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Clarifying the requirements for payment services firms and e-money firms

Over recent years the payments sector has developed rapidly, as we move towards a ‘digital economy’. The FCA has confirmed that this sector is a priority area and it will act swiftly where firms fail to meet regulatory requirements.

Last updated: 2 September 2020

 

The FCA regulates payment services firms (such as authorised payment institutions (APIs)) and e-money firms. There are many similarities between both of these types of firms and the FCA’s guidance usually covers both together. The Payment Services Regulations (PSRs) and Electronic Money Regulations (EMRs) also set out the requirements for auditors, in scenarios where auditors need to be appointed (see below). The requirements in these regulations are broadly similar.

 

A common misconception, however, is that the UK company law requirements are also similar, in respect of statutory audit and accounting. These actually differ significantly between each type of entity. We have clarified these differences below.

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Jay Patel

+44 (0) 207 556 1390
patelj@buzzacott.co.uk
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Last updated: 2 September 2020

 

The FCA regulates payment services firms (such as authorised payment institutions (APIs)) and e-money firms. There are many similarities between both of these types of firms and the FCA’s guidance usually covers both together. The Payment Services Regulations (PSRs) and Electronic Money Regulations (EMRs) also set out the requirements for auditors, in scenarios where auditors need to be appointed (see below). The requirements in these regulations are broadly similar.

 

A common misconception, however, is that the UK company law requirements are also similar, in respect of statutory audit and accounting. These actually differ significantly between each type of entity. We have clarified these differences below.

Payment services firms

Payment services firms

 

Firms regulated under the PSRs are not automatically required, by UK company law, to have an audit. The usual size criteria will apply (on a group-wide basis). If the worldwide group is small, exemption may be taken from the requirement to have an audit. To qualify as small, the whole worldwide group must meet two out of the three following criteria for two years in a row:

 Turnover/revenue

 <£10.2m (net)

 <£12.2m (gross)

 Total assets

 <£5.1m (net)

 <£6.1m (gross)

 Average number of employees

 Not more than 50

 Not more than 50

 

However, even if the worldwide group is small and an audit would not normally be required, the owners of a firm may request that the firm is audited. In this case, UK company law requires the owners to give notice to the directors, then an audit is required. This scenario is common where a counterparty would like to see audited financial statements before doing business with a company.

In terms of preparing annual financial statements (whether or not these need to be audited), if the firm on its own meets two of the three net size criteria for two years in a row, it will be able to prepare these financial statements under the small companies’ regime.

There is no requirement for payment services firms to submit audited financial statements to the FCA. These will just need to be submitted to Companies House within 9 months of the firm’s accounting reference date. If these financial statements are audited, the PSRs stipulate that the auditor must communicate certain matters to the FCA.

E-money firms

E-money firms

There is less flexibility with e-money firms. UK firms regulated under the EMRs are not entitled to prepare financial statements under the small companies’ or medium companies’ regimes and are not entitled to take any exemption from audit.

As with payment services firms, there is no requirement for an e-money firm (that does not undertake any other non-regulated business) to submit audited financial statements to the FCA. If the firm undertakes other non-regulated activity (known as hybrid businesses), the audited financial statements will need to be submitted to the FCA when they are submitted to Companies House, the deadline for which is still within 9 months of the firm’s accounting reference date. As with the PSRs, the EMRs stipulate that the auditor must communicate certain matters to the FCA.

Get in touch

If you are a payment services firm or e-money firm and would like to discuss your audit and accounting needs, please get in touch via the below form and a member of our specialist team will contact you.

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