YEARBOOK & DIRECTORY
Finance Dublin Yearbook 2024
The 2024 Regulatory Outlook Report: Ireland’s Payment and E-money Sector
The payment and e-money sector is rapidly evolving and growing, and so are the risks to which institutions are exposed. It is therefore unsurprising that the regulator is asking more of firms in 2024 than ever before. However, says ALISON DONNELLY “any company that becomes regulated should be better placed for long-term sustainability”.
The changing operational landscape
The CBI’s regulatory framework has grown increasingly robust, introducing a plethora of requirements from safeguarding customer funds and enhancing consumer protection to operational and financial resilience. These regulations are not just a response to the current economic and operational challenges but are also designed to future-proof the sector against evolving risks and opportunities.
The level of intensity of investigation to which applicants are subjected has risen sharply. While this increases barriers, it should ultimately be regarded as a positive development for the sector. Any company that becomes regulated should be better placed for long-term sustainability after meeting the high expectations at the authorisation gateway.
Moreover, despite these high barriers to entry, there is great demand for authorisation in Ireland with many global firms viewing the country as their preferred European base. Technological advances mean that traditional banks no longer have a monopoly on payments, and there are now around 50 authorised payment and e-money institutions in Ireland. This number is likely to increase because, while there have been over 100 applications in the four and a half-years before mid-2023, only 12 authorisations have been sealed in that time.
Regulatory priorities: the current areas of focus
The insights from industry experts highlight several areas where payment and e-money institutions should focus their compliance efforts. First and foremost, safeguarding remains a top priority, with firms required to demonstrate robust processes through audit reports.
Given the legislation around safeguarding is narrow but open to different interpretations, we expect the regulator will currently be sifting through a vast amount of data on the various operational models employed by Ireland’s authorised firms. Later this year, we expect them to come back to individual companies to ask further questions, and they may bring forward further guidance for firms after that – which in turn would bring yet more obligations around safeguarding.
Additionally, the introduction of the Individual Accountability Framework highlights a shift towards greater personal responsibility within firms. The framework mandates that key staff members meet stringent fitness and probity standards, reinforcing the accountability of individuals in maintaining regulatory compliance. The new IAF brings together requirements for companies around the Senior Executive Accountability Framework (SEAR), Conduct Standards, and the Fitness and Probity regime. The regulator already expects companies to be compliant with these rules.
Anti-money laundering efforts continue to be a major focus with the Central Bank demanding more rigorous oversight of agents and third-party relationships. The way firms interact with and manage relationships with agents and other outsourced service providers has been called out as a common deficiency in payment and e-money firms’ approach to AML. Firms today often engage third parties to perform some of their AML functions, but the regulator demands that the principal institution carries out greater oversight of this activity and holds ultimate accountability for any compliance failures.
New obligations on the horizon
Looking ahead, the anticipated Third Payment Services Directive (PSD3) represents a major regulatory update, addressing the evolution of electronic payments, open banking and fraud prevention measures. Firms must prepare for reauthorisation under PSD3.
Additionally, firms will need to navigate potential new capital and safeguarding requirements, while also dealing with the complexities of regulatory reporting and the divergence between Irish and UK regulations post-Brexit.
The payment and e-money sector is rapidly evolving and growing, and so are the risks to which institutions are exposed. It is therefore unsurprising that the regulator is asking more of firms in 2024 than ever before.
The insights from fscom and other industry leaders underscore the importance of staying abreast of regulatory trends and preparing for the future. As the regulatory landscape continues to evolve, firms that prioritise compliance, embrace innovation, and maintain a customer-centric approach will be well-placed to navigate the complexities of the financial sector and thrive in the years to come.
The CBI’s regulatory framework has grown increasingly robust, introducing a plethora of requirements from safeguarding customer funds and enhancing consumer protection to operational and financial resilience. These regulations are not just a response to the current economic and operational challenges but are also designed to future-proof the sector against evolving risks and opportunities.
The level of intensity of investigation to which applicants are subjected has risen sharply. While this increases barriers, it should ultimately be regarded as a positive development for the sector. Any company that becomes regulated should be better placed for long-term sustainability after meeting the high expectations at the authorisation gateway.
Alison Donnelly: Any company that becomes regulated should be better placed for long-term sustainability after meeting the high expectations at the authorisation gateway.
Moreover, despite these high barriers to entry, there is great demand for authorisation in Ireland with many global firms viewing the country as their preferred European base. Technological advances mean that traditional banks no longer have a monopoly on payments, and there are now around 50 authorised payment and e-money institutions in Ireland. This number is likely to increase because, while there have been over 100 applications in the four and a half-years before mid-2023, only 12 authorisations have been sealed in that time.
Regulatory priorities: the current areas of focus
The insights from industry experts highlight several areas where payment and e-money institutions should focus their compliance efforts. First and foremost, safeguarding remains a top priority, with firms required to demonstrate robust processes through audit reports.
Given the legislation around safeguarding is narrow but open to different interpretations, we expect the regulator will currently be sifting through a vast amount of data on the various operational models employed by Ireland’s authorised firms. Later this year, we expect them to come back to individual companies to ask further questions, and they may bring forward further guidance for firms after that – which in turn would bring yet more obligations around safeguarding.
there are now around 50 authorised payment and e-money institutions in Ireland. This number is likely to increase because, while there have been over 100 applications in the four and a half-years before mid-2023, only 12 authorisations have been sealed in that time.
Additionally, the introduction of the Individual Accountability Framework highlights a shift towards greater personal responsibility within firms. The framework mandates that key staff members meet stringent fitness and probity standards, reinforcing the accountability of individuals in maintaining regulatory compliance. The new IAF brings together requirements for companies around the Senior Executive Accountability Framework (SEAR), Conduct Standards, and the Fitness and Probity regime. The regulator already expects companies to be compliant with these rules.
Anti-money laundering efforts continue to be a major focus with the Central Bank demanding more rigorous oversight of agents and third-party relationships. The way firms interact with and manage relationships with agents and other outsourced service providers has been called out as a common deficiency in payment and e-money firms’ approach to AML. Firms today often engage third parties to perform some of their AML functions, but the regulator demands that the principal institution carries out greater oversight of this activity and holds ultimate accountability for any compliance failures.
New obligations on the horizon
Looking ahead, the anticipated Third Payment Services Directive (PSD3) represents a major regulatory update, addressing the evolution of electronic payments, open banking and fraud prevention measures. Firms must prepare for reauthorisation under PSD3.
Additionally, firms will need to navigate potential new capital and safeguarding requirements, while also dealing with the complexities of regulatory reporting and the divergence between Irish and UK regulations post-Brexit.
The payment and e-money sector is rapidly evolving and growing, and so are the risks to which institutions are exposed. It is therefore unsurprising that the regulator is asking more of firms in 2024 than ever before.
The insights from fscom and other industry leaders underscore the importance of staying abreast of regulatory trends and preparing for the future. As the regulatory landscape continues to evolve, firms that prioritise compliance, embrace innovation, and maintain a customer-centric approach will be well-placed to navigate the complexities of the financial sector and thrive in the years to come.
Alison Donnelly is director at FSCOM. You can download the full report here.