If you are looking to open a bank account for your EMI, then keep reading on as we are going to walk you through different account types and how to get them.
An Electronic Money Institution (EMI) is a financial entity that is licensed to issue and manage electronic money. EMIs provide services similar to traditional banks but focus specifically on electronic transactions. They are regulated entities that must adhere to specific regulatory requirements to ensure consumer protection, financial stability, and the integrity of the electronic money system.
Why EMI Needs Operational Bank Account?
Electronic Money Institution (EMI) requires an operational bank account for its own transactions, distinct from client transactions, due to a variety of operational and regulatory considerations. In other chapters we will discuss safeguarding and client money accounts and why EMI needs them.
This dedicated operational account is essential to cover the EMI's day-to-day operational expenses, including salaries, rent, and technology costs such as banking core, cyber security, cloud and so on.
Moreover, maintaining distinct accounts facilitates effective risk management and contingency planning, allowing the institution to allocate resources for business development, emergencies, and strategic initiatives without impacting customer deposits. For example, international EMI might have multi-currency expenses to cover and multi-currency revenues booked from client transactions, therefore it will need a separate FX line to manage FX risk and convert back revenues to have a base currency accounting standards met.
The operational bank account serves as the financial backbone for payment processing, settlements, and interactions with other financial institutions, for example covering monthly fees or any other fees arising from long term commitments, any gains or losses from client transactions as well.
Even more, we have seen in our experience that some EMIs use their own balance sheet to maintain several foreign currencies in different operational accounts and sell those currencies to their customers on demand, instead of using client money account to send those orders for execution in the market.
Opening an operational bank account for EMI is a straight forward process, very similar to opening a corporate bank account for any business. Banks will seek to identify UBOs, directors, understand the purpose of the account and similar information.
If you are looking to open an operational bank account for EMI, reach out to us for EMI friendly banks list.
Why EMI Needs Safeguarding Account?
Electronic Money Institution (EMI) needs a safeguarding account to fulfill regulatory requirements and ensure the protection of customer funds.
The safeguarding account is a dedicated account where customer funds are held, and it acts as a protective measure to ensure that these funds are not used for the EMI's own operational expenses and also provides a clear segregation in case of EMI insolvency or special administration. Regulators require that all client funds has to be held in safeguarding accounts overnight and cannot be held with other EMIs or non-credit institutions.
Alternatively, in the EU EMIs can also hold client funds overnight in government bonds or treasuries that are often regarded as safeguarding alternatives and offer high level of credit security. Investment banks, brokerage houses and traditional banks can offer this option via investment account opening.
Safeguarding arrangement enhances consumer protection, provides confidence and aligns with regulatory standards aimed at preventing misuse or misappropriation of customer funds.
Our team is collaborating with several banks in the EU and UK that are providing safeguarding accounts to EMIs and if you would like to explore safeguarding account opening options, reach out to us.
Opening a safeguarding account is almost identical process as to opening a client money account which we will discuss next.
Opening Client Money Account Or Correspondent Banking Account For EMI
Opening a client money account or correspondent banking account is a crucial step for an Electronic Money Institution (EMI) in managing customer funds and facilitating financial transactions.
A client money account is typically used to perform transactions on behalf of customers by receiving payments in, sending payments out and exchanging currency (or sometimes hedging currency as well).
Typically, client money accounts are pooled account type which allows EMIs to transact only in their name while not issuing separate unique vIBANs to their clients to prevent layering and unaccounted risks.
Correspondent banking accounts, on the other hand, establish relationships with other financial institutions to facilitate transactions, settlements, and international transfers while offering unique vIBAN issuance in the clients name. EMIs often need correspondent banking relationships to access the broader financial network and provide higher level of services to their end clients. However, correspondent banking relationships are extremely hard to achieve for EMIs unless they are establish in the market for years and have a clean, transparent and pristine track record and no fines from regulators together with sizeable transaction volumes.
Based on our experience helping EMIs to open client accounts and correspondent accounts, we often suggest to start with client money accounts first as it is much easier to get. In addition, have multiple client money accounts helps to diversify risks and abilities to receive and send bunch of different currencies, get better exchange rates and ensure overall end client satisfaction.
If you would like to receive a list of EMI friendly banks that could open client money or correspondent bank accounts, reach out to us and we will send it to you via email.
Lastly, we would like to share a standard onboarding pack for EMI’s, that you should be aware and prepared for:
• Certificate of Registration or Incorporation.
• Memorandum and Articles of Association; or Articles of Incorporation.
• List of UBOs and directors.
• POI (ID’s or passports) for all UBOs and all authorised signatories, preferably together with a selfie.
• Proof of business trading address (POA), not older than 3 months.
• Licence number from regulatory body, for example FCA in the UK.
• Last audited accounts and a business bank statement (not older than 3 months)
• AML/KYC/CDD policies or Wolsferbg’s Questionnaire
• Latest external AML audit report or alternatively commiting to perform a fresh audit within 3 months from account approval. Moreover, external AML audit might be required every year or so.
• Management information: AML governance arrangements, sample CDD files and
customer risk assessment data.
• Banks often require to disclose the purpose of the account, planned volumes and currencies. We do suggest to be as accurate as possible as it might impact commercials going forward.
Depending on the selected bank, there could be additional and more detailed requirements. It is strongly recommended to fully adhere to the specific requests of the chosen bank. This approach is pivotal in ensuring the smooth onboarding process for your EMI and increasing the likelihood of a successful outcome.
In conclusion, successfully navigating the process of opening a bank account for an Electronic Money Institution (EMI) involves careful consideration of various account types and compliance with regulatory and operational necessities.