Challenges in Obtaining a Payment Institution License in the UK Post-Brexit

The UK has long been a financial hub for fintech companies and payment service providers. However, the regulatory landscape has evolved significantly following Brexit, creating new challenges for businesses seeking a Payment Institution (PI) license from the Financial Conduct Authority (FCA). While the UK remains an attractive jurisdiction, firms must navigate increased scrutiny, stringent compliance requirements, and operational hurdles.

1. Stricter Regulatory Requirements

Post-Brexit, the UK no longer follows the EU's Payment Services Directive 2 (PSD2). While the UK has retained many PSD2 principles, the FCA has introduced stricter standards, particularly around capital requirements, safeguarding measures, and operational resilience. Applicants must demonstrate robust financial stability and detailed risk mitigation strategies.

2. Loss of Passporting Rights

Previously, UK-based payment institutions could "passport" their license to operate across the European Economic Area (EEA). Brexit has eliminated this advantage, meaning UK firms must now establish separate entities in the EU and seek licensing under local regulators. This results in increased costs, administrative burdens, and regulatory complexity.

3. Heightened AML and CFT Compliance

The FCA has ramped up Anti-Money Laundering (AML) and Countering the Financing of Terrorism (CFT) requirements. Firms must implement enhanced customer due diligence (CDD) procedures, transaction monitoring systems, and stringent Know Your Customer (KYC) protocols. The regulator expects robust compliance frameworks, making the application process more time-consuming.

4. Longer Processing Times

The FCA has been known for its rigorous licensing process, but post-Brexit, the volume of applications and regulatory scrutiny have increased. The average processing time for a Payment Institution license can now take anywhere from 9 to 18 months. Firms must ensure their documentation is comprehensive to avoid delays.

5. Capital and Safeguarding Requirements

The FCA imposes strict capital adequacy rules on payment institutions. Depending on the services provided, firms must maintain a minimum capital requirement ranging from €20,000 to €125,000. Additionally, safeguarding measures to protect customer funds have become more stringent, requiring detailed operational procedures and independent audits.

6. Need for Strong Governance and Risk Management

Applicants must demonstrate a well-structured corporate governance framework, including experienced directors, compliance officers, and risk management protocols. The FCA closely evaluates business models, risk assessments, and the financial viability of applicants.

7. Uncertainty Around Future Regulatory Changes

Brexit has created a dynamic regulatory environment, with potential future changes to the UK’s payment services framework. Firms must continuously monitor and adapt to evolving FCA guidelines, making long-term strategic planning more complex.

Conclusion

While obtaining a Payment Institution license in the UK remains possible, the post-Brexit environment has introduced several challenges. Companies must be well-prepared, financially stable, and compliant with stringent FCA regulations. For fintech firms looking to operate across the UK and EU, a dual-licensing strategy—obtaining both an FCA license and an EU license—may be the most viable solution.

#PaymentInstitution #FCA #Brexit #UKRegulations #FintechLaw #AMLCompliance #CryptoRegulation #EUPassporting #FinancialServices #KYC #RegulatoryCompliance #MoneyLaundering

Disclaimer

The information provided in this article is for general informational purposes only and does not constitute legal or financial advice.

Author & Crypto Consultant

Shahid Jamal Tubrazy (Crypto & Fintech Law Consultant)

Shahid Jamal Tubrazy, a certified top expert in Crypto Law from Duke University, is a leading authority in the cryptocurrency and blockchain space. As a seasoned Fintech lawyer, he offers a full spectrum of services, including licensing, legal guidance for ICOs, STOs, DeFi, and DAOs, as well as specialized expertise in crypto mediation, negotiation, and mergers and acquisitions. With a proven track record and published works on Blockchain Regulation and Cryptocurrency Laws, Shahid provides unparalleled insights into the complexities of the fintech world, ensuring compliance and strategic success. 🌐💼 #CryptoLaw #Fintech #Blockchain #LicenseServices #CryptoMediator #MergersAndAcquisitions #CryptoCompliance #FrozenAssetsrecovery.

EMAIL: shahidtubrazy@gmail.com

Website: https://cyberlawconsult.wixsite.com/cryptolawyer

Facebook: https://www.facebook.com/fintechcryptolawyer

LinkedIn: https://www.linkedin.com/in/tubrazyfintechlawyer/

Blogger: https://sjtubrazylegalpages.blogspot.com/