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With the number of new UK payments and e-money licence applications at a decade low, and the chances of obtaining approval falling to 47 percent, VIXIO looks at the Financial Conduct Authority's (FCA) latest performance data and how it compares to that of the EU.
Research by VIXIO has shown that there has been a dramatic decline in both applications and approvals of payments and e-money licences in the UK, particularly since 2010.
Data gathered from two freedom of information (FOI) requests (here and here) reveal that both licence applications and approvals in 2021 were 40 percent and 26 percent of those seen in 2010 respectively.
More recently, this trend has re-emerged since 2019, with the number of applications falling, the number of approvals at a 12-year low, and the chances of obtaining approval falling to just 47 percent in 2021, compared with around 75 percent pre-2020.
Lower standards all around
At the same time that success rates for applications have decreased, licence application processing standards, as measured by the FCA, have also been flagging. In an FCA service standards report published in 2022, the FCA missed several of its performance targets in 2019-21, particularly those related to e-money registration and authorisation in 2020 and 2021.
In contrast, service standards in 2017-19 show that the regulator hit almost all of its targets for registering and authorising payments and e-money firms from during that period.
Meanwhile, more recent data from 2021 to March 2023 shows that the FCA has continued to underperform in these areas, particularly with regard to PS1 to PS4 applications — the main categories for payments services.
In its defence, the FCA has attributed its underperformance to the “poor” quality of applications leading to “longer assessment times”, as well as to “significantly increased volumes of applications” leading to longer waits before case officers are assigned to applications.
Although the volume of applications received in 2019 was larger than in prior years, the volume seen in 2019 was almost the same as in 2018, with the number of applications falling in the years after.
Evidence of long delays can also be seen in the FCA’s own data. The initial FOI request published in April 2021 shows a combined payments and e-money application figure of 410 for 2020, with 169 applications being unaccounted for, i.e., neither approved, nor rejected, nor officially withdrawn.
This means that 41 percent of applications from 2020 had yet to be decided, at least three full months, and potentially up to 15 full months, after being submitted.
Additionally, the later FOI request from January 2022 lists only 339 applications received for 2020, significantly lower than the 410 reported in April 2021. This suggests either the FCA miscalculated by 71 applications, or those 71 firms decided to drop their applications before they were even seen by an officer. This would represent a success rate of 32 percent, for 2020, if correct.
The COVID effect
One element that is likely to have played a role in this sudden change in performance is COVID-19, both at a regulatory and compliance level.
Previous research conducted by VIXIO, examining how authorities responded to COVID-19, showed that UK regulators shifted priorities in the first six months of 2020, introducing a range of new guidance to smooth any disruption due to COVID-19.
This meant delaying or cancelling planned initiatives for 2020, although the subsequent rise in impact in Q4 2020 shows that UK regulators were also busy in 2020 making up for lost time.
Combined with the FCA’s claim of lower quality applications by firms, this may have contributed to missed performance targets, lower licence application success rates and potentially longer waiting times for licence applications, an issue that still does not seem to be resolved after several years.
Dominant in Europe
Despite this decline in the number of applications received and approved by the FCA, compared with EU member states, the UK still dominates the payments licensing field.
From 2019 to 2021, the total number of applications received by the FCA was more than four times that of Lithuania, the EU’s largest recipient for payments and e-money licence applications. The UK is equivalent to the EU’s top 18 application recipients combined.
Of those applications that were successful between 2019 and 2021 , the UK issued 598 authorisations in total, more than the entire 482 authorisations in the EU combined.
Although some payment and e-money firms have faced difficulties in obtaining licences in the UK, including delays to authorisation and a significantly reduced chance of success, the UK continues to remain an attractive jurisdiction for payment firms, outperforming its European counterparts.
