EMI licensing

What are EMIs?

In light of digitalisation trends, e-money has gained traction and EMIs have emerged as alternative payment providers to traditional banks. EMIs provide optimised business wealth management matched to modern global needs. Simplicity and ease-of-use are central to most EMI models.

E-money refers to the digital stored value held in an EMI's systems to facilitate cashless transactions. Under UK and EU EMD regulations, all e-money transactions require licensing. So, institutions can conduct activities including:

Issuing, distributing and redeeming e-money
Payment services and money transfers
Issuing payment cards enabling withdrawals and deposits

However, EMIs cannot:

Accept deposits
Issue loans
Funds received by an EMI cannot be considered deposits and must promptly convert to e-money

Types of electronic money under EMI licensing

Electronic money (e-money) serves various customer groups, from freelancers to corporations, and comes in different forms to meet specific transaction needs. Key types of e-money include:

I Reversible and Irreversible E-Money

Soft e-money services like PayPal or credit cards allow users to reverse transactions within 72 hours in most cases. This makes them reversible. Hard e-money transactions processed via a bank are typically irreversible.

II Identified and Unidentified E-Money

Transactions through payment methods like credit cards allow the issuer to identify the user withdrawing funds, classifying them as identified e-money. With unidentified e-money, once users withdraw the funds from a bank, the transactions become untraceable like cash. This requires a centralised e-money exchange infrastructure.

III Online and Offline E-Money

Offline e-money stored on cards or other media does not need bank connectivity to make transactions on supporting systems. Online e-money requires an internet connection and bank coordination to facilitate third-party transactions.

Key requirements

I. Structure

Firms must establish appropriate administrative frameworks with robust internal controls. Note: Some jurisdictions mandate physical presence of the CEO and AML Manager/Money Laundering Reporting Officer (MLRO). For instance, the UK and Ireland impose this requirement, while Lithuania applies more flexibility.

II. Management

Directors and managers must demonstrate suitable financial sector qualifications and strong reputations that can withstand regulatory assessments.

III.Registered office

EMIs require an established local office address in the licensing jurisdiction as evidence.

IV. Capitalisation

Minimum startup capital is typically set at €350,000 for European EMIs.

Small EMIs may qualify for reduced capitalisation — albeit with transaction and e-money issuance restrictions:

Monthly turnover capped at €3 million in Year 1
Monthly e-money issuance limited to €5 million

Breach of these thresholds requires transitioning to an Authorised EMI with full prudential requirements. Please note, Small EMIs cannot passport their services across the EU.

Given lengthy procedures and cross-border regulatory variability, engaging expert advisors can support successful EMI licensing applications.

Optimal jurisdictions to register

EMIs are spearheading the digital payments' revolution, innovating and expanding access to financial services. When selecting an EMI licensing jurisdiction, key considerations include:

Target operational geography
Favorability of the regulatory framework
Scope of application documentation
Stability of the monetary and banking system, underpinned by macro and microeconomic indicators

According to recent expert analysis, the UK, and Lithuania lead in Europe, having invested substantially in nurturing their fintech ecosystems and progressing the sector. Microstates like Gibraltar and Liechtenstein also rank highly for registered EMIs.

A key benefit of a European EMI licence is passporting, enabling market access across the EU. However, passporting rights are exclusive to Authorised EMIs holding enhanced licences.

Leading jurisdictions for EMI licensing and their benefits

UK and Ireland: Optimal EMI licensing jurisdictions

UK

The UK remains a prestigious, highly developed global financial hub despite having left the EU. It retains favourable economic conditions and continues attracting foreign investment and entrepreneurs. As Europe's fintech epicentre, licensing takes 6+ months, with the Financial Conduct Authority (FCA) assessing applications jointly with the European Banking Authority.

Key UK EMI licence benefits include:

World's 6th largest economy
High global licence recognition
Strong financial services reputation
Substantial government fintech support
Deep talent pool
SWIFT code issuing rights in GBP
Permissioned to issue GBP IBAN accounts

Key licensing materials cover:

Company and management due diligence
Business plans and financial projections
Organisational structure
Evidence of capitalisation and client fund protection
AML/CTF risk management controls
Customer security complaint handling

Ireland

Ireland's ambitious new financial strategy cements attractions like R&D incentives and IDA Ireland fintech funding. EMIs also benefit from extensive tax reliefs and impressive R&D tax credits.

Ireland offers:

Top 15 global innovation ranking
Europe's #1 investment incentive regime
12.5% Corporate Income Tax rate
2nd most competitive European economy

Irish EMI features:

EEA passporting rights
IBAN account issuance permitted
Access to SEPA payment schemes

Luxembourg: EMI licensing overview

In Luxembourg, PIs and EMIs are regulated under the local Law on Payment Services based on EU Directives to enable fintech payments licensing while upholding cybersecurity.

PSD2 expanded the scope of EU payments regulation to include third-party PSPs for the first time. It also introduced enhanced consumer protection, competition, security, and transparency requirements.

Importantly, a head office and senior management presence in Luxembourg is mandatorily required. The permissible legal form is a PLC (or SA).

