Navigating the New Consumer Duty: A Guide to Applying for Authorization as an EMI

The Financial Conduct Authority (FCA) is the regulatory body responsible for overseeing the financial sector in the United Kingdom. If you're interested in starting an electronic money institution (EMI), you'll need to apply for authorization from the FCA. It's important to note that the FCA's new Consumer Duty will come into force on July 31st, 2023, and it will have implications for your application to become an authorized EMI.

What is the Consumer Duty?

The Consumer Duty is a new set of rules that will require financial firms to act in the best interests of their customers. The FCA introduced this new duty to ensure that consumers receive fair treatment from financial firms, and it will apply to EMIs as well.

Requirements to Apply for Authorization as an EMI under the Consumer Duty

To apply for authorization as an EMI under the Consumer Duty, you'll need to meet the following requirements:

1. Business Plan

You'll need to provide the FCA with a detailed business plan that demonstrates how you will deliver good outcomes for your customers. This should include information on how you will treat customers fairly, how you will manage conflicts of interest, and how you will ensure that your products and services are suitable for your customers.

2. Capital Requirements

EMIs are required to maintain a certain level of capital to ensure they have sufficient funds to operate and to protect consumers in the event of financial difficulties. You'll need to demonstrate that you have adequate capital to meet the needs of your customers and to comply with the Consumer Duty.

3. Fit and Proper Test

The FCA will carry out a fit and proper test to assess the suitability of your key personnel, such as your directors and senior managers. The test will consider factors such as their experience, qualifications, and track record. You'll need to demonstrate that your key personnel are committed to delivering good outcomes for your customers.

4. Governance and Risk Management

You'll need to demonstrate that you have robust governance and risk management systems in place that are designed to deliver good outcomes for your customers. This includes having a clear management structure, defined roles and responsibilities, and adequate systems and controls to manage risks.

5. Anti-Money Laundering (AML) and Counter-Terrorism Financing (CTF)

EMIs are required to have robust AML and CTF policies and procedures in place. You'll need to demonstrate that you have adequate measures in place to prevent money laundering and terrorist financing, such as Know Your Customer (KYC) and Enhanced Due Diligence (EDD) procedures. You'll also need to demonstrate that you are treating your customers fairly in the way that you implement these policies and procedures.

6. Systems and Controls

You'll need to demonstrate that you have adequate systems and controls in place to manage your operations effectively and to deliver good outcomes for your customers. This includes having robust IT systems, adequate security measures, and contingency plans in case of system failures. You'll also need to demonstrate that your systems and controls are designed to protect your customers from harm.

7. Consumer Protection

EMIs are required to have adequate measures in place to protect consumers. You'll need to demonstrate that you have clear terms and conditions, transparent pricing, and adequate complaints procedures in place. You'll also need to demonstrate that you are treating your customers fairly in the way that you implement these measures.

8. Reporting Requirements

EMIs are required to submit regular reports to the FCA on their operations, financial position, and risk management systems. You'll need to demonstrate that you have adequate systems in place to generate accurate and timely reports that demonstrate how you are delivering good outcomes for your customers.

Conclusion

Applying for authorization as an EMI can be a complex and time-consuming process. However, with the new Consumer Duty coming into force on July 31st, 2023, it's important to make sure that you meet the new requirements and demonstrate that you are committed to delivering good outcomes for your customers. By following the requirements outlined above, you can ensure that you have a strong application and that you are well-positioned to become an authorized EMI under the new Consumer Duty.

In summary, starting an EMI can be a challenging but rewarding endeavour. To become an authorized EMI, you'll need to meet a range of requirements, including those set out by the FCA's new Consumer Duty. By demonstrating that you have robust governance and risk management systems in place, that you are committed to treating customers fairly, and that you have adequate systems and controls to manage your operations effectively, you can position your EMI for success and help ensure that you deliver good outcomes for your customers.