Following my well-received blog about the ACPR’s approach to UK payment/e-money institutions applying for authorisation in France as part of their Brexit strategy, it was almost obvious that I should follow this up with consideration of near-neighbours Belgium.
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Whilst it may seem perverse to contemplate leaving the EU and returning to Brussels, home of the EU’s decision-making and administrative infrastructure – at least when it is not based in Strasbourg while the cobwebs in Brussels get swept – remember that the EU is simply based in Brussels. Whilst also part of the EU, Belgium is an independent and sovereign state, with its own regulatory system. But, as with France, I’ve not heard many firms mentioning Belgium as a serious contender. As I wrote in my last blog, many clients are talking about Ireland, citing language and proximity. As with Paris though, Brussels is also closer to London than Dublin (recognising that not all firms are based in London!). So, quel est le problème?
Again, reaching out to friends and ex-colleagues at the National Bank of Belgium (NBB), they were kind enough to spare some of their valuable time in order to discuss some of the key considerations for UK firms wishing to look to Belgium as a post-Brexit solution, from which to exercise passporting rights into the rest of Europe. With their permission, I am pleased to be able to summarise the key points of our meeting, again in the form of a Q&A. As this may yet develop into a series of regulator summaries, I have broadly used the same questions as before (where the conversation followed my agenda!) for ease of reference and comparison with ACPR, and not an opinion or endorsement of one regulator over the other.
Tell me about the payments market in Belgium
A: Currently we have 22 payment institutions (19 of which are fully authorised as opposed to waived firms) and seven e-money institutions (five of which are fully authorised EMIs as opposed to Small EMIs). We grant approximately three to four licences a year. At the moment, we have a number of applications in progress, half of which are Brexit-related.
Talk me through the application process; can UK firms submit information submitted to the FCA?
A: We have published what we believe is a helpful Application Guide for firms wishing to become payment or e-money institutions in Belgium. Of particular relevance is Section 4, which deals with firms relocating their business to Belgium from another jurisdiction. Here we state that “the entire foreign original application file” can be submitted by the firm as its application. Clearly though, with the introduction of PSD2 and the adoption of the EBA’s Authorisation Guidelines, firms authorised before January 2018 may need to provide additional information not captured as part of their application to the FCA. Indeed, many firms may have been authorised as long ago as 2009, in which case their application file is unlikely to be of much relevance. With any such business though, we will be particularly interested in how the firm will manage its passported business across the EU.
Given that firms will have to set up a new legal entity, does the NBB have a ‘minimum requirement’ in terms of staffing levels in the new Belgian office?
A: We are fully aware of the EBA’s desire for proportionality to be applied to all applications for authorisation, and recognise that UK firms wouldn’t have chosen to set up a second office in Europe without Brexit forcing them to do so. As we know, PSD2 demands the head office of the institution to be in the home Member Sate, and that it actually carries out some payment services/issues e-money there. In terms of head office, we don’t have a minimum percentage requirement on physical presence, but there must be someone on the ground with sufficient authority and experience, proportionate to the business being undertaken. That said, with regards AML we require the appointment of a Belgium-based individual with appropriate knowledge and experience, and will assess this through interview.
What is the process, as distinct from other regulators perhaps?
A: Not too dissimilar we hope! The case officers who work the application at the authorisation stage will also be responsible for its ongoing supervision, giving the firm continuity which both parties should find beneficial. There are, though, a number of practical considerations: setting up the Belgian company may take a couple of weeks at least, and require you to engage a public notary and secure a business bank account, at the latest by the end of the licensing process. You will also be expected to have appointed an external auditor; these are registered entities in Belgium, details of which you can find on our website.
What are your expectations in relation to outsourcing?
A: We will look at each firm’s outsourcing proposals on a case-by-case basis, and assess the practicalities of each proposal, the controls and SLAs in place, and how it affects the ability of the NBB to supervise it. If functions are outsourced to the UK, the NBB will still retain the right of inspection.
Safeguarding has been a particular problem for UK firms with many banks reluctant to open segregated accounts for this sector. Is there similar difficulty in Belgium?
A: Yes, particularly with regards money remittance, where banks will need convincing that the business model does not present too great a risk.
How long might it take for an application to be determined?
A: How long is a piece of string? The short answer is that it will depend on the quality of the application. We pride ourselves in being able to apply the ‘proportionality’ to the EBA Authorisation Guidelines, which was always intended but never defined by the EBA. That said, every applicant needs to satisfy the conditions of authorisation before a licence can be granted. On average, we would estimate that applications take around seven months to process.
Will you entertain a pre-application meeting with the firm?
A: Very much so. We find that meeting the firm face-to-face provides us with a better understanding of the business model, and the culture of the firm, before an application is received. We would expect an outline presentation from the firm, with particular focus on business model, risk and compliance.
Is there an application fee?
A: No, there is no charge for submitting an application, but if a license is granted the administrative costs vary between 1500 to 4500 EUR.
The FSA/FCA did not allow payment institutions to hold funds on a payment account without a completed payment order, resulting in many firms seeking an e-money licence. What is the NBB view on such businesses?
A: We did not agree with the approach that the FSA adopted as a solution for holding funds pending a fully completed payment order. We would take the view that such funds could be held indefinitely, pending the final elements to complete the payment order e.g. amount and date (where dependent on an fx transaction at an agreed rate), as per the Commission’s Q&A (Q.155). We would expect firms to be able to describe how e-money is being issued and why authorisation under that legislation is required.
And fx forwards?
A: These are accepted when used for a payment. If in doubt, we would refer to our colleagues at the Financial Services and Markets Authority.
The message I left the meeting with the NBB with was that they will approach any Brexit application from a pragmatic point of view, applying proportionality to the information requirements, and that they would be proud to receive such applications, especially where they brought substance and innovation to the Belgian market.
In the meantime, please do contact us at fscom for support in compiling your ‘Brexit application’ whatever the jurisdiction; expertise that adds value.