Payment Service Provider (PSP) License

Banking access

As with many related institutions, a PSP has a lot to do with banking. For starters, potential customers use a payment company in order to transfer money in a faster and more convenient way compared to a standard bank transfer. Henceforth, the owner of a PSP must consider providing a stable and uninterrupted connection with a bank so that customers can transfer funds directly from their accounts. Both for PSP and EMI business models, it is necessary to prepare an agreement with a bank outlining the intention of the platform to conduct transactions (their technical side) on behalf of the customers.

AML-CFT Compliance

In preparation for obtaining the PSP license, businesses must follow a number of AML-CFT compliance guidelines. These include preparing the company’s own AML compliance policy, assigning a responsible AML Director (an obligatory requirement in some jurisdictions), and educating the key shareholders and directors on the importance of AML-CFT compliance.

Non-custodial payment service

Neither PSP nor EMI are allowed to hold custody of the client funds in any way. PSP platforms only streamline the transactions from customers’ bank accounts without holding any amount in custody, whilst EMIs exchange funds for the corresponding sum of electronic money, instantly allowing clients to use it for transactions. Then there are Payment Institutions that are based on PSP but have a larger scope of provided services, such as cash payments to payment accounts, withdrawal of cash from payment accounts, and remittance. All of these companies are required to hold an electronic ledger of customers’ accounts.

About Electronic Money Institutions and Payment Services Providers

EMIs are a business model resembling PSPs, although the scope of services it provides is different: while payment service providers simply conduct the transactions, EMIs exchange customer funds to electronic money before doing so. Similarly to PSP, EMI companies have their own EMI license, although the company formation and registration processes for EMIs are way more stringent in comparison.

Electronic Money Institutions licensed in Europe are subject to the regulations set forth in the Electronic Money Directive (EMD) of the EU while outside Europe, EMIs are governed by each jurisdiction independently. In order to safely obtain a license for an EMI, several preparatory steps are required:

• Completing AML-CFT procedures and drafting an AML policy;
• Meeting the prudential requirements that correspond to the operational and financial risks of your company;
• Managing the aforementioned risks (conducting a risk assessment procedure before applying for a license);
• Providing adequate payment gateways for customers to exchange funds with.

Due Diligence Procedures

Almost every regulator licensing PSPs or EMIs requires the key directors, shareholders, and employees of the legal entity to pass a due diligence check. This process usually comes after the initial licensing application, during which you should already present a detailed business plan and the IT infrastructure, as well as the proper assessment of risks.

The primary due diligence requirements for a payment company will include:

• Identity, residence, and background checks of all beneficiary owners and shareholders;
• Proof of non-criminal record of all aforementioned individuals;
• AML certifications and proof of AML-CFT competence.

LegalBison provides qualified training materials to the beneficiaries, directors, and shareholders of PSP/EMI businesses. In addition, we undertake the legal documentation in its entirety, allowing the client to concentrate on other aspects of the business.

Establishment of Payment Gateways

Payment Service Providers assist clients in completing transactions from their bank accounts, whilst the electronic money stored in an EMI is backed by actual fiat currencies exchanged by customers using their bank accounts or any other accessible banking means. For the convenience and security of clients, it is important to establish an adequate number of payment gateways for PSP, EMI, and Payment Institution startups.

Consequently, an agreement with a bank is required to start operating as a PSP/EMI. In simple terms, this agreement allows you to integrate banking solutions into your platform and your customers – to complete transactions or exchange their funds for electronic money seamlessly and without obstacles.

The integration of payment gateways into a PSP/EMI is a responsible and meticulous process both from a technical and legal side. LegalBison actively assists clients with both.

Security of Clients Data & Funds

You must think in advance about the ways in which your payment company is going to secure the funds of clients, as well as their personal data. Apart from the legal requirements, such as the drafting of Terms & Conditions and a Privacy Policy, you will need a proper technical setup of the platform. At your request, LegalBison can assign a responsible individual to establish the IT infrastructure of your platform and even conduct an audit when required by the licenser.

Building a PSP platform

Company formation is an obligatory step in the licensing application process. Most regulators require PSP platforms to establish local offices within the country. For this purpose, the requirements are as follows:

• Passport copies and proof of residence of all beneficiary owners;
• A detailed business plan;
• Renting a physical office space in the country;
• Depositing a certain amount of starting capital (as required by the jurisdiction) onto a corporate bank account.

LegalBison focuses extensively on company formation: our team is prepared to provide legal advice and practical help regardless of the jurisdiction in which you decide to incorporate a company. We undertake all the administrative and technical processes, including the paperwork, AML-CFT training, IT infrastructure set-up and assessment, and opening of a bank account for the payment company.

Securing a PSP license

Once the legal entity is formed in the jurisdiction of your choice (usually - the licensing jurisdiction), the licensing application process can be initiated. The general requirements for a PSP license include:

• Payment company formation with a legal address within the licensing jurisdiction;
• Articles of Association for an LLC (in some cases);
• Detailed business plan and financial forecasts for a defined period of time (usually - 3 years);
• An authorized share capital (the amount is specified by the regulator);
• Proof of client protection: safeguarding of funds, insurance, etc;
• AML/KYC and due diligence documents;
• Documents describing good business practices.

The set of preparatory documents and procedures is extensive but the assistance of a qualified lawyer can facilitate and foster the process. If you entrust LegalBison with the preparation of your licensing application, you can fully dedicate yourself to other aspects of your business in the meantime.

Securing a crypto license beside your PSP license

In separate cases, whenever your PSP or EMI intends to provide crypto-related solutions, such as on-ramping and off-ramping services, securing a crypto license is required in addition to the PSP/EMI license. It is possible to choose a crypto license in the same jurisdiction or in any other European or offshore country providing it. As for the requirements, they are usually as follows:

• Forming an LLC in the licensing country;
• Providing certified ID documents of all relevant parties;
• Drafting AML-CFT compliance documents;
• Assigning a responsible AML Officer;
• Preparing a business plan with a description of the company’s activities;
• Raising a corporate share capital and depositing a part of it in the corporate bank account.

Once your business obtains a PSP license, the crypto license application process will be greatly facilitated as the requirements are similar. With LegalBison’s assistance, your payment company can acquire both licenses in the shortest timeframe possible.

Providing access to banking gateways

When it comes to launching a PSP, a lot depends on the banking factor. Starting from forming an agreement with one or several banks to conduct transactions on clients’ behalf and ending with the opening of a corporate bank account for depositing the authorized share capital and other internal company expenses.

To rid you of the tediousness of the process, LegalBison can form banking connections for your startup on your behalf. All you have to do is contact us for a primary consultation and we will define the best course of action for your payment company.