ECSH64070 - Regulation 62 - Transfer of funds supervisory
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Category Heading |
Description |
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| The Law |
https://www.legislation.gov.uk/uksi/2017/692/regulation/62 |
| What it means |
HMRC is the default supervisor for payment service providers (MSB Money Remitters, Bill Payment Service Providers (BPSPs) and Telecommunications, digital, IT Payment Services Providers (TDITPSPs)) who don’t fall under those supervised by the FCA. |
| Purpose |
Establishes the supervisory authority responsible for the supervision of payment service providers. |
| Time Line |
1 January 2007 – Regulation EC 1781/2006 15th December 2007 - MLR 2007 26 June 2017 - Regulation (EU) 2015/847 26th June 2017 – MLR 2017 |
| What to establish |
The supervisor of payment service providers is HMRC unless it falls under one of the below categories, therefore is supervised by the Financial Conduct Authority (FCA); An Authorised Person – Regulation 3 of the MLRs define an Authorised Person as a person who is authorised for the purposes of FSMA 2000 to undertake Regulated Activity. Authorised Persons are defined under Regulation 31 of the FSMA 2000 and Regulated Activity by Regulations 22, 22a and 22b of the FSMA 2000. An Authorised Payment Institution (API)(body corporate, with some part of payment services business in the UK and with the head office and registered address in the UK, whose transactions are unlimited) (defined by the Payment Services Regulation 2009 (PSR)) however not on HMRC MLR registers. A registered small payment institution (SPI)(head office and registered officer are in the UK and transactions won’t exceed €3m in the next 12 months, andhasn’t over the previous 12 months) under the PSR 2009 however are also not on HMRC MLR registers. An authorised electronic money institution (where e-money is cash stored in electronic form eg. cryptocurrencies) under the Electronic Money Regulations 2011(2). A registered small electronic money institution (the business will generate more than €5m average outstanding e-money) under the Electronic Money Regulations 2011. First officers will need to ascertain whether the business is a Payment Service Provider (PSP). A PSP is defined in the Payment Services Regulation (PSR) 2017 as any of the following when they carry out payment services— (a) authorised payment institutions; (b) small payment institutions; (c) registered account information service providers; (f) electronic money institutions, including branches located in the United Kingdom of such institutions whose head office is outside the United Kingdom, in so far as the payment services provided by those branches are linked to the issuance of electronic money; (g) credit institutions, including branches located in the United Kingdom; (h the Post Office Limited; (i) the Bank of England, other than when acting in its capacity as a monetary authority or carrying out other functions of a public nature; and (j) government departments and local authorities, other than when carrying out functions of a public nature, And Where, Payment services are defined as any of the activities specified in Part 1 of Schedule 1 (payment services) when carried out as a regular occupation or business activity, other than any of the activities specified in Part 2 of that Schedule (activities which do not constitute payment services) of the PSR2017. For the purposes of simplification, the relevant Payment services in Schedule 1 Part 1 of the PSR2017 which officers are looking for are that under; 1(f) Money Remittance (for MSB money transmitters) as this is the element which HMRC supervise as part of the definition of an MSB in the MLR 2017 or; 1(c) where the business executes payment transactions, including transfers of funds on a payment account with the user’s payment service provider or with another payment service provider through the (ii) execution of payment transactions through a payment card or a similar device (for TDITPSPs and BPSPs). Money Remittance is defined under the PSR2017 as a service for the transmission of money (or any representation of monetary value), without any payment accounts being created in the name of the payer or the payee, where— (a) funds are received from a payer for the sole purpose of transferring a corresponding amount to a payee or to another payment service provider acting on behalf of the payee; or (b) funds are received on behalf of, and made available to, the payee. |
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How to test compliance and Evidence to obtain |
Once officers have established that the business is an MSB (as it provides Money Remittance), Bill Payment Service Provider (BPSP) and/or Telecommunications, digital, IT Payment Services Provider (TDITPSP) who is a Payment Service provider, officers will need to check the “Firm Status” on the FCA registers to identify whether the business is showing as registered or authorised as an; small electronic money institution, authorised Electronic Money Institution (EMI), registered Small Payment Institution (SPI) or Authorised Payment Institution (API). Where the business “Firm Status” is showing as EMD/EMI or Authorised Electronic Money Institution or Small Electronic Money Institution these are supervised by the FCA for the purposes of the Transfer of Funds Regulations (Regulation (EU) 2015/847 – Information of payer Transfer of funds regulations) and not HMRC. It is important to note that for compliance, risking should already have identified and filtered these out, however