Once authorized, Luxembourgish EMIs can passport services across the EEA or establish branches in other EEA states.

Lithuania: compelling benefits of EMI licensing

A Lithuanian EMI licence empowers providers to offer online/offline payments, open subaccounts, issue e-wallets, provide IBANs and enable foreign transfers.

Lithuanian EMIs can passport services across the EEA without additional licensing. Moreover, Lithuania offers a special visa regime, streamlining fintech residency.

The Central Bank administers EMI licensing as per the EU Directive on e-money issuance. As a member of the SEPA, Lithuania accesses integrated payments and collections spanning 34 countries.

Additional Lithuanian EMI advantages include:

IBAN issuance to clients
SWIFT transaction abilities
Remote account opening capabilities
Visa/Mastercard issuing rights
Multi-currency global banking links
Attractive taxation and rankings: Top 10 international tax jurisdiction
Open-ended licence validity enables long-term operational stability

Overall, a Lithuanian EMI licence provides significant scope for fintech providers to scale European operations and customer bases.

Island jurisdictions: compelling EMI licensing destinations

Cyprus

Cypriot EMI licence enables providers to cost-effectively scale pan-European operations with an innovative range of digital payment services. The Central Bank also offers a flexible approach to licensing that supports continued fintech growth.

Benefits include:

Passporting rights: operate across the EU under a single Cypriot licence
SEPA Access: provide seamless euro payments and collections with SEPA scheme membership
Strategic location: ideally positioned to serve clients across Europe, Asia, and Africa
Business environment: Cyprus offers well-developed infrastructure, low taxes, and a talented English-speaking workforce
EU membership: access to the EU single market and free movement of services
Low costs: compared to other jurisdictions
Talent pool: strong local pool of professionals in areas like finance, technology, and compliance

Malta

The nation's fintech growth leads Malta as an early EMI licensing jurisdiction. Well-developed infrastructure, flexible regulations and attractive taxation make Malta a preferred fintech launch location.

As an EU member, Maltese EMIs can passport services across the EEA via branches or free provision of services. Additional advantages include:

Extensive double taxation treaty network
English-speaking professional talent
Sophisticated local fintech industry
Lower operating expenses than the EU average

The MFSA as a key local regulator, strongly supports setting up fintech ventures in Malta.

UAE EMI licensing in key financial free zones

The Dubai International Financial Centre and Abu Dhabi Global Market free zones provide pathways for Electronic Money Institution (EMI) licensing in the UAE. Independent regulators — the DFSA and FSRA respectively — licence and oversee financial services firms in these zones.

Common EMI business models include:

Digital wallets
CPP services
Payment services
P2P transactional apps and websites

Key UAE EMI licensing requirements:

In-country office and staff
Sufficient operational resources
Management and staff expertise
Minimum 2 directors, a UAE-based SEO, RMO and AML officer
Paid-up capital from US$200,000-700,000 reflected in Internal Capital Adequacy Assessment reporting
Applicants must exhibit robust technological capabilities, security controls, risk management frameworks and internal governance

In summary, the DIFC and ADGM provide accessible pathways to EMI licensing in the UAE while upholding high authorization standards.

Key Asian EMI licensing jurisdictions

Hong Kong

Hong Kong offers two main licences:

SVF (Stored Value Facility): similar to a European EMI licence, enabling e-money issuance. Hong Kong Monetary Authority (HKMA) issues such a licence for a period of 5-10 year validity.
MSO (Money Service Operator): more commonly sought. Valid for 2 years — renewable if application made before expiry. Caps on turnover and profitability.

Jurisdiction benefits include:

World-leading business environment (tops Economic Freedom Index 25 straight years)
Attractive taxation: 8.25% on first HK$2 million, 16.5% thereafter
Cutting-edge IT infrastructure
Visa/Mastercard issuing abilities
SWIFT-enabled global bank transfers (top currencies like USD, EUR, GBP)
International inbound transaction capabilities

Hong Kong e-money issuance requirements:

Minimum capitalisation of US$225,000

Tax compliance documents
No injunctions or court orders
Local premises

Singapore

With tightening foreign exchange controls, fintechs offer needed payments platforms alternative to banks. Consequently, Singapore pioneered relevant regulation.

2020 Payment Services Act expanded regulatory purview over e-money in relation to merchant acquiring, fund transfers and digital token payments. Firms require of republic's MAS approval.

Singapore e-money licensing requirements:

US$225,000 min. capital
Local registration
Singaporean director
Reporting & annual audits
MAS fit and proper assessment of controllers/management

Benefits include:

Remote account opening abilities
Visa/Mastercard merchant acquiring
Global bank transfers (top currencies like USD, EUR, GBP)
SWIFT inbound payment acceptance

In conclusion, we want to emphasize that EMR licensing processes in various jurisdictions require the support of specialists. Specialized fintech consulting firms such as TK Deal enable smooth acquisition of EMI licenses and accelerated commercial adoption in target markets.

TK Deal consultants offer comprehensive guidance including: