Securing an Authorised Payment Institution (API) licence is essential for businesses aiming to offer regulated payment services in the UK. Overseen by the Financial Conduct Authority (FCA), the licencing process ensures that firms meet strict requirements for governance, financial stability, and operational resilience. This guide provides a detailed roadmap to obtaining an API licence, highlighting the services that licence holders can provide, the application process, and critical regulatory considerations.
What is an Authorised Payment Institution (API)?
An Authorised Payment Institution licence allows businesses to provide a wide range of payment services, such as money remittance, payment initiation services, and account management. This licence is governed by the Payment Services Regulations 2017 (PSRs 2017) and is ideal for firms processing more than €3 million in monthly transactions or providing higher-risk services.
Services Offered Under an Authorised Payment Institution Licence
Holding the UK Payment Institution licence enables firms to offer the following regulated payment services:
Account Services
Enabling the opening, management, and operation of payment accounts.
Allowing customers to deposit or withdraw funds from payment accounts.
Payment Transactions
Execution of direct debits, including one-off direct debits.
Payment card transactions, including credit and debit cards.
Execution of credit transfers, such as standing orders.
Payment Transactions Covered by a Credit Line
Direct debits, credit card payments, and transfers backed by an overdraft facility.
Issuing and Acquiring Payment Instruments
Issuing payment cards or facilitating merchant transactions.
Money Remittance
Enabling the transfer of funds between individuals or entities without creating payment accounts.
Payment Initiation Services (PIS)
Initiating payments on behalf of customers, typically through online banking interfaces.
Account Information Services (AIS)
Providing consolidated views of customer accounts from different financial institutions.
By offering one or more of these services, firms can play a pivotal role in the evolving financial landscape.
Why Obtain an API Licence in the UK?
The UK remains a leading global financial hub, making it an ideal jurisdiction for businesses offering payment services. Key advantages include:
Credibility and Trust: FCA-regulated firms are viewed as trustworthy and compliant, enhancing customer confidence.
Market Access: The UK’s payment services market is one of the most advanced in the world, offering significant growth opportunities.
Innovation Ecosystem: The UK provides a robust fintech environment with access to expertise, funding, and partnerships.
Step-by-Step Guide to API Licence Authorisation
1. Understanding the FCA’s Threshold Conditions
The FCA assesses whether applicants meet the following critical conditions:
Effective Governance: A clear organisational structure with competent key personnel.
Operational Resilience: Systems and controls that support secure, uninterrupted service delivery.
Safeguarding of Funds: Mechanisms to protect customer money from loss or misuse.
Fitness and Propriety: Senior management must demonstrate relevant skills, qualifications, and integrity.
2. Preparing the Application
A strong application is the cornerstone of successful authorisation. Key components include:
Business Plan
Detailed information on the firm’s target market, services offered, and financial projections.
Explanation of how the firm will meet ongoing capital requirements and scale operations securely.
Programme of Operations
A comprehensive overview of the firm’s operational processes, from onboarding clients to managing transactions and safeguarding funds.
Organisational Structure
Details of governance arrangements, reporting lines, and key personnel responsibilities.
AML/CTF Compliance
Anti-money laundering (AML) and counter-terrorist financing (CTF) policies must align with regulatory standards and include staff training programmes.
3. Meeting Capital Requirements
Firms must demonstrate financial stability by meeting specific capital requirements:
Initial Capital: Depending on the services provided, this ranges between €20,000 and €125,000.
Ongoing Capital: Calculated based on transaction volume or fixed overheads, ensuring firms can absorb risks and liabilities.
4. Implementing Safeguarding Measures
Customer funds must be safeguarded through:
Segregated Accounts: Funds held separately from the firm’s own money in a client account with a regulated institution.
Insurance or Guarantees: As an alternative, firms can obtain insurance to protect customer funds.
5. Submitting the Application
Applications are submitted via the FCA’s Connect system and must include:
Detailed documentation for the business plan, operational structure, and safeguarding measures.
Information about key personnel, shareholders, and outsourcing arrangements.
6. Responding to FCA Queries
The FCA conducts a rigorous review of applications, often requesting additional information. Firms should address these requests promptly and thoroughly to avoid delays.
Key Considerations for a Successful Application
1. Governance Excellence
Appoint individuals with proven expertise in payment services and compliance for senior roles such as CEO, MLRO, and Compliance Officer.
2. Operational Resilience
Demonstrate robust IT systems capable of secure transaction processing, fraud prevention, and data protection.
Establish business continuity plans to ensure uninterrupted services during disruptions.
3. Clear and Transparent Documentation
Avoid incomplete or inconsistent information in the application. Provide comprehensive details supported by evidence.
4. Regulatory Engagement
Maintain open and proactive communication with the FCA to address queries and demonstrate a commitment to compliance.
Ongoing Obligations After Authorisation
Once authorised, API licencees must meet several ongoing regulatory requirements, including:
Periodic Reporting:
Submit financial statements, compliance audits, and transaction reports to the FCA.
Capital Maintenance:
Ensure ongoing compliance with minimum capital and safeguarding requirements.
AML/CTF Measures:
Regularly update policies and conduct staff training to stay ahead of evolving risks.
Customer Protection:
Adhere to conduct of business rules, including transparency in fees and terms.
Common Challenges and How to Address Them
Inadequate Safeguarding Arrangements
Solution: Work with a regulated financial institution to establish robust safeguarding accounts or obtain adequate insurance coverage.
Insufficient Key Personnel
Solution: Recruit experienced professionals for senior roles and ensure they meet the FCA’s fitness and propriety standards.
Weak Operational Systems
Solution: Invest in scalable IT infrastructure and cybersecurity measures to meet operational demands.
Why Choose Regulatory Counsel for API Licencing?
At Regulatory Counsel, we specialise in helping firms navigate the complex FCA authorisation process for the UK Payment Institution licence. Our services include:
Preparing detailed applications tailored to your business model.
Advising on safeguarding arrangements and capital requirements.
Supporting compliance with governance, AML, and risk management standards.
Comments