Wednesday, 11 July 2012

Understanding the FSA

A while ago I attended a really good workshop run by Neopay at the Prepaid 2012 conference. As regulatory workshops are deemed to be boring, I was quite surprised that this one was not at all. I’d like to share my learning with you all on what you will need to apply for a licence to be an Authorised Electronic Money Issuer (AEMI). This will give you the authorisation you need to become an issuer for prepaid cards.

To give you a bit background on the FSA - as many of you may know, FSA stands for Financial Service Authority. It is the UK Financial Regulator. Since December 2001 it exercises statutory powers given to it by the Financial Services and Markets Act 2000 and the Electronic Money Regulations 2011. It regulates investment firms, banks, insurance agents, mortgage lenders and more.

Bye bye FSA - it is now undergoing a transition. Its responsibilities will be split into two new agencies called the Prudential Regulatory Authority and the Financial Conduct Authority. While the Prudential Regulatory Authority will look after the c1000 largest firms the Financial Conduct Authority will look after all other firms. Until these new bodies come into the swing of things, you should process as normal (keep on reading the article).

The FSA takes a risk based and outcome focused approach, which you should always bear in mind when you are applying for a license with the FSA. What does the FSA want from you? No more than what you should have already in place as a well-run, well-organised and even well-resourced company. Be always a step ahead if you submit papers, ask yourself which questions might arise and try to be always a step ahead of the person who approves your case.

Give an overview of what your company is doing and what type of payment services you are performing. You will also need to provide a business proposition and a 3-5 year plan. You need to demonstrate that you have the skills, knowledge and the experience to execute your plans. For that, it will be crucial that you have enough resources not only people wise but also in capital. Have your financials ready and if you don't have one yet, prepare a company structure diagram. It will help your case officer to understand how your business works.

Make sure you demonstrate how your business will identify, manage, monitor and report any risks your company might be exposed to. Possible risks might be operational, counterparty, liquidity, market, financial crimes and foreign exchange rates. Don't hold back. There is not a single organisation which does not face risks. Show that you have thought of all the potential risks your company is facing and be transparent on how you will deal with them if they occur. Highlight the top risks in your business plan and do not forget to state which categories they fall into. The four main categories are Governance controls, Financial Controls, Internal Controls and Money Laundering Controls.

You might ask yourself now how many people you will need to keep up with all these controls. The answers is "It depends..." but you always include three key people - chief executive, chief financial officer and a money laundering reporting officer (MLRO).

Last but not least few tips on how to increase you success changes:
  • Be ready! Don't submit the application if you do not have at least 80% of your application complete. Incomplete applications can be declined by the FSA and you don't want that happen especially as the FSA will list all declined applicants on their website!
  • Present it! A good presentation is everything.
  • Own it! Take ownership of your application and the application process. Once your application is submitted don't lay back just now.
  • Be quick! If possible return queries from your case officer on the same. It is more likely he will pick it up straight away and the two weeks SLA is undercut.
Good luck with your application!

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