Author: James Borley, Director of Payment Services
In my experience advising firms across the payments and e-money sector, one of the most persistent areas of confusion concerns Anti-Money Laundering (AML) registration and supervision in the United Kingdom. Specifically, when is a payment institution supervised by the Financial Conduct Authority (FCA), and when might HM Revenue & Customs (HMRC) have a role?
The answer lies not in branding, commercial positioning or even preference, but in the precise scope of payment services undertaken. This came to the fore again recently, with the issue of another Final Notice from the FCA cancelling a small payment institution’s permission, due to its failure to be registered for AML supervision.
The Legislative and Supervisory Framework
Payment institutions operate within two overlapping supervisory regimes: they are Authorised Payment Institutions (APIs) or Small Payment Institutions (SPIs) under the Payment Services Regulations 2017 (PSRs), and are also subject to the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLRs).
Regulations 6(8) and 14(11) of the PSRs require that a payment institution “be included in a register maintained under [the MLRs] where such a requirement applies to the [firm].”
Under the MLRs, firms falling within the definition of “relevant persons” must be supervised by a designated AML supervisory authority. For APIs, SPIs and Authorised Electronic Money Institutions (AEMIs), that supervisor will generally be the FCA in respect of the regulated payment services or e-money activities they are permitted to carry on. Otherwise, the supervisor is likely to be HMRC.
This dual structure creates a natural alignment: where a firm is already subject to prudential and conduct supervision by the FCA, it makes sense for the same authority to supervise its AML systems and controls in relation to those regulated activities.
The General Rule: FCA Supervision for Regulated Payment Services
As a general working principle, if a firm is authorised or registered under the PSRs to provide payment services, then the FCA supervises its AML compliance in relation to those activities.
Regulation 7(1)(a) of the MLRs states:
“The FCA is the supervisory authority for relevant persons who are:
(a) authorised persons, exempt persons, or persons registered under the Financial Services and Markets Act 2000, or
persons carrying on activities regulated under the Payment Services Regulations 2017 or the Electronic Money Regulations 2011.”
In other words, if you are carrying on regulated payment services, FCA supervision applies for AML.
This includes:
- Money remittance
- Execution of payment transactions
- Operating payment accounts
- Issuing payment instruments
- Acquiring payment transactions
- Issuing electronic money
Where HMRC Supervision May Arise
In the context of payments, HMRC’s supervisory role, however, primarily concerns Money Service Businesses (MSBs) and other sectors not prudentially supervised by the FCA. These include:
- Money transmission businesses [my emphasis]
- Bureau de change businesses
- Cheque cashers
The complexity arises when a payment institution, required to be authorised/registered under the PSRs, is also an MSB requiring registration under the MLRs i.e. it provides money remittance/money transmission.
Regulation 7(2)(a) of the MLRs states that HMRC is the supervisory authority for “money service businesses not supervised by the FCA”.
That wording is critical; HMRC only supervises MSBs to the extent they are not FCA-supervised which, by my calculations, means the bureau de change and cheque cashing activities.
So, Whose Register Is It Anyway?
As we have seen, MSBs drop out of HMRC supervision when provide payment services other than money remittance, by virtue of how ‘money service business’ is defined.
Crucially, ‘money remittance’ is defined by reference to Schedule 1 to the Payment Services Regulations 2017. Other payment services in Schedule 1 (e.g. operating payment accounts, execution of payment transactions etc) are not MSB activities; they are regulated payment services.
Accordingly:
- If payments firm only provides money remittance, it may fall within the MSB regime supervised by HMRC.
- If it provides any other Schedule 1 payment service, it is operating as a payment service provider supervised by the FCA.
Still confused? I thought so.
Helpfully, the FCA has summarised this legislative jousting by making specific reference in its Approach Document. Paragraph 3.97 states:
“Where we will be responsible for money laundering supervision of the applicant, no separate registration is required. This will be the case for all EMIs and (generally speaking) all PIs (unless the application only relates to the provision of money remittance services).” [my emphasis].
So, in the simplest terms, for money remittance only, HMRC is the supervisor under the MLRs; for any other payment service it is the FCA.
I’m glad we cleared that up!
How Complyport Can Help
Complyport has over 25 years’ experience supporting firms with FCA authorisations, variations of permission, change in control notifications and payments and e-money applications. We understand what regulated activities or payment services a firm will need within its permission profile, and the relevant registration requirements.
Our experienced regulatory consultants can assist with:
- Conducting an assessment of a firm’s business model against the applicable regulatory requirements;
- Structuring and drafting robust, regulator-ready FCA/HMRC applications;
- Managing pre-application engagement with the FCA;
- Supporting responses to information requests during the assessment phase; and
- Providing ongoing compliance and risk management support post-authorisation.
If you are considering applying for FCA authorisation, early preparation is critical.
Book a meeting with a Subject Matter Expert today to discuss your authorisation strategy and regulatory obligations.
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