There’s an opportunity to improve the understanding and knowledge of financial protection offered by e-money institutions, according to Myles Stephenson, CEO at Modulr (pictured above).
Myles explained how e-money and payment institutions are regulated in a different way to how banks are regulated.
All authorised e-money institutions are required by regulation 20 of the Electronic Money Regulations 2011 to safeguard funds received in exchange for e-money that has been issued.
“It sits there protected, and the FCA is, quite rightly, very focused on making sure that that safeguarding is very tight and controlled.
“Plus, we have to have the 2% regulatory capital so, in effect, you could describe it as we’re holding 102% of the money, all of the time…”
By contrast, a bank takes deposits in and then usually lends it back out.
He added that the FSCS protection was, therefore, important when dealing with a bank — as risk was being taken with the money — but claimed that one of the opportunities for Modulr was to explain the different types of protection.
“It’s a different regulatory structure and a different protection, so I wouldn’t describe it as less, I’d describe it as different.
“And that is an important opportunity or challenge — depending on how you want to look at it — to get that message out, to make sure people understand that.”
He stated that he wanted to make it very clear how it operated as an e-money institution and what the protections were.
“We’d love that to become more of an industry-wide communication as well.”
This comes after 61 applications were made to the FCA in 2018 to become an e-money institution, an increase of more than 60% on the 2017 total.
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