How to overcome the current uncertainties on EMI Passporting

With the ongoing uncertainty surrounding the post Brexit environment for offering financial services, both to FinTechs in Europe who wish to operate in UK and UK companies wishing to offer their services in Europe, how do you prepare and plan to ensure your company can grow uninterrupted?

With an unknown environment ahead do you have the adaptability to manage the challenges that will arise?

Currently, Passporting rights for EEA firms operating in UK have been replaced by the Temporary Permissions Regime to enable these firms to continue to operate for a limited period while they seek authorisation from UK regulators.

This is not a reciprocal arrangement. The EEA regulators are appearing to be very intransigent in their approach.

From January 1st 2021, UK authorised financial Institutions lost their rights to use the EEA Passporting rules and the March 31st extension has now passed.

Authorised financial institutions in UK and Gibraltar are having to adjust their business strategies by either ceasing to offer services in EEA, contracting with local firms to front their European operations or increasingly looking to obtain a licence through a subsidiary registered in a European country, with Ireland and Lithuania being the most popular countries.

There are as many EMI’s authorised in UK as there are throughout the rest of Europe with a huge number of European based entities now going through the application process with FCA. It would appear the combination of Coronavirus and this extra workload is having an effect on the time it is taking for FCA to process applications.

For newcomers to the EMI regime there is much to take into account and prepare for the application in order for the process to run as smoothly as possible, including but not limited to,

• Business plan for the first three years and evidence of initial capital
• Policies for safeguarding client funds, bank accounts you will be using and the policies for processing sensitive payment data
• Policies for managing client onboarding, KYC/AML & data protection
• Details of the software platform & IT security policies
• The general governance and internal control mechanisms, along with risk management and business continuity plans
• Details of the structural organisation and key personnel

As the application process can take 9 – 12 months your business will be incurring costs while not generating revenues.

A speedier route to market may be to register as an Agent of an existing EMI while the FCA application process runs its course.

This approach will

1. Get you to market and generating revenues.
2. Build up experience of operating under the regulatory environment.
3. Convince FCA you know what you are doing.

As the sector faces these challenges businesses need to ensure they can launch and grow without undue delays that may threaten the existence of the business.