An agent is a person or business which acts on behalf of regulated payment services providers (PSP) and e-money institutions to conduct payment services and e-money activity. Under an agency arrangement, the agent does not have to be directly authorised by the FCA to provide these payment services regulations, as it is making use of the licence of the regulated PSPs and e-money institutions, which are known as the Principal firms.
Before an agent can begin offering regulated services on behalf of the principal, the principal must first apply to register the agent with the FCA.
An agent cannot provide or purport to provide payment services regulations or issue e-money in its own right. In other words, companies acting as agents cannot claim to be regulated and supervised by the FCA for the purpose of providing payment services and e-money.
Within their customer journey, agents should make the customer aware that they are acting as an agent of their principal. As the principal firm is the corporate entity authorised to undertake regulated activities, customers should, typically, also accept the terms and conditions of the principal firm.
No. The decision on whether or not to appoint agents rests within each PSP and e-money institution, in accordance with their own risk appetite.
The FCA has up to two months, from the time the principal’s agent registration application is submitted, to make a decision on whether to approve the agent’s registration.
Whilst the principal firm should take every precaution to ensure that that all information asked for in the agent registration application is provided, it is within the FCA’s power to request any additional information it deems essential to inform its assessment of the application.
Becoming directly authorised for payment services and e-money can be both a costly and time-consuming process. This is particularly true for start-up businesses, some of which lack the financial, technical and human resources to meet all the FCA’s threshold conditions for authorisation.
Some of the most common challenges that companies wanting to become authorised need to contend with are summarised below:
All e-money institutions and most PSPs have must hold a minimum amount of capital before the FCA grants them a licence. These capital adequacy rules can be quite prohibitive for most businesses, with a minimum of €350,000 required for an electronic money institution and €50,000 required for a payment initiation services provider
When assessing an application, the FCA will observe whether the directors and senior managers of the business have sufficient expertise and experience to run the business in a compliant manner. Typically, depending on the type of application and size of the firm, the FCA will want assurance that at least one or two individuals have a payment services regulations or financial services background.
Companies that need to hold client money as part of their business model are obliged to take specific steps to protect those funds. The most common form of safeguarding involves opening a segregated bank account with a credit institution and ringfencing all client money within that account. Opening a safeguarding account can be a protracted process and with only a handful of credit institutions having the appetite to offer these types of accounts, securing one can be a significant challenge
For companies keen to launch their model as soon as possible, being registered as an agent is a much more time-effective solution than becoming directly authorised. When taking the directly authorised route, it can take many months of preparation to compile a detailed application pack, which once submitted, can take the FCA up to twelve months to assess and approve. Becoming an agent allows companies to avoid this and begin offering their product in a fraction of the FCA’s assessment timeframe
Operating as an agent gives companies, especially those with senior people who have little experience of working in regulated environments, the opportunity to enhance their experience of managing a business in the payment services regulations or e-money sector
Being an agent allows businesses that don’t have a proven track record of offering services and generating revenue the opportunity to showcase the viability and effectiveness of their business model. By doing this, it may allow companies to attract a higher level of investment into the business and allow for better facilitation of partnerships with key third parties, such as segregated account providers
No. Agents, so long as they are not regulated by the FCA for any other activities (e.g. activities outlined in Part 4A of the Financial Services and Markets Act 2000), do not have to pay fees to the FCA on an annual basis.
However, principal firms will levy their own ongoing fees on agents, which will have to be taken into account.
No. Agents are not required to submit periodic reports to the FCA. However, as principal firms are subject to the FCA’s reporting obligations and are responsible for their agents’ conduct, the principal firms must submit relevant data concerning their agents to the FCA within their own reports. Principal firms, therefore, will typically require their agents to make certain categories of data available to them on an ongoing basis.
The types of data requested by the principal from the agent would generally include, but are not limited to, the following:
Although agents do not have to pay annual supervision fees to the FCA, most principal firms will charge ongoing fees to their agents. When entering into discussions with a principal firm, prospective agents should request information on their pricing structure so that they can incorporate these costs within their budgets
Principal firms with restricted risk appetites may want to have increased authority over some of their agent’s functions, including having ultimate sign-off on decisions that affect the principal’s compliance with the FCA’s requirements. As an example, some principal firms may sign off all financial promotions designed by the agent or approve pre-defined high-risk customers which the agent wants to onboard. Therefore, in some cases, prospective agents must be willing to amend and restructure their internal reporting lines
As principals are responsible for the activities and behaviours of their agents, they will typically conduct an assessment on the fitness and proprietary of the agent’s directors and senior people. Principals will want to take this step to ensure that the individuals responsible for managing the agent do not have a previous history of criminal or professional misconduct. Some principals may conduct these fitness and propriety assessments on a regular basis
Before entering into an agency agreement, prospective agents should understand what restrictions will be applied to them by the principal firm. As an example, some principals may prohibit agents from onboarding customers from certain jurisdictions or industries, or Impose transactional limits on the agent’s customers. Agents will have to make an informed assessment of the impact that any restrictions would have on their financial model.
There is no standardised agent onboarding approach principal firms are required to follow and, as a result, the onboarding process will differ between each principal. In order to ensure that any prospective agent has sufficient systems and controls, many principals will, however, ask for the following documentation from agents as standard:
Some principal firms may also require prospective agents to subject themselves to an independent audit on their system and controls before they submit the agent registration application. In these circumstances, the principal firms will expect agents to rectify any critical weaknesses before they allow them to offer services on their behalf.
Our team have a proven track record of assisting multiple companies, each with different organisational structures and business models, to become PSD and EMD agents of principal firms. Not only that, we have supported companies through the unique onboarding process of several principal firms and can adapt its approach to helping a company onboard as an agent of its preferred choice of principal firm.
We can support companies interested in becoming agents in the following ways:
For more information on how can we help your company become PSD and EMD agents and how we can support you with payment services regulations, contact us today on 0207 436 0630 or email info@thistleinitiatives.co.uk.