Features of Obtaining an EMI Financial License

Scientific and technological progress in the financial sector has led to the development of modern payment methods, with electronic money (E-money) being a prominent example. It is gaining increasing popularity for various reasons, including the growing challenges of opening traditional bank accounts and obtaining payment cards in traditional banking institutions. E-money is often used in domestic and international transactions and serves the needs of various customer groups. Therefore, it’s not surprising that more and more legal entities are looking to start businesses using electronic money. If you also want to enter this sector, you need to obtain an EMI license, a regulatory document for issuing E-money and providing payment-related services.

A licensed legal entity obtains the status of an Electronic Money Institution, which allows companies to use electronic money not only within the EMI platform but also beyond it, including facilitating payments for other organizations. Licenses for such activities are issued by special regulatory bodies in each country, accompanied by a set of requirements and conditions that must be met by those seeking licensing.

The process of obtaining an EMI license is not easy, as it requires specialized knowledge in the field of fintech and international law, as well as significant time and financial resources. Qualified assistance from experienced professionals at the Lawrange Law Firm can make the licensing process easier in your chosen jurisdiction. We are ready to handle all the preparatory processes related to document collection and guide you through each stage of registration, including representing your interests when dealing with the regulator. By turning to our company, you can eliminate paperwork and unnecessary time expenditure. We will do everything necessary to ensure that the licensing process for electronic money goes smoothly and comfortably.

What Is an EMI License?

It is a regulatory document issued to legal entities wishing to become an EMI institution to conduct business activities involving electronic money legally. Such a license is a kind of equivalent to a banking license but with fewer restrictions. Unlike traditional banks, EMI companies cannot lend money or accept deposits. However, from an organizational point of view, Electronic Money Institutions are more flexible and technologically savvy compared to traditional banks.

EMIs are innovative providers of payment services, and in combination with the issuance of electronic money, they contribute to positive changes in the business banking environment to meet the needs of clients. Having a license allows:

• Issuing E-money.
• Making payments in offline or online mode.
• Providing sub-accounts within a bank account, which opens the way to create electronic wallets and individual IBANs.
• Providing currency exchange services.
• Providing information about the account.
• Making transfers from payment cards.
• Paying for goods and making transfers, accompanied by the debiting of funds from a credit account.

Obtaining an EMI financial license grants the legal right to store confidential customer information, using specialized tools. Due to the absence of strict restrictions on cash flow control in many jurisdictions, licensed companies can facilitate the movement of large volumes of funds.

In some countries, EMIs are divided into types. One type is the Small EMI license, which does not allow the issuance of more than 5 million euros. If you plan to issue more than this amount, you need to obtain an AEMI license and become an authorized electronic money institution. Such a license is also obtained for operations within the European Economic Area (EEA) without the need for additional permits in each jurisdiction within the EEA.

More About Electronic Money

E-money represents a digital equivalent of cash, stored in EMI computer accounts. It is a relatively new payment instrument that doesn’t require physical printing or transportation of banknotes, significantly simplifying and speeding up transactions. However, it’s important not to confuse electronic money with cryptocurrencies, as they have almost nothing in common except for operating in the digital realm.

Important! Electronic money can be used to pay for various goods and services online. E-money, like traditional fiat currencies, has a nominal value and is linked to a specific national currency, making it transferable and exchangeable.

The European Central Bank defines electronic money broadly as a digital store of monetary value on a device that can be used for payments, and it does not necessarily require bank accounts. Examples of electronic money include prepaid cards and fully web-based payment services. The main advantages of e-money include:

• High transaction speed.
• Lack of a human factor.
• Secure storage in a wallet (when both the provider and the user follow all security rules).
• Low fees compared to traditional bank money transfers.

It’s worth noting that electronic money can come in different forms. For example, Soft e-money is a reversible payment instrument, allowing users to reverse a transaction within 72 hours, while Hard e-money, on the contrary, is irreversible. They can also be identified e-money, allowing the issuer to monitor user payments, and non-identified e-money, which can be cashed out and used like regular fiat money.

Advantages of EMI License

One of the advantages is explained by the convenience of using electronic money. For example, you can store multiple currencies in e-wallets, avoiding unnecessary conversion procedures. Clients are also attracted by the ability to use funds remotely and protection against counterfeiting, theft, changes in denomination – in short, the absence of the risks associated with traditional fiat currencies.

