Dear Valued Stakeholder,
We are issuing this advisory to communicate our insights and recent experiences regarding the current licensing framework managed by the Financial Conduct Authority (FCA) in the United Kingdom. This advisory is backed by extensive discussions with a wide range of professionals in the banking and payments industry, including legal consultants and others well-versed in the regulatory landscape.
As of 2023, we have noted a discernibly stringent approach adopted by the FCA in respect to the issuance of licenses, including the Small Payment Institution (SPI) License, Authorized Payment Institution (API) License, and Electronic Money Institution License. The regulatory atmosphere can be perceived as unusually restrictive.
In the wake of Brexit and in anticipation of the pandemic, the FCA has adopted a position of limiting the number of licenses it awards. Its initial intention was to ensure that dormant licenses were activated and existing active licenses underwent increased scrutiny. However, the global pandemic has further complicated these efforts, leading to significant delays in the licensing process. Processing times for approvals, which previously took up to 10 business days, now extend beyond four months, while license approvals that once required 30-90 days are approaching a year or more.
The FCA appears to be employing a strategy of increased resistance towards license issuance. The revocation of dormant licenses and increased barriers for new applicants are evident elements of this policy shift. This change in attitude is not covert; the number of newly issued licenses has drastically reduced, with an approval rate of less than 10% of all scrutinized applications, a stark contrast to the previous approval rates in the high 80s percentile.
We would like to extend this advisory to potential applicants who might be considering alternative avenues such as seeking arrangements with existing license holders to become authorized agents or delegates. Unfortunately, the FCA’s stringent policy also extends to this aspect of licensing. The process for obtaining Electronic Money Directive (EMD) approval, traditionally a 3-4 month journey, is now subject to similar barriers. EMD applications face a drop rate of about 90% during the pre-screening process, making it extremely challenging for any company, especially startups, to gain approval as an EMD, Authorized Delegate (AD), or Registered Agent. For those few who manage to pass the rigorous scrutiny, the approval process is now averaging around a nine-month timeline.
Even established financial services brands with substantial operating history, solid reputation, and robust financial health, particularly those from Europe, are experiencing difficulties securing licenses.
We believe it is important to acknowledge that certain licensing consultants may not fully inform clients about these changes, potentially leaving them unprepared for a denied application. It’s crucial to remember that their fees are typically linked to the application process itself, rather than its successful outcome.
In light of these circumstances, we have adjusted our approach to licensing requests with the FCA. We are not ceasing our engagement entirely, but we are applying more stringent criteria when selecting cases.
Many ambitious entrepreneurs believe they can navigate the challenges presented by the FCA. If you are amongst these and have a deep understanding of the business, a competent team, a robust compliance program, sound systems and processes, sufficient funding, and a comprehensive business and marketing plan, you might stand a chance. However, we urge you to fully consider the implications and potential challenges before proceeding.
Should you meet the above criteria and are prepared to invest in a licensing consultant, we invite you to reach out to us for a pre-screening evaluation.
We regret that the current news from the regulatory front is less than optimistic. As messengers of this development, our aim is to ensure you are fully aware of the challenges and commitments that lie ahead. Please carefully consider all aspects, including costs and timeframes, before investing in UK licensing, be it for purchasing an existing license, applying for a new one, registering as an authorized delegate, or seeking to become an Electronic Money Directive (EMD), Authorized Delegate (AD), or Registered Agent.
These recent developments have created a more complex and stringent licensing environment under the FCA. This includes not just applying for new licenses, but also maintaining and extending existing licenses. Any attempt to circumvent these challenges by becoming an authorized agent or delegate of an existing license holder is also subject to the same increased scrutiny and extended approval times.
In conclusion, we strongly advise a thorough due diligence and careful risk assessment before venturing into licensing applications or investments under the current regulatory regime. The challenges are steep, and the potential setbacks are considerable.
We extend our best wishes for your future endeavors. Please reach out to us for any further clarifications or if you wish to discuss your specific circumstances in more detail.
We extend our best wishes for your future endeavors.
See Related Links:
- UK License Application Pre-Screening
- Buying an existing license (refer to the UK section)
- Financial Conduct Authority (FCA)
- UK: EMI License
- UK: API License
- UK: SPI License
This page was last updated on June 5, 2023.