Case study electronic money issuer (EMI)

The outcome of skilled person report on an established EMI

Background

A reputable Electronic Money Issuer (EMI) with an established international presence recently received a ‘Dear CEO’ letter from a regulator in one jurisdiction. The letter identified several areas where the firm’s current practices fell short of minimum regulatory standards and outlined expectations for improvement.

In a separate jurisdiction, the local regulatory authority conducted its own supervisory review and similarly identified multiple areas of concern. The regulator required the firm to undertake remediation actions to achieve full compliance with local regulatory expectations and to maintain the integrity of its operations.

These findings highlighted the importance of consistent governance, risk management, and compliance frameworks across all jurisdictions in which the EMI operates.

Firm’s actions

The firm was slow to respond to the regulator’s correspondence, and an effective communication channel was not established with the necessary urgency. Following discussions with both regulators, the firm believed that the remedial measures it had implemented were sufficient to address the identified issues. However, after a subsequent review, one regulator determined that significant gaps remained. As a result, the regulator imposed restrictions on the firm’s business activities and commissioned a Skilled Person Report.

The firm regarded the Skilled Person Report largely as a formality and therefore did not seek external advice to manage its engagement with the regulator or to prepare adequately for the review. Consequently, the firm underestimated the scope, depth, and duration of the process, as well as the resources, costs, and potential disruption to business operations required to complete the remediation work.

Outcome

After an 18-month process involving ongoing remediation efforts, the firm ultimately decided to enter into liquidation and appointed a special administrator.

This outcome was the direct result of:
(i) Poor understanding of the importance and gravity of the regulator’s initial communication;
(ii) Ineffective communication and a misunderstanding of regulatory expectations - failure to build credibility with the regulator;
(iii) Inadequate preparation for regulatory scrutiny, including the failure to engage specialist external advisors; and
(iv) Significant underestimation of the duration, scope, and cost of the review process, as well as the late engagement of external support.

Despite the firm’s best efforts to address the regulator’s concerns and the meaningful progress achieved, the costs associated with the review process and the ongoing business restrictions ultimately led the main shareholder to place the firm into administration. This outcome resulted in job losses, negative impact on customers, and the distribution of remaining assets to creditors by the special administrator.

Conclusion

The firm’s limited understanding of regulatory expectations, insufficient preparation, and underestimation of the resources required, combined with the absence of experienced external advice, ultimately led to the closure of the business.