Electronic money institutions (EMIs) saw their daylight through the first Electronic Money Directive (1EMD) in 2000. From this, parties where able to set up EMIs for issuance of electronic money (e-money). During this time, EMIs were typically providing pre-payment services, such as pre-paid sim cards. In year 2009, the second Electronic Money Directive (2EMD) was adopted. Through the 2EMD, EMIs were granted the right to provide a broader scope of payment services, i.e., the payment services as per the Payment Services Directive (PSD1). As with Payment Institutions (PIs), EMIs achieved benefits of the second Payment Services Directive (PSD2), witch further developed the payment services markets through its adoption in year 2018.
This third part of our Fintech in Practice series highlights the key points regarding how to become a Finnish EMI, including practicalities and insights to the ways of providing e-money services in Finland.
EMI Authorisation in Finland
As per Finnish law, an EMI is de facto a PI that has been granted authorisation to issue e-money. Thus, EMIs may, inter alia, create and provide mobile applications which enable customers to use e-money for daily payments, peer-to-peer transactions, and so on. As e-money has the status of legal tender, EMIs can provide their customers flexible means of payment without the immediate need of traditional banks.
In Finland, the issuance of e-money exceeding a level of EUR 5 000 000 always require an EMI authorisation from the Finnish Financial Supervisory Authorisation (FIN-FSA). If the amount of issued e-money does not exceed EUR 5 000 000, companies are able to act as so-called “issuers of electronic money” (not to be mixed with ordinary EMIs) on a smaller measure based on a registration granted by the FIN-FSA.
In other words, Finnish companies need an EMI authorisation granted by the FIN-FSA before they can commence e-money operations on a larger scale. Furthermore, foreign companies may conduct EMI operations in Finland based on their domestic EMI authorisations, in which case they may need to pass an authorisation process as required by the FIN-FSA (e.g., passporting), depending on the intended way of providing e-money services in Finland.
Applying for a Finnish EMI Authorisation
When applying for an EMI authorisation in Finland, the applicant company shall be prepared to face a processing time ranging between 9 to 12 months. The exact time schedule and final costs of the authorisation process depends largely on how well the application has been prepared. Thus, it is highly recommended to use external legal assistance when applying for an EMI authorisation.
A company applying for a Finnish EMI authorisation must, in connection with the application document itself, provide the FIN-FSA with, inter alia, information regarding the actual e-money operations, the descriptions of all essential internal operations, the arranging of AML/CTF procedures as well as the fulfilment of all applicable capital requirements.
In other words, EMIs are as PIs subject to relatively strict policy requirements. The final number of necessary attachments and required information is dependent on the nature and scale of the intended EMI operations at launch. Additionally, as legislation and authority practices are progressing, so is the amount and type of required information. The authority fee for an EMI authorisation application is currently EUR 6 200 at the FIN-FSA’s end.
Once the EMI authorisation has been granted, the EMI is able to commence its e-money services and (if applied for) provision of other payment services inside the entire EEA area. Yet, as with foreign EMIs in Finland, a Finnish EMI shall make sure it obtains the proper authority permissions before it conducts e-money related operations outside of Finland.
Minimum Capital Requirement for a Finnish EMI
The minimum initial capital requirement of an EMI in Finland is EUR 350 000 (when no other services than issuance of e-money or services related to the issuance is provided), yet the EMI shall always have own funds corresponding to 2% of the average amount of e-money in issue by the EMI. Would the EMI be providing other traditional payment services in addition to the e-money issuance itself, then additional capital requirements would also be applied.
Registration as Issuer of Electronic Money in Finland
As stated above, EMIs cannot operate in Finland without an authorisation granted by the FIN-FSA or another domestic supervisory authority within the EEA. This is reasoned, inter alia, with the necessities of robust organisational measures when issuing e-money, which is to be deemed justified, as the amount of issued e-money and transaction volume may be on a very high level.
However, as mentioned above, it is possible to act as an “issuer of electronic money” in Finland on a low scale without the normally required EMI authorisation. In short, natural persons living in Finland, or legal persons with their headquarter in Finland, are allowed to issue e-money on a maximum level of EUR 5 000 000 based on a registration granted by the FIN-FSA. Thus, operating as an issuer of electronic money based solely on a registration means that the level of issued e-money cannot exceed the threshold of EUR 5 000 000. In other words, a registered e-money issuer must always ensure that the total cap of issued e-money in circulation does not exceed the threshold.
As with PI operations based on registration with the FIN-FSA, the process towards a granted electronic money issuer registration is lighter than the regular EMI authorisation process – and also worth a thought when planning a new fintech business venture, as the registration may be a functioning alternative to utilise at launch of a specific new business model.
Functioning as a Finnish EMI
Once a company has obtained its EMI authorisation, it is important that the EMI complies with all applicable laws and regulatory requirements set out by the FIN-FSA. This includes having adequate capital reserves, maintaining proper accounting records, and reporting any suspicious transactions to the authorities. In addition to ongoing reporting of suspicious transactions, the reporting obligation includes half-yearly or annual reporting on information regarding financial statements, customer risks, lending, overdue claims, solvency, risk assessments and potential fraud. Additionally, EMIs must, from time to time, report on other matters connected to the company's daily activities, such as operational risks, ownership changes and offering services in other EEA countries.
In addition to the internal costs arising from the reporting, the FIN-FSA charges both a basic and a proportional fee for the supervision of the EMI. By considering the costs of the authorisation process and ongoing hefty compliance and reporting related obligations, fintechs should seek to achieve an EMI authorisation only when the benefit of the authorisation outweighs the company's potential financial and administrative burden. Considering the legal landscape of EMIs, companies shall also be ready to maintain sufficient internal legal resources or use the services of external law firms. Notwithstanding the costs, it is undeniable that the status of an authorised EMI comes with several business upsides and growth opportunities.
At the time of writing, there are five (5) domestic EMIs registered in Finland. However, as the Finnish Fintech market and Finland as a jurisdiction has more recently been identified to provide one of the globally leading ecosystems for payment service innovations, it is anticipated that several new EMIs will be seen entering the Finnish market in the next few years.
Looking ahead, the incoming third Payment Services Directive (PSD3) comes with a promise of regulatory clarity on EMI operations. Additionally, time will show how the Markets in Crypto-Assets Regulation (MiCA) is going to affect the current views on e-money and authority interpretation of EMI operations (e.g., the distinction between e-money tokens as per MiCA and traditional e-money). Therefore, it is easy to state that the future of digital money is indeed interesting, and the next incoming years are going to be crucial considering the competitiveness of the European payment service markets for the rest of the century.
As a law firm with strong experience in advising EMIs on the European markets, we are happy to help you with any questions related to electronic money and EMIs.