The Central Bank of Ireland has published its Expectations for Authorisation of Payment and E-Money Institutions (PIs / EMIs), reflecting the heightened focus on the sector outlined in its February 2024 letter to the Minister for Finance.
The Central Bank's focus, when considering authorisation applications from PIs and EMIs, is centred on consumer protection, safeguarding funds, financial and operational resilience, viable and sustainable business models, appropriate levels of 'substance' in Ireland with appropriate risk management and control arrangements in place, disaster recovery / business continuity, and the ability to exit the market in a safe and orderly manner.
Central Bank power to liquidate failing payment firms?
Ensuring that a PI / EMI can exit the market in a safe and orderly manner underpins a notable recommendation from the Central Bank in its recent response to the Department of Finance's consultation on a proposed National Payments Strategy. It suggested that it be given the power to petition the High Court for the appointment of liquidators to failing non-bank payment service providers with the aim of acting promptly to ensure orderly wind-downs. This formed part of its response under the 'Maintaining Security and Resilience in Payments' heading, where it emphasised the importance of keeping pace with innovations in technology and business models, while protecting the economy, financial stability, and consumers. The Department noted the Central Bank's recommendation in its summary of consultation responses, but it may be H2 2024 (the projected timeline for publication of the Strategy), before we hear the Department's views on the point.
Authorisation process
The Expectations step through the three stages of the authorisation process:
- Exploratory stage (initial meeting and submission of required information). The importance of early engagement is emphasised (including with the Central Bank's Innovation Hub).
- Assessment stage (detailed assessment, resulting in a 'minded to authorise or register' or 'minded to refuse' letter).
- Decision stage (authorisation or registration granted, or refusal letter issued).
Challenges
Challenges highlighted in the Expectations include:
- Lack of preparation and incomplete applications.
- Lack of clarity on / substantial changes to business models.
- Lengthy delays in responding to Central Bank queries / requests for clarification.
- Lack of local risk frameworks (with unsuitable group risk frameworks being submitted instead).
- Delays in identifying suitable candidates for PCF roles / proposing unsuitable candidates for PCF roles.
- 'Triple hatting' proposals (applications proposing 'triple hatting' have not, to date, been approved – any 'dual hatting' proposals require detailed supporting rationales).
In line with its previous work in this area, the Central Bank continues to have "...no tolerance for weaknesses in safeguarding arrangements." Unsurprisingly, the importance of "comprehensive, clearly articulated and well formulated" safeguarding frameworks is emphasised. Read our earlier insights here: Safeguarding requirements: more detail on audit of compliance by e-money firms/payment institutions and E-money firms and payment institutions: Latest Central Bank Dear CEO Letter requires audit of compliance with safeguarding requirements.
The articulation of the challenges set out above is particularly useful, and it is hoped that the Expectations will be updated from time to time to reflect practical experience, 'dos and don'ts' for applicants, and examples of good practices. The development by the Central Bank of a standardised business model template is to be commended as an initiative which will give greater clarity to applicants regarding the Central Bank's expectations. In time, other templates could also assist applicants, for instance in respect of wind-down plans. For potential applicants, the importance of preparation, early engagement and expert financial regulatory advice cannot be understated for those planning to navigate the authorisation process.
This article contains a general summary of developments and is not a complete or definitive statement of the law. Specific legal advice should be obtained where appropriate.
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