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NOVOSTI May 2017 – Family Office



Our Family Office receives various interesting and unusual enquiries on an almost daily basis. Recently, we were asked our advice in relation to setting up a Money Exchange Bureau in the UK. Having done the necessary research we provided the advice in the form of a Consultation meeting with the client backed up by written notes.

We found the matter very interesting and thought it might be useful to share the main points with a wider audience. Perhaps the key point is that during our investigation we discovered that the requirements in relation to money exchange businesses in the UK differ considerably from those of other countries.

Currency Exchange businesses are categorised as ‘Money Service Businesses’ and are subject to regulation under the Finance Services Act 2000 as subsequently amended. The Financial Conduct Authority (FCA) is the regulatory authority for all Money Service Businesses, including Money Exchange businesses. Within the overall FCA area of regulation, Money Exchange businesses are classified as Payment Institutions (PIs), which are subject to the Payment Service Regulations 2009, amended 2012.

Kinds of Payment Institutions

There are two kinds of Payment Institutions.

  • Small Payment Institutions (SPIs), which have to be registered with the FCA, a comparatively simple process; and
  • Authorised Payment Institutions (APIs), which have to be authorised by the FCA, a far more complex process.

What you need to know about Small Payment Institutions (SPIs)

An SPI may be operated by an individual or a corporate body (limited company or partnership), but the operator must be based and located in the UK. An SPI cannot operate within the European Economic Area (EEA). Besides, turnover of the business must be less than €3M per month.

The benefit of an SPI is that there are no capital or safeguarding requirements; i.e. the operator does not have to maintain a set level of capital reserve and does not have to maintain client money in designated Client Accounts.

Application is relatively simple and can be done on-line. Application fee is £500 (non-refundable) but there is also a set annual fee. Decision is usually given in 3 months, but can be delayed by up to 12 months if it is not totally complete and correct.

What you need to know about Authorised Payment Institutions (API)

Firms qualifying as SPIs often seek API status because they are more readily accepted by the banks. APIs must be a limited company or partnership registered in the UK with its head office also in UK. However, an API can also operate within the EEA.

There is a requirement to hold minimum capital reserves €20,000, €50,000 or €125,000 depending on the type and level of business. There is also a requirement to hold additional reserves calculated against turnover. Besides, APIs need to hold client money in safeguarded accounts.

Application fee for this type of Institution is £1500 (non-refundable), and there is also an annual fee based on turnover. The application is at a complex level of detail with numerous supporting documents. Decision time is again 3 months but 12 months if complex.

API and SPI Common Factors

Both types need the business to have been thoroughly planned before the application is submitted. There should be no areas of uncertainty. For example, banking arrangement should have been agreed, business procedures specified and key controlling personnel known. A fully documented Business Plan is a requirement for an API and is advisable for an SPI.

Anti-Money Laundering

Both SPI and API are subject to the Money Laundering Regulations 2007. They must be registered with Her Majesty’s Revenue and Customs (HMRC) for Anti-Money Laundering (AML) purposes. HMRC guidance is a risk-based approach. Single or linked transactions above €15,000 have to be subject to thorough investigation. Some transactions below that level may also have to be subject to more in-depth investigation. Registration with HMRC costs £100 to apply, plus an annual fee of £115. All persons controlling the operation – Directors, over 25% shareholders and certain others are subject to a ‘Fit and Proper Person Test. HMRC charge £100 per person for that.

Other Regulations

Money Exchange businesses are also subject to other specific legislation, including:

  • Price Indications (Bureau de Change) (No 2) Regulations 1912, which specifies how rates of exchange should be published and information that has to be given to customers.
  • The Consumer Protection from Unfair Trading Regulations 208, which define business practice that is considered unfair and must be avoided.

We hope that you found the above information interesting and useful. Our Family Office is always happy to assist you with business, domestic and family matters.

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