Becoming a PSD or EMD Agent – everything you need to know & how we can help?

What is an agent?

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.

Are there any differences between offering services as an agent and as a directly authorised firm?

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.

Can a company become an agent of any regulated PSP or e-money institution?

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.

How long does it take for the FCA to approve agent applications?

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 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.

What obstacles would prevent a company from becoming directly authorised?

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:

Capital Requirements – All e-money institutions and most PSPs 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
Knowledge & Experience – 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.
Safeguarding Facilities – 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

What are the benefits of offering payment services regulations as an agent of a principal firm?

Quicker Route To Market – 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
Enhancing Experience – 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
Proof of Concept – 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

Are agents required to pay ongoing fees to the FCA?

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.

Do agents have any ongoing reporting requirements to the FCA?

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:

The values and volumes of customer payments conducted
The number of complaints received from customers (including details on the nature of the complaints)
The number of customers onboarded by the agent

What factors should a company consider before becoming an agent?

Principal Firm Fees – 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
Reporting Lines – 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 that the agent wants to onboard. Therefore, in some cases, prospective agents must be willing to amend and restructure their internal reporting lines
Fitness & Propriety of Directors & Senior Managers – 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 the previous history of criminal or professional misconduct. Some principals may conduct these fitness and propriety assessments on a regular basis
Principal Restrictions – 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.

How challenging is the onboarding process for becoming an agent?

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:

IT security policies, procedures, and manuals
Disaster recovery and business continuity plans
Complaint handling policy
Compliance monitoring plan
AML policies, procedures, and manuals
Business risk assessments and registers
CVs of directors and senior managers

Some principal firms may also require prospective agents to subject themselves to an independent audit of 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.

How can we help companies become agents?

Our team has 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 on board as an agent of its preferred choice of principal firm.

We can support companies interested in becoming agents in the following ways:

Liaising with the prospective agent to analyse the principal firm’s onboarding checklist and documentation request, and creating an action plan to meet all the principal’s requirements
Making the relevant documents from our suite of compliance templates available to the prospective agent
Conducting an information-gathering meeting with the prospective agent to understand the systems and controls it currently implements (or plans to implement), allowing us to bespoke the template documents to the agent’s specific circumstances
Providing advice and guidance to the prospective agent on any additional controls or processes it will need to have in place to comply with the principal’s requirements before it is onboarded
Developing and bespoking the agent’s compliance monitoring plan, ensuring that the agent conducts frequent testing on whether controls are being implemented and procedures are being followed
Assisting the prospective agent in answering any feedback questions from the principal on its onboarding application
Where applicable, conducting an independent audit on the prospective agent and creating a report on the agent’s controls for evaluation by the principal
Post-onboarding, we can provide ongoing compliance support to the agent to ensure it continues to maintain compliance with the requirements, including online training modules, regulatory updates, ad hoc advice, and periodic audits

If you’d like to know more about how we can help you with payment services regulations, our expert team is here to help.