What is a Financial Intermediary and why do they need to be licensed?
My name is Faisal Khan. I’m a banking and a payments consultant and I’m here to answer your questions.
So, a question I got recently is, you know, what is a financial intermediary, and why is it necessary to be licensed if you are a financial intermediary. So let’s answer what a financial intermediary is. A financial intermediary is someone who is did not originate the transaction and is not going to benefit from the transaction, and is not the final beneficiary of the money. You are acting as an in-between. So, you are neither the originator of the transaction neither are you the final beneficiary. Because you’re an in-between. the money flows through your bank account or whatever mechanism you are utilizing. You have the ability to make that money work for nefarious purposes. That means you can always take the siphon that money out and go buy that Ferrari that you always wanted to buy although that should never be the case. So, in order to prevent that, you need to be licensed and the safeguarding process of once your license is that money would be in a segregated named account that would not belong to you, it would belong to your company and you won’t have the ability to touch customer funds even though they are flowing through your account but you won’t have the ability to touch the customer funds.
In order to set up this arrangement and compliances etc. because of the fact that you’re handling someone else’s money, you need to be licensed and that’s what makes you a financial intermediary. Now whether or not you charge for it there could be a de minimis charge. There could be a very high percentage fees the fact that money flows through you. And you have the ability to charge for facilitating this transaction and without this facilitation, the transaction could not have taken place. You are required to be licensed and that is why practically in every country in the world there is a intermediaries, financial intermediaries are more likely license. It could be a money transmitter license, it could be a money transfer operator license, could be a money network operater license, could be a payment processor license or payment service provider. There are so many many variants but nonetheless a licensing would be something that would be mandatory.
If you have a question feel free to ask in the comments and I might just make a video and answer on it. Thank you. Take care.
This page was last updated on December 10, 2019.