The main benefits are related to the opportunities available to licensees, including:

• Issuing their own electronic currency, supporting the circulation of electronic funds.
• Conducting transactions with popular currencies such as dollars, euros, pounds, etc.
• Working with SWIFT.
• Opening correspondent accounts for clients, as well as IBAN.
• Issuing VISA and MasterCard cards.
• Self-service for transactions, opening client accounts.
• Opening accounts for individuals and legal entities.
• Transferring funds from corporate accounts to individuals’ cards.
• Providing services for paying for goods and services, including making money transfers with debits from credit accounts.

An EMI license involves strict AML/KYC procedures, which may initially seem to delay the account opening process. However, licensed electronic money institutions have more modern, innovative tools and mechanisms compared to traditional banks, making the AML/KYC procedure much faster.

Receiving an EMI (Electronic Money Institution) license allows licensed companies to open sub-accounts for customers, thereby creating conditions for the creation of special electronic wallets. Customer verification is carried out in accordance with AML/KYC (Anti-Money Laundering/Know Your Customer) policies. It is essential to adhere to this procedure throughout the entire duration of the account’s validity.

Requirements for Obtaining an EMI License

Each jurisdiction sets its own licensing requirements, but there are common requirements that apply to most countries:

• Having a suitable business structure with effective internal control measures. Some jurisdictions require the mandatory presence of a director and AML manager in the country of registration.
• Founders and partners must have knowledge and skills in the financial sector and have an impeccable reputation.
• A legal address for EMI companies within the jurisdiction of registration.
• Contribution of mandatory initial capital (e.g., in many EU countries, this amount should not be less than 350,000 euros). Smaller EMIs have similar requirements, except for the capital size, which is somewhat smaller but not less than 2% of the average monthly turnover.
• Having an internal risk management policy, including the need to hire an AML manager.

If you intend to register an EMI license, you should pay careful attention to each requirement of the regulator, even seemingly minor ones, to avoid legal issues or license revocation in the future.

Obtaining an EMI License: Key Steps

The EMI license is issued by the supervisory authority of the relevant jurisdiction. This means that the first step towards opening a business abroad is choosing the country. It is recommended to consider several factors, including the geography of future activities, legislative peculiarities, tax policies, stability of the banking sector, and the volume of required documentation when selecting a jurisdiction. After deciding on the jurisdiction, you can proceed to the following steps.

Company Registration:

Determine the legal structure of the future legal entity. In most jurisdictions, corporations or joint-stock companies are often chosen, or it can be a Limited Liability Company (LLC). After developing corporate documentation (Articles of Association, business plan, etc.), submit an application to the regulator for company registration with three unique name options (in case one of them is already taken).

Opening a Bank Account:

First, choose a banking institution where you will apply to open an account. It is recommended to approach several banks, which will help diversify financial flows and reduce risks in case one of the company’s accounts is blocked.

When opening an account in the EU, you will need to provide corporate documents, annual financial reports, proof of the origin of funds, documents of the company’s directors and shareholders, as well as a business plan. In some countries, opening an account may only be possible if you conduct economic activities within that country.

Contribution of Initial Capital:

EU and UK regulators have established a uniform size for the initial capital of EMI companies – 350,000 euros. Be prepared that in some EU jurisdictions, depending on the business plan, this amount may be several times higher. Usually, the initial capital should be contributed before obtaining the license. It is also common to require additional funds to cover the company’s upcoming expenses as evidence of its solvency.

Hiring Mandatory Employees:

Each regulatory authority has its own requirements for personnel and their residency. Previously, there was an option to hire top management personnel in another country, but this option is not currently available. Depending on the jurisdiction, the number of required personnel may vary from 2-3 to 8-10 individuals. These individuals should hold positions such as:

• Director or Chief Executive Officer.
• Chief Operating Officer.
• Chief Technical Officer.
• Director of Regulatory Compliance.
• Chief Financial Officer, and so on.

You will also need to provide the regulator with the resumes of the actual employees you hire for the company.

Office Rental

Your company must have a physical office in the country of registration. Co-working spaces or open spaces are not acceptable. If an EMI company rents an office, then the Regulator must be provided with a valid lease agreement. In some jurisdictions, a photograph of the premises may also be required.

