Is your money as safe with an e-Money institution as with a bank?
With e-Money Institutions and banks under different regulations, is your money safe with FinTechs who operate under an e-Money license?
Protecting customers and their funds is a key focus of regulators, so anyone looking to offer financial products must undergo stringent checks.
FINTECHS OPERATING AS E-MONEY INSTITUTIONS
The world of banking is evolving rapidly and there are now different alternatives to opening a bank account. This new era has allowed FinTech companies to take what traditional banks offer and, with the use of innovative technology, provide a modern method to manage your finances.
FinTech payment providers, who generally operate as e-money institutions (EMIs), tend not to be present on the High Street as they usually operate as digital-only companies. They provide services that are similar to those of a bank but are provided online and are easily accessible via a mobile app. They’ve streamlined the process of opening an account to just a couple of minutes and allow for transactions to be tracked in real-time.
However, as the concept of EMIs is fairly new, a common question asked is “how safe is money held with an EMI?” The key part of the answer is that whilst these companies are not licensed as banks, they are still licensed and regulated by the same entity, financial regulators such as the FCA here in the UK.
REGULATORY OVERSIGHT AND LICENSING
In order to obtain the license to operate as an EMI, the company must prove to the FCA certain elements, including their business model, that their company is run by Fit & Proper Individuals, and also how they plan to protect the funds customers hold with them. In particular, EMIs are forced to “segregate” customer funds.
In essence this means that the money a customer puts into the company cannot be used by the company to fund their business, i.e. pay for salaries. Instead, the money has to be held in a completely separate account that has very strict rules on who can access it and why. These measures have all been put into place so that, even if the worst were to happen and the company was to close, customers can still be reimbursed with all of their money.
Luckily this is an area of focus for the FCA even after a company has been authorised, as they conduct regular audits to ensure companies continue to comply with the rules around segregation of funds.
So the answer to the big question of “is my money held with an EMI safe?” is YES thanks to regulations and rules that EMIs have to follow.
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