Small Payment Institution (SPI)
Small Payment Institutions (SPIs) offer a flexible, scalable entry point for businesses in the UK looking to provide essential payment services without the extensive regulatory obligations of larger payment institutions. Regulated by the Financial Conduct Authority (FCA), SPIs are particularly suited for startups or smaller firms offering limited services, such as money remittance and payment account management.
Overview
Services Provided
Money remittance
Payment account management
Payment transfers (no PIS or AIS)
Capital Requirements
SPIs are not required to hold any specific capital, providing flexibility for smaller businesses looking to enter the payment services market. However, SPIs must ensure they keep sufficient financial resources to cover any liabilities or risks associated with their operations.
Transaction Limitations
SPIs are limited to handling up to €3 million in average monthly payment transactions.
Safeguarding Requirements
While optional, safeguarding customer funds is necessary when an SPI holds funds for services such as money remittance or account management. Safeguarding ensures that customer funds are protected in the event of insolvency or operational risks.
Jurisdictional Limitations
Since Brexit, SPI's based in the UK cannot passport their services across the European Economic Area (EEA). These companies are restricted to operations within the UK and are not allowed to passport their services across the EEA.
Legal & Regulatory Framework
Payment Services Regulations 2017 (PSRs)
The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017
Key Restrictions
Cannot provide Payment Initiation Services (PIS) or Account Information Services (AIS); transaction limits apply.
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 £540.
Exemptions & exclusions
Exempt bodies
Credit unions
Municipal banks
Excluded activities
Payment transactions through commercial agents acting on behalf of either the payer or the payee;
Cash-to-cash currency exchange activities (for example, bureaux de change);
Payment transactions linked to securities asset servicing (for example, dividend payments, share sales or unit redemptions);
Services provided by technical service providers (which does not include account information services or payment initiation services);
Payment services based on instruments used within a limited network of service providers or for a very limited range of goods or services (‘limited network exclusion’);
Payment transactions for certain goods or services up to certain value limits, resulting from services provided by a provider of electronic communication networks or services (‘electronic communications exclusion’).
Regulatory Updates
Deep dive into Small Payment Institution (SPI)
Introduction
Discover the benefits of becoming a Small Payment Institution (SPI) in the UK, regulated by the Financial Conduct Authority (FCA). SPIs are perfect for startups offering limited services like money remittance and payment account management. With fewer regulatory requirements compared to larger payment institutions, SPIs provide flexibility and scalability, making them an ideal option for businesses looking to grow.
Definition
A Small Payment Institution (SPI) offers limited payment services with fewer regulatory requirements, making it ideal for smaller firms or startups that do not wish to operate on a larger scale; however they are subject to monthly transaction limits.
Additional Information (Services)
Money remittance: Facilitating the transfer of funds between individuals, often used for cross-border payments.
Payment account management: Enabling customers to manage their accounts, including balance monitoring and basic transactions.
Payment transfers: Execution of payments via credit transfers, direct debits, and similar transactions.
Additional Information (Legal & Regulatory Framework)
Payment Services Regulations 2017 (PSRs): SPIs must also comply with the Payment Services Regulations 2017, which set out requirements for payment services providers, including operational rules and consumer protection measures.
The Money Laundering, Terrorist Financing and Transfer of Funds Regulations 2017: SPIs must adhere to AML regulations to prevent money laundering and terrorist financing activities. Additionally, SPIs are required to adhere to anti-money laundering (AML) obligations such as customer due diligence (CDD) and reporting suspicious transactions to the relevant authorities.
Links
The Payment Services Regulations 2017 - https://www.legislation.gov.uk/uksi/2017/752/contents
The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 - https://www.legislation.gov.uk/uksi/2017/692/contents/made
Additional Information (Key Restrictions)
Transaction Limits: SPIs are restricted to processing no more than €3 million in monthly transactions, including both incoming and outgoing payments. This limit is calculated on a 12-month basis, exceeding this threshold would require the business to register as an Authorised Payment Institution (API).
No Passporting: SPIs are restricted to offering their services within the UK and cannot passport their services across the European Economic Area (EEA). Post-Brexit, UK-based firms are required to apply for separate licenses if they wish to operate in other jurisdictions.
Service Exclusions: SPIs cannot provide Payment Initiation Services (PIS) or Account Information Services (AIS), both of which fall under the scope of Authorised Payment Institutions (APIs). PIS refers to services that initiate payment transactions on behalf of customers with their consent. AIS involves unifying and providing a full view of the customers account information across multiple banks. Additionally, SPIs cannot issue e-money.
Financial Ombudsman Service: SPIs are required to have a clear and effective process for handling customer complaints. Customers have the right to escalate the issue to the Financial Ombudsman Service (FOS). The FOS acts as an impartial body to resolve disputes between customers and financial firms. SPIs must provide customers with information on how to contact the FOS as part of their complaints handling procedures.