This article aims to give guidance to all businesses and future PSPs interested in applying for the SPI license with FCA in UK. The Payment Services Regulations 2017 (PSRs) regulate payment services in the UK. Firms providing payment services as a regular occupation or business in the UK must be authorized or registered with the Financial Conduct Authority (FCA). A Small Payment Institution (SPI) is a type of payment institution registered with the FCA. SPIs are subject to a lighter regulatory regime than authorized payment institutions.
What is an SPI?
An SPI is a payment institution registered with the FCA and allowed to provide limited payment services:
- Execution of payment transactions, including direct debits, standing orders, and credit transfers.
- Issuing and/or acquiring payment instruments.
- Money remittance.
SPIs cannot provide account information services (AIS) or payment initiation services (PIS).
Requirements for SPI Registration
To be registered as an SPI, a firm must meet these conditions:
- Be a legal person.
- Have its head office in the UK.
- Monthly average over the 12 months preceding the application of the total amount of payment transactions executed, including any of its agents in the United Kingdom, must not exceed 3 million euros.
- Projected average outstanding e-money must not exceed €5 million.
- The business must not include the provision of account information services.
- Not intend to carry out AIS or PIS.
- Have robust governance arrangements, including a clear organizational structure with well-defined, transparent, and consistent lines of responsibility.
- Have appropriate and proportionate systems, resources, and procedures to operate soundly.
- Have appropriate and proportionate safeguarding arrangements for customer funds (optional but recommended).
- Comply with the FCA’s anti-money laundering and counter-terrorist financing requirements.
Application Process
The application process for registering as a Small Payment Institution (SPI) with the FCA involves the following steps:
If the FCA identifies any deficiencies, it may either reject the application or provide the firm with an opportunity to address the issues.
Completion and Submission of Application
The firm must complete the SPI application form, providing all required information and supporting documents. This includes details of the business model, compliance framework, and financial resources.
The application must demonstrate that the firm meets the conditions set out in the Payment Services Regulations 2017 (PSRs 2017), particularly relating to governance, operational resilience, and safeguarding (if applicable).
Payment of Application Fee
A non-refundable application fee of £1,500 must be paid upon submission of the application.
Assessment by the FCA
The FCA reviews the application to ensure the firm meets all registration requirements, including compliance with SYSC, MLRs 2017, and other relevant regulations.
During this assessment, the FCA may request additional information or clarification. The firm is expected to respond promptly to ensure smooth processing of the application.
Decision and Issuance of Certificate
If the FCA is satisfied that the firm meets the registration conditions, it will issue a certificate of registration.
Information Required for Application
The application form for SPI registration requires detailed information about the firm, its business, and its management:
- The firm’s name and registered office address.
- A description of the firm’s business, including the payment services it intends to provide.
- A programme of operations, setting out the type of payment services envisaged.
- The firm’s organizational structure.
- The identities and suitability of the firm’s directors and senior managers.
- Evidence that the people described above are of good repute and possess appropriate knowledge and experience to perform payment services.
- A description of the firm’s systems, resources, and procedures, including its anti-money laundering and counter-terrorist financing policies.
- A description of the firm’s safeguarding arrangements.
- The firm’s business plan, including a forecast budget calculation for the first three financial years demonstrating that the applicant can employ appropriate and proportionate systems, resources, and procedures to operate soundly.
- Evidence that the firm holds the required initial capital.
- The identity of the auditors of the applicant, if any.
- The legal status of the applicant and, where the applicant is a limited company, its articles.
- The address of the head office of the applicant.
- Details such as registered office address and website address, if applicable.
- Information about qualifying holdings.
Scope of Activities
As part of the SPI license, the following payment services are eligible for authorization:
- Execution of payment transactions: This includes processing direct debits, standing orders, and credit transfers.
- Issuing and/or acquiring payment instruments: This includes issuing prepaid cards and acquiring payments from merchants.
- Money remittance: This includes transferring funds from one person to another, typically across borders.
Budget and Fees
The budget required to set up and operate a Small Payment Institution (SPI) varies based on the firm’s business model and operational scale. Firms should anticipate costs in the following areas:
1. Application Fee
The FCA charges a non-refundable application fee for SPI registration. The current fee is £1,500, as outlined in the FCA’s fee schedule.
2. Initial Capital
SPIs are not required to hold initial capital, as specified under the Payment Services Regulations 2017 (PSRs 2017). This differs from Authorized Payment Institutions (APIs), which do have initial capital requirements. SPIs are subject to fewer regulatory requirements, making them a cost-effective option for smaller firms.
3. Ongoing Capital
While SPIs are not required to maintain initial capital, they must ensure sufficient resources to cover operational costs and meet their compliance obligations. For reference:
- SPIs providing only Payment Initiation Services (PIS) or Account Information Services (AIS) are exempt from ongoing capital requirements.
- Firms providing other payment services may have ongoing capital or financial resource requirements, which depend on the nature of their operations and the FCA’s prudential assessment.
4. Compliance Costs
SPIs must comply with a range of regulatory obligations, including:
- Anti-Money Laundering (AML) and Counter-Terrorist Financing (CTF) requirements, in line with the Money Laundering Regulations 2017 (MLRs 2017).
- Implementation of compliance systems, training, and procedures. Compliance costs can include the development and operation of robust monitoring systems, staff training, and external audits.
5. Operating Costs
Operating an SPI involves day-to-day expenses, such as:
- Staff salaries.
- Premises (if applicable).
- IT infrastructure and maintenance for secure and efficient operations.
- Marketing and customer acquisition efforts.
Record-Keeping Requirements
SPIs are subject to record-keeping requirements, designed to ensure that the FCA can effectively supervise SPIs and that SPIs can demonstrate compliance with the PSRs. SPIs must keep records of:
- Customer due diligence: SPIs must keep records of the customer due diligence checks they have carried out.
- Transactions: SPIs must keep records of all payment transactions they have executed.
- Complaints: SPIs must keep records of all complaints they have received.
- Anti-money laundering and counter-terrorist financing: SPIs must keep records of their anti-money laundering and counter-terrorist financing compliance activities.
- Customer funds: Small PIs should keep a record of the customer funds that they hold.
Businesses applying for the SPI license must keep these records for at least five years.
Benefits of an SPI License
There are a number of benefits to obtaining an SPI license:
- Enhanced credibility: Being registered with the FCA gives SPIs enhanced credibility in the market.
- Access to payment systems: SPIs have access to payment systems, such as Faster Payments and Bacs, allowing them to execute payments quickly and efficiently.
- Passporting rights: SPIs can passport their services to other countries in the European Economic Area (EEA). This means they can provide their services in other EEA countries without obtaining separate authorization in each country.
- Reduced regulatory burden: SPIs are subject to a lighter regulatory regime than authorized payment institutions. This means that they have lower compliance costs and are subject to less stringent supervision.
Conclusion
Obtaining an SPI license can be complex. However, the benefits of obtaining a license can be significant for firms that want to provide payment services in the UK. Firms considering applying for an SPI license should carefully consider the requirements and the costs involved.
