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REGULATION: Your Questions Answered

• 19 Feb 2011

Sean Barrett, Co-founder of CurrencyFair answers some commonly asked questions about the firm’s regulation.

We are often asked about CurrencyFair’s regulation and how that differs from those set out by other regulators, like the FSA in the UK. So below I have briefly outlined our regulation and the key differences between being regulated and being registered.

CurrencyFair is fully regulated (authorised) by the Central Bank of Ireland under the European Communities (Payments Services) Regulations 2009.

The Payment Services Regulations have been introduced across the EU in an effort to provide a simplified and fully harmonised set of rules to enhance efficiency in the European payment services market. The new regulations were to be adopted by member states by November 2009, with a transitional period for firms that were operating under their existing rules (transitional period ends April 2011). It is then up to the local authority, the FSA in the United Kingdom and the Central Bank of Ireland in Ireland to name two, to regulate the firms which it admits to these registers.

Although the deadline for member states to implement the regulations has passed there are still a few countries, like Poland for example, where they have not yet been implemented. Firms in these jurisdictions are operating in much less stringent regulatory environment compared to that now required by the new regulations.

To complicate matters further firms may operate under two very different sets of rules depending on the type of licensing sought. These are the Small Payment Institutions (SPI) and Authorised Payment Institutions (API).

While Ireland has not regulated any firms as an SPI, the FSA for example has many firms falling into this category. Generally speaking, SPI’s are subject to far less stringent registration requirements and ongoing monitoring by the local authority. They are considered to be registered with the FSA as opposed to authorised (or regulated) by them. Crown Currency Exchange for example was registered, not authorised by the FSA.

Firms registered as SPI's differ from API's in some very important ways;
• SPI's have no capital requirements.
• There are no requirements for the protection of client funds through segregated client accounts or insurance policies that protect clients if the firm goes bust.
• Only firms that have a monthly turnover of less than 3million can be an SPI.
• SPI's cannot passport their services to other EEU states; they can only operate in the country where they are registered.
• Far less information is required at the time of registration.

Fully regulated payment institutions, like CurrencyFair, operate under a more appropriate regulatory environment where a key focus is the protection of client funds. All our client funds are held in separate accounts to CurrencyFair’s own funds. These accounts are designated client accounts so the funds could never be used to settle obligations of the firm and are always protected.

We can attest to the fact that to be regulated as a Payment Institution is no easy feat. It took over 6 months and a lot of work to satisfy the Central Bank that all the conditions of regulation would be met as well as providing evidence of the level of own funds in addition to the minimum capital requirement. An API must also notify their local authority if it intends to outsource key operational functions and if it intends to passport its services to other EEU member states. CurrencyFair has rights to passport to all EEU states.

Links
http://registers.financialregulator.ie/FirmSearchPage.aspx
http://www.centralbank.ie/regulation/industry-sectors/payment-institutions/Pages/default.aspx