Setting up a Digital Bank in the UK based on an AEMI Licence
The European Parliament and the Council of Europe adopted a directive that was transposed into UK law. The Electronic Money Regulation 2011 defines a type of UK financial market participant – an Authorised Electronic Money Institution (AEMI).
The main difference between the use of electronic money and the use of payment services is that the customer of an issuer has an electronic money account in the issuer’s payment system, and the customer uses it to:
1. Accepting e-money as payment for goods and services
2. Accumulation of funds from numerous small payments
3. Splitting large payments and utilising portions for different purposes
4. Converting e-money from one currency to another
5. Holding funds for an unlimited period
6. Settling accounts with suppliers and customers of the “Company”
7. Cashing out e-money and receiving fiat currency into a bank account
Requirements and limitations
imposed on the electronic money issuer
The initial capital (capitalisation) of the company (UK resident, ideally LTD) applying for the licence must be at least EUR 350,000. According to the legislation, the capital must be no less than 2% of the average amount of issued electronic money, but not less than EUR 350,000. It is crucial to demonstrate the origin of funds.
Main parameters
| Parameter | Value |
| Monthly limits – volume of issued electronic money per month | No limits |
| Bank holding client funds | EU |
| Indicative timeframe for obtaining a license | 6-9 months |
| Board members | Minimum 2 people: – UK tax residents (can be EU citizens with a flat in the UK to obtain a Utility Bill) – work permit – registration with the tax authority CEO – Chief Executive Officer Analogue of the general director. Responsible for everything. CFO – Chief Financial Officer Analogue of the chief accountant. Responsible for AML (due diligence and client compliance) There are NO formal requirements for both individuals, the regulator in the UK, when assessing applicants, is guided by what is called “Common Sense”. Simply put, if they see that a person is suitable for the position, then the candidacy is approved. At the same time, the procedure itself can be anything at the discretion of officials. If necessary, for the customer of the “Digital Bank”, specialists with the necessary competencies will be found and provided. |
| Wallet currency | In-wallet conversion is possible. At the same time, the exchange rate can be taken from any third-party platforms. You can also set any commission. The main thing is that the client is NOT deceived. Also, these transactions are monitored by the regulator, so “completely extreme numbers” cannot be used. If necessary, the customer of the “Digital Bank” can be provided with the limit values of the “spread” and commissions. |
| Fees to the Regulator | One-time payment when submitting documents – 5000 GPB No recurring payments. |
| Software | Rent, purchase, White Label, own software. There are no requirements for functionality There are requirements in terms of security: – where is the server – who has access – security certificates The contractor undertakes to manufacture software with any required functionality. |
ONLINE BANKING Minimum Viable Product
(under AEMI license)
| Function | Function parameters |
| 1. Issuing electronic money | YES – in unlimited amounts The AEMI (EMI) License from the FINANCIAL CONDUCT AUTHORITY fully covers any volume |
| 2. Correspondent accounts in USD and EUR in jurisdictions with more liberal financial oversight MOST COMPLEX COMPONENT | Yes – currently Poland and Czech Republic In the “traditional” Baltics, banks have recently been afraid to open correspondent accounts due to AML risks, pressure from the US government due to work with offshores, and unwillingness to share their network of correspondent accounts, because if “money laundering payments” begin, then questions may arise including to correspondents To “go to SWIFT” you need to work for 3-6 months “to do something” and get a “Letter of Recommendation” from the bank. Alternatively, this non-trivial task requires taking “corporate-corrupt” steps. Which the Contractor can also help the Customer to implement. |
| 3. Connecting to a BIN sponsor for prompt card issuance | Yes. Experience shows that it is easiest to connect to quasi-banking structures such as: http://www.contisgroup.com/ http://www.idtfinance.com/ http://www.wavecrest.gi/ |
| 4. Independent issue of debit cards of different statuses from Classic to Platinum, as well as anonymous cards, without a name on the card. | Yes – possible Cheap – negotiate with your own or a third-party bank, or an EMI that is a member of VISA/MC Medium – use someone else’s license to issue cards under the D-Bank brand Minimum fees and expensive – become a member of VISA/MC yourself (£400-500k) Anonymous cards: There are small limits when client identification is not required – $2,500 per year (more is possible through Gibraltar). |
| 5. The ability to register and verify an account in the system under an online offer, without paper workflow and remotely. | Yes. Remote identification and compliance is possible. For example, for individuals with accounts up to 30,000 euros, this is a remote upload of documents through special software without “human” contact. For corporate clients, depending on the volumes and jurisdictions, additional information may be required. |
Additional Project Functionality
| Feature | |
| 6. SWIFT connection with international IBAN | Yes Worldwide including USD payments in the USA. There are many software options available. Payment fees depend on the banks. |
| 7. SEPA connection | Yes SEPA – Single Euro Payments Area. Transaction fee is 35 euro cents. |
| 8. FATCA compliance | Yes. However, in order to do this, in addition to the EMI license, it is necessary to add a Payment Service Provider. That is, two licenses in one, like QIWI Europe. The Contractor undertakes to ensure that both licenses are obtained if necessary. |
| 9. Integration with third-party systems such as WebMoney for deposit/withdrawal (optional) | Yes. However, in order to do this, in addition to the EMI license, it is necessary to add a Payment Service Provider. That is, two licenses in one, like QIWI Europe. The Contractor undertakes to ensure that both licenses are obtained if necessary. |
| 10. Issuance of a large number of bank cards per person | Yes. Within the system, it is possible to open, for example, 10 or more wallets per user. Each wallet can be linked to a card. However, this is a business model issue that will need to be described and justified in the business plan as part of the license application process. The Contractor undertakes to solve such a task. |
| 11. Account top-up within the payment system using Visa/Mastercard. | Yes. It is possible to link the client’s own bank card to the account in D-Bank. The procedure is called “pegging”. When the client selects this option, D-Bank redirects the client to the page of the bank with the acquiring license providing the “pegging” service, where the client enters the details: card number, name, surname, expiry date, CVV or CVC2. After successful card verification, a certain amount of money is blocked on the client’s bank account. Next, the client enters the value of this amount of money in the appropriate window on the D-Bank page, the figure is checked and thus the payment card is linked. It is important to note that D-Bank itself does not have access to the client’s card details and does not store them, which relieves it of any responsibility for their use. That is, it is NOT acquiring and there is no acquiring fee, but there is only the cost of the interbank transaction. |
| 12. Working with cryptocurrencies. | Yes. However, at the stage of this “large” AEMI license used to create D-Bank, the requirements for internal control processes are higher. Therefore, BitPay must be provided for in the business plan from the outset. The Contractor undertakes to provide for work with any cryptocurrencies. |
Alexey Zarin
Moscow, 2015
