Small Electronic Money Institution (SEMI)

Small Electronic Money Institutions (SEMIs) are licensed entities in the UK, authorised by the Financial Conduct Authority (FCA) to issue electronic money and provide select payment services. These services include managing payment accounts and facilitating remittances, making SEMIs an accessible option for smaller businesses aiming to enter the e-money market with reduced capital requirements and a focused operational scope within the UK.

Overview

Services Provided

  • Issuance of e-money

  • Payment accounts

  • Remittance

Capital Requirements

  • SEMIs whose business activities generate (or are projected to generate) average outstanding e-money of €500,000 or more must hold an amount of initial capital at least equal to 2% of their average outstanding e-money.

Transaction Limitations

  • SEMIs can only provide unrelated payment services if the average monthly total of payment transactions does not exceed €3 million on a rolling 12-month basis.

Safeguarding Requirements

  • SEMIs must safeguard funds received in exchange for e-money by placing them in segregated accounts or covering them with an insurance policy or comparable guarantee.

Jurisdictional Limitations

  • Post-Brexit, SEMIs based in the UK can no longer passport their services across the European Economic Area (EEA). To operate in the EEA, SEMIs must apply for separate licenses in each jurisdiction.

Legal & Regulatory Framework

  • The Financial Services and Markets Act 2000 (FSMA)

  • The Electronic Money Regulations 2011 (EMRs)

  • The FCA’s role under the Payment Services Regulations 2017 and the Electronic Money Regulations 2011

  • The Payment Services Regulations 2017 (PSRs)

  • FCA Rules and Guidelines

  • The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017

  • The Criminal Finances Act 2017

  • The Data Protection Act 2018 and UK General Data Protection Regulation (GDPR)

  • Consumer Protection Laws

Key Restrictions

  • Account Information Services (AIS): SEMIs are not permitted to offer AIS, which provide consolidated account data.

  • Payment Initiation Services (PIS): SEMIs cannot provide PIS, which allow direct bank account transfers.

Regulatory authorisation process

  • The Financial Conduct Authority (FCA) usually assesses a complete application within 3 months.

  • The Financial Conduct Authority (FCA) requires an application fee of £1,090.

Exemptions & exclusions

  • Exempt bodies

    The Post Office Limited

    Bank of England

    Government department or local authority

    Credit union

    Municipal bank

    National Savings Bank

Regulatory Updates

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Deep dive into Small Electronic Money Institution (SEMI)

Introduction

  • Unlock the benefits of becoming a Small Electronic Money Institution (SEMI) in the UK, authorised by the Financial Conduct Authority (FCA). SEMIs are authorised to issue e-money and provide related payment services, including payment accounts and remittance. This licence is ideal for smaller businesses looking to enter the e-money market with reduced capital and regulatory requirements compared to full Electronic Money Institutions (EMIs).

Definition

  • A Small Electronic Money Institution (SEMI) is authorised to issue e-money and offer payment services, subject to specific limitations on transaction volumes and jurisdiction. SEMIs have a lower capital requirement compared to EMIs and are restricted to operating within the UK.

Additional Information (Services)

  • E-money Issuance: Issuing e-money, which can be used for electronic transactions, purchases, and transfers.

  • Payment Accounts: Managing accounts that allow customers to store and use e-money for transactions and receive deposits.

  • Money Remittance: Facilitate both domestic and international money transfers, providing flexibility for individuals and businesses.

Additional Information (Legal & Regulatory Framework)

  • The Financial Services and Markets Act 2000 (FSMA): SEMIs are subject to the overarching regulatory framework provided by FSMA, which governs the provision of financial services in the UK. This act establishes the roles and responsibilities of the Financial Conduct Authority (FCA) in supervising financial institutions, including SEMIs, ensuring consumer protection and market integrity.

  • The Electronic Money Regulations 2011 (EMRs): These regulations specifically apply to SEMIs, governing the issuance, redemption, and management of electronic money. The EMRs establish key requirements for safeguarding customer funds, governance, and transparency in electronic money transactions.

  • The FCA’s role under the Payment Services Regulations 2017 and the Electronic Money Regulations 2011: SEMIs must comply with several FCA rules outlined in BCOBs, DISP, SUP, PERG, and FEEs sections of the FCA Handbook. These rules include conduct standards for business operations (BCOBs), requirements for complaint handling (DISP), guidelines for regulatory reporting (SUP), perimeter guidance for activities requiring authorization (PERG), and fee structures for regulatory services (FEEs). Adhering to these regulations helps SEMIs ensure legal compliance, maintain operational transparency, and foster consumer trust in the financial system​

  • The Payment Services Regulations 2017 (PSRs): SEMIs must also comply with the PSRs, which regulate the provision of payment services in the UK, including payment accounts, transfers, and direct debits. These regulations ensure that payment services are offered securely and transparently.

  • FCA Rules and Guidelines: SEMIs must follow various FCA rules, including the Principles for Businesses as outlined in the FCA Handbook. The FCA sets clear expectations for conduct, risk management, and consumer protection under the Electronic Money Regulations 2011.

  • The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (including amendments): SEMIs are obligated to comply with AML and CTF regulations, implementing comprehensive systems for customer due diligence, transaction monitoring, and reporting of suspicious activities to prevent money laundering and terrorist financing.

  • The Criminal Finances Act 2017: SEMIs must adhere to this act, which establishes obligations for firms to prevent the facilitation of money laundering, tax evasion, and corruption. SEMIs are required to have robust compliance frameworks to mitigate financial crime risks.

  • The Data Protection Act 2018 and UK General Data Protection Regulation (GDPR): EMIs must comply with UK GDPR by implementing measures to secure and lawfully process customer data. This regulation mandates that personal data be stored securely and managed in line with data protection standards, thereby safeguarding customer privacy and mitigating the risk of data breaches. The Information Commissioner’s Office (ICO) enforces these standards to ensure SEMIs protect customer information effectively.

  • Consumer Protection Laws: SEMIs must also comply with consumer protection regulations such as the Unfair Terms in Consumer Contracts Regulations 1999, the Consumer Protection from Unfair Trading Regulations 2008 (CPRs), and the Financial Services (Distance Marketing) Regulations 2004. If credit services are provided, the Consumer Credit Act 1974 applies, ensuring transparent and fair practices in consumer contracts.

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Additional Information (Key Restrictions)

  • Account Information Services (AIS): SEMIs are prohibited from offering AIS, a service that aggregates a user's payment account data from various institutions. This restriction ensures SEMIs remain focused on core e-money services without delving into account aggregation or third-party access to bank account information.

  • Capital and Safeguarding: SEMIs must maintain a minimum initial capital of €350,000 and are required to safeguard customer funds through segregated accounts or insurance.