Documentation Preparation

This stage can take up to 2-3 months or more, as it involves the collection of a large package of documents, including but not limited to:

• Company Articles of Association.
• Action plan for the next 2-5 years (depending on the Regulator’s requirements).
• Business plan with financial forecasts for the first few years.
• Evidence of the qualifications of the management team.
• Description of the AML (Anti-Money Laundering) policies in place.
• Description of the organizational structure.
• Questionnaires for directors.
• Confirmation that the share capital is not less than 350,000 euros.
• Professional liability insurance contracts.
• Operational risk questionnaires for the applicant’s activities, and so on.

Application Submission and Obtaining an EMI License

Once the prepared documentation package is ready, you should submit an application for an EMI license. In different countries, this process is accompanied by mandatory government fees. Additionally, an annual fee for license renewal may be required, depending on the requirements of the regulatory authority.

In the EU, it can take from 3-6 months to 12-24 months from the application submission to obtaining the license, depending not only on the jurisdiction but also on the correctness of the prepared documents. For example, in Hong Kong, this process is much faster, with the regulator typically reviewing the application within 3-6 weeks. If the application is approved, the Regulator will send the corresponding notification.

Best Jurisdictions for Obtaining an EMI License

Electronic Money Institution licenses are issued in many countries worldwide. However, some jurisdictions stand out for offering favorable conditions for the successful development of electronic money institutions:

• Europe – Special attention is recommended for the United Kingdom, which issued nearly half of all EMI licenses in Europe in 2022. This jurisdiction with a flexible regulatory system, developed infrastructure, and a commitment to the fintech sector’s growth attracts investors from around the world. Lithuania is also considered attractive for EMI licensing, offering a special visa regime, the ability to conduct SWIFT transfers, issue VISA/MasterCard cards, and use the EMI license without a time limit.
• Asia – E-money licenses in Asian jurisdictions go by different names but share the same essence. Licensing in Singapore, Hong Kong, and the UAE allows your company to offer payment services to clients in Asia and other regions under legal conditions. Obtaining a license opens up the same broad opportunities as in the EU, including the ability to accept SWIFT payments and authorized payments in popular global currencies such as US dollars, euros, pounds, etc.
• Offshore – EMI licenses can be registered in many parts of the world, but there are jurisdictions where the licensing process is much simpler and relatively cheaper. Offshore countries like Malta, Cyprus, and others attract with favorable tax regimes, minimal regulator interference in company affairs, and a high level of confidentiality.

Choosing the right jurisdiction is a crucial step on the path to entering international financial markets. Our company’s specialists will help you select a country for registering an EMI company based on your preferences and business specifics.

Buying a Ready-Made Company with an EMI License

When you turn to Lawrange, another option becomes available for starting electronic money business activities – purchasing a company with an existing license. This option has several important advantages:

• Time and cost savings – the legal entity has gone through the entire registration process and is ready to operate. Of course, you will need to allocate time for document preparation for the transfer, but overall, this process will be faster than starting a company from scratch. There is no need to pay the application fee for obtaining the license and other fees associated with the licensing process.
• Faster business launch – a ready-made company typically has an established business structure, a stable client base, and established relationships with counterparties, as well as a bank account, allowing the legal entity to engage in electronic money activities immediately after the transfer.
• Excellent prospects – you will have a ready set of tools for remote management of business processes and the ability to register branches in other countries (in the case of purchasing a company in the EU), and more.

Lawrange – Your Best Choice

Our team consists of experienced international law and fintech industry specialists who know how to quickly obtain an EMI license regardless of the chosen jurisdiction. With Lawrange, you can choose the most suitable country for successful electronic money operations and EMI license acquisition. We assist at every stage of licensing, including actively participating in the preparation of the complete document package for application submission and legal entity registration. If you decide to purchase a company with a ready-made license, we will draw up a purchase/sale agreement in full compliance with the laws of the relevant jurisdiction. A comprehensive registration solution from Lawrange will significantly save you time, money, and stress.

FAQ

What factors can affect the success of the EMI license application process?

The success of this process largely depends on the accuracy of the preparation of the required documents. Errors can lead to questions from the Regulator, which can delay the application review. It’s crucial to provide timely responses in such cases to avoid a license rejection.

How much does it cost to obtain an electronic money institution license?

The amount of government fees depends on the country of registration. Additionally, the overall expenses include legal assistance, payment of share capital, office rental, and so on.

Why are startups and international companies increasingly preferring to open accounts with electronic payment institutions rather than banks?

This is because EMIs (Electronic Money Institutions) can offer flexible payment solutions. In such institutions, it is much more convenient for clients to conduct various transactions and access services, typically available 24/7. Equally important is the fact that EMI companies often process money transfers much faster.

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