A Complete Guide for Fintech Businesses from a Regulatory Perspective

The fintech sphere is quickly enlarging, and for those venturing into payment facilities, apprehending the legislative scheme for a Small Payment Institution (SPI) is crucial. This guide delves into the key aspects of SPIs, covering regulations, jurisdictional specifics, demands, advantages, and more.

What Governs SPIs?

The legislation of SPIs in the European Union falls under the PSD2, Directive (EU) 2015/2366. This directive sets out the primary legal framework, ensuring that all SPIs cope with notable financial regulations across EU Member States. However, individual jurisdictions may have unique requirements, provided they remain consistent with PSD2.

What is an SPI and What Operations are Permitted?

An SPI is a monetary entity authorised to handle transaction processors under PSD2 and local conditions. These facilities comprise cash deposits, withdrawals, transaction  processing , money remittance, and the issuing of payment instruments. Importantly, SPIs operate with a transaction limit — a maximum monthly average of €3 million over the preceding 12 months. SPIs allow for a streamlined market entry without the heavy financial burdens associated with larger financial institutions.

Requirements for Obtaining an SPI

The licensing process for an SPI is simpler compared to full payment institutions. Here’s a brief overview of the major demands:

• No Initial Capital: Unlike other monetary institutions, SPIs are exempt from initial capital demands.
• Background Checks: All individuals accountable for the SPI must be free of convictions corresponding to monetary crimes.
• Local Presence: The SPI’s head office must be in the jurisdiction where it plans to operate.
• Transaction Limits: A strict €3 million monthly transaction cap.
• Business and Operational Plans: Detailed plans for commercial operations, threat conduction, and compliance methodics are mandatory.

Advantages of an SPI

Opting for an SPI comes with several benefits, particularly for fintech startups:

1. Cost-Effectiveness: Lower initial financial investment.
2. Legislative Simplicity: Fewer obedience demands make the entry process faster.
3. Wide Activity Range: Authorised payment facilities cover diverse transactions, enhancing business flexibility.
4. Optimised Jurisdictions: Some EU countries, like Poland, Lithuania, and the Czech Republic, offer advantageous conditions for SPIs due to simplified legislations and supportive local schemes.
5. Business Expansion: SPIs can attract clients via ‘reverse solicitation,’ a method allowing international clients without explicit advertising.

Best Jurisdiction for an SPI

Our research highlights Poland as a top jurisdiction for SPIs. The fintech regulations in Poland are clear-cut, the application process is straightforward, and the obedience sphere is accommodating. These factors, combined with a strong banking infrastructure, make Poland an attractive hub for SPI businesses looking to function under the European Union’s payments regime.

How to Obtain an SPI

The procedure for securing an SPI License involves four key stages:

1. Initial Setup (1-2 weeks): Includes setting up necessary accounts and legislation registrations.
2. Organisation Incorporation (1 week): Forming the lawful entity and obtaining corporate documentation.
3. Application Submission (2.5 months): Preparing a full application package with obedience policies, threat conduction, and AML documentation.
4. Authorization Process (3-5 months): Completing rounds of communication with the regulator, including additional documents if required, to gain final authorization.

Why Choose Professional Assistance for SPI Licensing?

Fintecharbor.com provides specialised support throughout the application procedure, leveraging our deep understanding of the European Union’s payment services environment. Our expertise guarantees smooth obedience with PSD2, simplifies the intricacies of the business model, and accelerates market entry for fintech services.

Legislation Structure for SPIs

• Main Legal Act: PSD2 sets the overall regulatory requirements framework, standardising monetary activities across the EU.
• Jurisdictional Specifics: Local regulations may vary, but cannot exceed or contradict PSD2 requirements.
• Operational Guidelines: Include AML, risk management, business planning, and obedience procedures as per local supervisory units.

Crucial Lessons for Fintech Entrepreneurs

• Flexibility: An SPI License allows significant flexibility in providing diverse payment services.
• No Capital Constraints: Absence of strict capital requirements lowers barriers to entry.
• Optimal Jurisdictions: Poland stands out as a leading destination for establishing an SPI.
• Ease of Application: The structured licensing process facilitates a quick and effective path to operation.

For those aiming to enter the European fintech space, securing an SPI License represents an excellent opportunity to guide the trade under a streamlined legislative regime, paving the way for novelty and growth in remittance facilities. Choosing the right region and partnering with experienced consultants can make all the difference, guaranteeing obedience and success in the contested world of financial technologies.