness of the submitted application. EMI’s planned business model may extend the review timeline. An important factor that affects the period for obtaining an EMI license is the workload of the regulator that issues licenses. In some jurisdictions, the EMI license application process can take several months. There are jurisdictions where the issuance of a license has to wait nine months or longer. For example, obtaining an Electronic Money License (EMI) in the UK takes an average of 6 months.
In Cyprus, a decision on an EMI license application is made within 3 months. The decision is made by the Central Bank of Cyprus (CBC). CBC notifies the applicant of the approval or rejection of the application (see last research from the «Big 4» company Deloitte).
Other time limits, although referring to three months, are provided for in Lithuania. In particular, the submitted documentation for the EMI license is reviewed by the Central Bank of Lithuania. The deadline for consideration of documentation is 3 months from the first day of submission. The decision to issue an EMI license is also made after consideration, within the same 3 months. If there are deficiencies in the submitted documentation related to the form of the document, the bank may request corrected forms. If no data is provided, the supervisory authority will also be asked to fill in the missing information.
To understand the timing of obtaining a license, it is important to have a reliable legal adviser. A trusted lawyer can help you resolve common issues related to licensing documents for EMI. In addition, it will help to orient on the timing of obtaining a license.
The extensive practice of FINTECH HARBOR CONSULTING specialists in the field of obtaining an EMI license allows us to promptly advise clients on all key issues related to the EMI license.
- Business plan. This document should contain the budget plan for the first three financial years. It should detail the EMI’s objectives, operating structure. This business plan should also describe the target market and financial projections;
- Corporate structure of the company. This document should include information about the legal structure of your EMI. This may include information about the company’s ownership, shareholders, directors and key personnel;
- Information about key persons involved in EMI. In this case, we are talking about the directors and beneficial owners of EMI. You will need identification documents. It is also important to have documents confirming professional qualifications and resumes. Other information may also be needed to confirm the qualifications of EMI managers and their experience;
- Comprehensive documents. This includes AML and KYC policies. They set out EMI’s procedures and controls to prevent money laundering and terrorist financing. These documents may also include documents related to customer due diligence measures. These documents may relate to transaction monitoring systems. It is important to take care of the availability of staff training programs;
- Documentation showing your EMI’s risk management policies and procedures. This includes risk assessment methodologies and internal controls. It is also important to have contingency plans;
- Documents relating to financial information. This may include the audited financial statements of EMI and its parent company (if available). Also, we can talk about financial forecasts for the next few years. This also includes documents related to confirmation of capital adequacy and solvency;
- IT systems and security. This includes documentation of detailed information about EMI’s IT infrastructure. Information about data protection measures and information security policy. This also includes disaster recovery plans. Cyber security protocols are also an integral part of security;
- Procedures and reporting forms for regulatory bodies. These include transaction reports, statistical reporting. It may also include other regulatory reporting obligations;
- Office address, EMI website and contact details.
Article 2(1) of the Directive defines an “electronic money institution” as a legal person that has been granted authorisation to issue e-money.
A similar definition can be found on the website of some banks. So, DeNederlandscheBank says that an EMI is a company whose business it is to issue electronic money. This definition is based on section 1:1 of the Dutch Financial Supervision Act (Wet op het financeel toezicht – Wft). Only legal persons can apply to be authorised as an electronic money institution.
For example, EMIs can provide the following services:
- implementation of payment transactions;
- currency exchange and conversion services;
- Storage and processing of data or transactions of payment services.
It is important to note that not all EMIs can provide all of the above services. The reason is that not all EMIs are automatically authorized to provide these services when they grant a license. Companies applying for approval as an EMI to one of the national regulators, for example in an EU country, must indicate in the application for which type (or types) of payment services they want to be approved.
The term Payment Institution (hereinafter – PI) refers to a category of payment service providers which came into being as a result enactment of the Payments Services Directive (PSD).
On the website of the Central Bank of Ireland. This definition reads as “A payment institution means a payment institution authorized by the Central Bank under Regulation 18 of the PSR.”
After analyzing the above two definitions, we can say that a “payment institution” is an enterprise that provides payment services. This company is not a credit institution or an electronic money institution. Payment institutions can offer their customers the following services:
- execution of payment transactions. It can be credit transfers, direct debits through payment cards or similar devices;
- issue and/or purchase of payment instruments;
- money transfer services Forex services
- ancillary services related to their core services;
- granting a loan.
We know the definition of an electronic money institution and payment institutions. In that case, what is the difference between these definitions?
The difference between EMI and PI is that only electronic money institutions can issue and hold electronic money. The above statement can also be found on the Deutsche Bundesbank website.”. This also means that EMI allows customer funds to be held for a longer period of time. This feature is not available (prohibited in other words) in PI. The license for EMI electronic money allows the issuance of payment cards. In addition, it is possible to have e-wallets and other payment instruments in EMI that require the storage of customer funds.
In addition, it should also be mentioned that EMI has stricter and more significant initial capital requirements than PI. In addition, regulators typically scrutinize license applications for EMIs in more detail than they do for PIs.
It should also be noted that some regulators do not allow PIs to accept deposits. For example, in Estonia, the Payment Institutions and E-money Institutions Act in § 5 (6) states that “Payment institutions shall not be engaged in the receipt of deposits or other repayable funds within the meaning of § 4 of the Credit Institutions Act”. Recently, there has been a trend that banks are more willing to work with electronic money institutions. This is due to the fact that applications for EMR are carefully studied and the requirements for initial capital are higher.