owing to any delays between the cases being packaged and being picked up, the business operating model may have changed. Officers will need to review the PID where this is the case, and consider the risks to identify whether a compliance check is still required to ascertain historic compliance with the MLRs prior to the business model changing. Where the business “Firm Status” is showing as an Authorised Payment Institution (API) or registered small payment institution (SPI), officers will need to check the HMRC MLR registers to ensure that the business does appear therefore HMRC is the supervisor as a payment service provider for the purposes of the Transfer of Funds Regulations (Regulation (EU) 2015/847 – Information of payer Transfer of funds regulations). Officers will therefore need to determine whether the business complies with Regulation 64 of the MLRs. If it does not appear on the HMRC MLR Register (or officers are needing to ensure that they don’t have dual supervision or require supervision by the FCA instead), officers will need to review the “Activities and Services” section of the FCA website to see whether the business provides any other services than Payment Services. For example the “Activities and Services” section may show dropdowns for Payments Services & E-Money, Banking, Insurance, Mortgages and Home finance, Consumer Credit, Pensions, Investments or Other Services (where the dropdown will open up to describe the other services provided). If the “Activities and Services” section of the FCA website contains anything in addition to “Payment Services” the FCA is the supervisor for the purposes of the Transfer of Funds Regulations (Regulation (EU) 2015/847 – Information of payer Transfer of funds regulations and HMRC are not the business supervisor for these purposes. Where the “Activities and Services” section of the FCA website only contains “Payment Services”, HMRC are the business supervisor for the purposes of the Transfer of Funds Regulations (Regulation (EU) 2015/847 – Information of payer Transfer of funds regulations, and therefore officers will need to determine whether the business complies with Regulation 64 of the MLRs. Officers will also need to ensure that during the intervention that the business does not provide any additional FCA regulated activity by reviewing the below authorised activities from the FCA website; The FCA also authorises a number of other activities. Officers can read about authorised activities here: https://www.fca.org.uk/firms/authorisation/how-to-apply/activities In summary: consumer credit benchmark-related activities investment businesses e-money funeral plans insurance dormant account funds home finance If during the course of the intervention officers identify that the business does provide another Authorised Activity, however this doesn’t appear on their FCA registration, officers must submit an IR. |
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Scenario |
An MSB is registered with HMRC as a Money Transmitter and has been for 18 months. HMRC officer is assigned the case to review the business’ compliance with the MLRs. As part of preparation for the upcoming visit, the HMRC officer reviews the FCA register to understand what the business is authorised or registered for. During the review of the FCA register, the officer identifies that the business is Authorised as an Electronic Money Institution (EMI). The officer reviews ETMP and RCM where they identify that the business is still registered with HMRC and that their registration is active for a further 3 months. Rather than arranging to conduct a full intervention on the business, the officer decides to conduct an initial phone call with the business to understand what activities they undertake where the business explains that they offer money transmission. The business explained that they do so by arranging for the customer to have an account on their online platform, where the customer is provided with an online IBAN (International Bank Account Number) and a digital wallet, whereby the customer can transfer money from their bank account into their digital wallet before converting or transmitting the money as required. The business had taken legal advice who had explained that they solely need to be supervised by the FCA. Consequently the business must withdraw from the HMRC register and solely be supervised by the FCA as an Electronic Money Institution as they fall into Reg 62(1)d) of the MLRs. |
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Best Practice |
No Best Practice for this Regulation. |
| AMP |
Not Relevant to this sector |
| ASP |
Not Relevant to this sector |
| EAB |
Not Relevant to this sector |
| LAB |
Not Relevant to this sector |
| HVD |
Not Relevant to this sector |
| MSB |
Described in how to test compliance above and scenario |
| TCSP |
Not Relevant to this sector |
| BPSP |
Described in how to test compliance above |
| TDITPSP |
Described in how to test compliance above |
| Further Reading |
Reg 61. Interpretation of Transfer of Funds
(Information on the Payer) Regulations Reg 63. Duties of transfer of funds supervisory authorities Reg 64. Obligations of payment service providers Reg 54 – Duty to maintain registers of certain relevant persons The Money Laundering and Transfer of Funds (Information) (Amendment) (EU Exit) Regulations 2019 Regulation EC 1781/2006 – Information of payer Transfer of Funds Regulations Regulation (EU) 2015/847 – Information of payer Transfer of funds regulations Payment Services Regulations 2009 Payment Services Regulations 2017 |
| FAQs |