Does a fintech software or platform business need FCA authorisation?

Technology provider or regulated firm?

The central question for any fintech is whose activity it is. A firm that licenses software to a bank, lender or investment manager, and has no relationship with that client’s customers, is usually providing technology. A firm whose platform is where customers sign up, choose products, move money or receive recommendations may be carrying on regulated activities itself, even if a regulated partner sits behind it.

The factors that tend to decide this are practical: who holds or controls customer money, who the customer contracts with, who makes decisions about which products or counterparties the customer sees, how the service is branded and who is paid by whom. Contract wording that describes a business as a technology provider helps only if the rest of the arrangement matches it.

Payment flows and holding funds

Payment services and e-money are regulated under the Payment Services Regulations 2017 and the Electronic Money Regulations 2011, which sit outside the Regulated Activities Order. A platform that collects money from one user and pays it to another, initiates payments from customers’ bank accounts, accesses account data or issues stored value can be providing payment services or issuing e-money.

The exclusions are narrower than many businesses expect. The commercial agent exclusion applies only in limited circumstances, and marketplaces acting for both buyers and sellers often find it hard to rely on. A provider of technical services that supports payment services without at any time coming into possession of the funds can be excluded, which is why the flow of funds matters so much. The limited network exclusion has a notification requirement once payment transactions exceed 1 million euro in 12 months. Where a firm is inside the perimeter, there are routes other than full authorisation, including registration as a small payment institution or small e-money institution, or acting as the agent of an authorised payment institution. Payments and e-money

Lending platforms

Operating an electronic system in relation to lending, the activity that covers peer-to-peer lending platforms, is a regulated activity under article 36H of the Regulated Activities Order. A platform that facilitates people becoming lenders and borrowers can be within it depending on who the lenders and borrowers are and what the platform does. The same platform may also be credit broking if borrowers include individuals or small partnerships, and administering loans or collecting repayments under regulated agreements can be separately regulated. Business lending

Arranging through a platform

A platform does not have to hold money to be arranging. Investment platforms, crowdfunding sites and marketplaces that bring investors together with issuers can be making arrangements with a view to transactions in investments under article 25, even where subscriptions go straight to the issuer. The same reasoning applies to platforms for insurance and mortgages under their own provisions. Investment introductions

Advice, guidance and robo-advice

Advising on investments under article 53 generally involves giving advice to someone as an investor or potential investor on the merits of buying, selling or holding a particular investment. Generic information, educational content and tools that let users filter products by objective criteria are generally treated differently from a recommendation tailored to the user. A robo-adviser that takes in a user’s circumstances and points them to a specific product is much closer to advice than a calculator or a comparison table. Similar distinctions arise for mortgages and some other products, and PERG 8 discusses how the FCA reads the line.

Embedded finance and banking-as-a-service

In embedded finance a non-financial brand offers accounts, cards, loans or payments to its customers using a regulated partner’s permissions. The partner holds the authorisation, but the brand often runs the customer relationship. Depending on its role, the brand may need to act as a registered agent or as a distributor of a payment or e-money institution, become an appointed representative for some activities, or hold permission itself. The regulated partner is responsible for overseeing what is done under its permissions and will usually set requirements in the partnership agreement.

White labelling

A white label product carries one firm’s brand while a regulated firm provides the underlying service. White labelling is common and lawful, but it does not change who is doing what. If the brand owner recommends products, arranges transactions, brokers credit or handles customer money, it may be carrying on those activities itself regardless of the provider’s permissions. Customers also need to be able to see who actually provides the regulated service.

Your marketing is a separate test

A fintech’s website, app store listing and social media can be financial promotions of credit, investments or other controlled products, whether or not the business itself is authorised. Where a regulated partner provides the product, the partner may approve the promotions, but that needs to be agreed and documented. The FCA’s Innovation Pathways service can help firms with innovative products understand which rules apply, but it is not a replacement for legal advice and the FCA will not tell a firm how to structure its business. How the financial promotion rules work and what the FCA will tell you

Common misunderstandings

When a written opinion helps

A written legal opinion is worth considering when a bank, payment partner or investor asks for confirmation that your platform does not need its own authorisation, when you are designing the flow of funds for a new product, when a partnership agreement allocates regulatory responsibility, or when you add a recommendation or matching feature. The opinion looks at your product flows and contracts, not just the description of the business. How written opinions work