When Do You Need A Banking Licence?

Such documents are the basis for a credit establishment registered as a legal entity carrying out banking operations. Permission specifies activities to which a given credit union is entitled, as well as the currency in which these banking operations may be carried out. The licence is issued without limitation in terms of its validity.

 In order to get a banking license, the facility must possess capital set by a certain jurisdiction, equipment necessary for banking operations, and meet qualification demands for specialists in accordance with regulatory enactments.

The main types of licences available on the market

Currently, a newly created bank can be issued 4 types of licences for fiscal operations:

  • licences to carry out banking operations in the usual manner (without the right to attract funds from individuals in deposits) – an ordinary permit;
  • licence for banking operations with funds in different currencies (with the right to attract funds from individuals into deposits) – an extended permit. With this licence, the bank has the right to establish correspondent relations with an unlimited number of foreign banks;
  • Fintech permission – fully virtual banking institutions;
  • E-money – work with digital money.

In order to expand its field, a credit facility might get additional licences. For it, a credit union must:

  • be financially stable over the past six months; 
  • meet established capital demands; 
  • meet mandatory reserve points; 
  • not have debts to the budgets of all levels and state off-budget funds; 
  • have an appropriate organisational structure, including an internal control service; 
  • meet qualification demands for employees; 
  • meet technical points, including requirements for equipment necessary for fiscal operations.

What is Fintech? What can be provided by the organisation holding this permit?

EMI-licensed enterprises have the same rights as regular payment establishments. Via electronic assets – e-wallets, etc. – enterprise clients might make payments. In particular, it will help them buy goods and services.

The process of obtaining an EMI licence is accompanied by a thorough check of the company’s leaders. In most EU countries, the regulator inspects the entire top management of the enterprise. According to the directive of the European Union, at least two heads of the organisation must be residents of countries that are members of the European Union. However, there are countries where one of them can be a resident of the EU and the other a resident of the CIS.

The management of the company must necessarily confirm their professional qualifications by providing relevant certificates or other documents. Their higher education cannot be technical, but only financial or economic.

Standard banks VS EMI

  • Legislation and regulation made it easier

EMI companies are subject to the pan-European payment directives E-money, PSD/PSD2, the laws of the country of incorporation and regulators. Unlike EMI, the European Banking Authority (EBA), Central Banks and local regulators regulate banks, and the legal framework includes many different directives.

An important detail for customers is that if banks are required to exchange tax information according to the standards of the Organisation for Economic Cooperation and Development (OECD), then payment services do not have such an obligation.

Since regulation is easier for EMI, they are also more flexible in dealing with clients. By the way, many banks have their own EMI as an alternative to banking manipulations.

  • The same banking facility, only without loans and “on a remote basis”

The main difference for end users between a bank and an EMI lies in the services provided. Thus, the main direction of conventional establishments is lending, and payment services – opening current accounts, providing debit cards, acquiring, etc. Companies are prohibited from creating loans or EMI credit cards.

Another factor that distinguishes an EMI company from a bank is that EMIs can open accounts remotely for both individuals and companies, which means simplicity and speed. During COVID-19, this option is especially useful.

Moreover, the last difference in the services provided is that it is not possible to deposit cash into the account of a payment or EMI company.

  • Customer funds are always there

To provide payment support as in EMI permission, it is necessary to open a special bank account where customer funds will be stored. This money is inviolable, that is, it cannot be spent on the provision of other services or on the needs of the company. At the same time, classical banks, on the contrary, use funds received from customers, for example, to issue loans or overdrafts.

The question may arise – how do electronic money institutions earn money then? The answer is simple: on commissions that are separated from clients’ funds.

With the development of digital EMI technologies, companies are strong contestants to traditional financial institutions. A convenient service for international transfers with the ability to open an account remotely, the flexibility of legislation and a minimum of associated costs, reports and risks allow them to boldly move into the technological future.

Having decided to start developing in this commercial direction, you should seriously think about turning to professionals for help. Eternity Law specialists will help you in the best possible way. In an effort to work according to these standards, as well as to protect the money and financial data of our clients, our company uses the most modern cooperation mechanisms. In addition, the company actively applies the latest encryption technologies, implementing world-class risk management tools and processes

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