Everything you need to know about the EMI License: An In-Depth Look

If a legal entity wants to provide payment services to its clients, as well as services related to the issuance and circulation of electronic money, it needs to obtain an EMI-license. It gives the company the status of Electronic Money Institution, thanks to which the owner receives the right to provide the above services related to the circulation and internal use of electronic money.

Our company provides professional, comprehensive assistance in obtaining EMI licenses in hundreds of jurisdictions around the world. We provide consulting on any issues, in particular, our specialists will tell you in detail about all the nuances that relate to EMI-licenses. Our lawyers will accompany you at every stage of our cooperation.

What is an EMI-license?

An EMI-license is an authorization for an institution to issue e-wallets, prepaid cards and other e-currency options. Used by individuals and legal entities to make payments. The law defines electronic money as electronic currency (that money stored on magnetic media), confirmed by fiat money, accepted by an individual or legal entity (other than the issuer) of electronic money.

Electronic money has simplified our lives. Since the Fintech industry is constantly developing new technologies that make the purchase of goods and services accessible, people are often thinking about how to move into online sales. When offering payment services as an EMI, it is necessary to apply to the financial regulator to obtain EMI-icenses.

Electronic payments are made through debit cards, credit cards, direct bank deposits and electronic checks. Other alternative electronic payment methods: e-wallets, bitcoins, cryptocurrencies and bank transfers are gaining popularity. Although formally they do not have an EMI-license. There is also a growing movement in cryptocurrencies, which are technically electronic money.

Process of getting EMI-license

The process of obtaining a license is complex and may vary depending on the jurisdiction. In this regard, the list of required documents and normative standards are determined on an individual basis. On average it takes 3-6 months, but the time frame may vary. The EMI candidate provides:

• business-plan. Including financial forecasts for the activities of your company;
• description of the organizational structure;
• monitoring procedure. Taking action on security violations, processing customer complaints;
• introduce internal protocols to combat money laundering and terrorist financing.

The nuances of purchasing a ready-made EMI

Any potential applicant for a ready-made EMI-license must understand the simple and comprehensive principles of the regulators’ approach to change of ownership deals.

1. The buyer is not permitted to assume control of the management of the EMI/PI company before a change of ownership has been authorized until the directors and management representing the buyer have been approved by regulators to be associated with it. Typically, the buyer seeks approval for new directors and senior management at the same time it applies for a change of ownership.
2. A change in ownership will entail a change in the business-model, operating program, financial model, which must be submitted to regulators in addition to the application for change of ownership. Resubmitting the current program of operations, business-plan and financial model of the EMI/PI company with which the company was originally authorized will not shorten the process.
3. Change of ownership usually entails changes in products and service list, so a new/updated risk management framework must be developed. Resubmitting the existing practices and procedures of an EMI/PI company with which it initially received approval will most likely not sit well with regulators.
4. As a result, a change of owner is considered by regulators as equivalent to obtaining a new permit, so you should not fall into the trap of the illusion that the company has already received permission and the change of owner will be easy and pleasant. Will not be.
5. Given the FCA’s recent publication on the financial strength of firms subject to its rules, the FCA has determined that the payments and electronic money segment has the lowest proportion of profitable firms. We believe that this trend will not prevail in other European countries. As a result, expect particularly careful consideration of the viability and sustainability of the business-model and financial forecasts.
6. Almost every regulator in Europe requires licensed EMI and PI companies to begin providing services within 12 months of receiving the license. If your target has not started providing services within 12 months, regulators may revoke the authorization.
7. Buying a company that has existed for more than 12 months, you risk that during this period it has not announced the start of working with clients. One solution to the problem is for you to inform the regulator about this at the stage of submitting an application for change of ownership and wait for confirmation from the regulator that you can proceed with the transaction and that permission will not be revoked.

Our specialists will accompany you at every stage of the transaction, guaranteeing an honest and most profitable partnership.

Benefits of an EMI-license

The main advantages of obtaining an electronic money institution license in one of the European countries.

1. Possibility of receiving SWIFT (international interbank system).
2. The institution’s clients receive IBAN (International Bank Account Number) accounts.
3. Possibility of remote account opening.
4. Issuing a Visa or MasterCard payment card for clients.
5. The company can transfer payments in different currencies.
6. The company can independently make payment decisions and open accounts. In addition, correspondent accounts around the world.
7. Providing service range for depositing or withdrawing cash and all operations necessary for the operation of a payment account.

Legal and Regulatory Considerations

Companies that operate in Europe need an EMI-license due to EU Directive 2015/2366. The purpose of the directive is to protect consumers when making secure payments with electronic currency. The same obligations (but under different directives) are required in most other countries around the world. The letter of the law for regulating EMI differs depending on the jurisdiction. The main needs are next-mentioned.

1. Availability of a comprehensive human resource management policy, as well as procedures that are necessary to ensure the business-model.
2. Payment of the authorized capital, the size of which depends on the company’s turnover, region of activity (in the country of registration or throughout the EU/world) and the nature of the proposed services.

Managing and Utilizing EMI-License

EMI is a permit to issue electronic money, which allows you to issue your own quasi-currency. The issued electronic currency can be used outside the payment system website. It can be withdrawn and converted into any other currencies. EMI-license also allows you to use your quasi-currency to service payments from third parties.

EMI covers the following range of services.

1. Emission of e-money.
2. Services that allow you to use issued e-money as a means of payment.
3. Transactions of exchange of issued emails. money to fiat currency.
4. Opening sub-accounts for clients within the corporate account of the payment service provider.
5. Services that allow users to place cash in a current account.
6. Services that allow users to withdraw cash from their current account.
7. Carrying out payment transactions and money transfers (including between payment accounts of users of a payment organization).
8. Providing loans. The loan cannot be provided from funds that have been entrusted to the payment institution for the payment transaction, and the equity capital must be equal to or greater than the total amount of loans provided. The loan must be repaid by the borrower within one calendar year.

To renew your electronic money license, you need to pay an annual fee. 

Challenges and Risks

Today there is a rapid development of payment systems. Over time, they may disrupt many of the systems through which payment-related information is transmitted. The potential appeal of electronic money to consumers is convenience, while benefits to issuers include income from fees (if any) and from investment in outstanding balances, and for some issuers, cost savings from reduced cash processing times.

Electronic money has become a part of everyday life and is often touted as a safer and more transparent alternative to cash. But this does not mean that they do not have their own weaknesses. Cyber fraud (including information leakage) and system errors remain risk factors. However, increasingly, the presence of specific risks that are independent in nature is postulated as operational risks. This, for example, is the risk of losing personal data of an electronic money user, the risk of hacking an electronic wallet, the risk of losing data or funds due to a system equipment failure, the risk of stealing customer data, etc.

Our specialists will help you quickly and efficiently launch your business. We have been working all over the world for many years. Our professionalism is a guarantee of the highest quality of our work.

The author of this article is Denys Chernyshov – CEO and founder of the world-famous law firm Eternity Law International.