First Bancrupcy of a Declared PI
- British PI Crown Currency Exchange (CCE), dedicated to online foreign exchange, went bankrupt in the beginning of October 2010. As a “Small Payment Institution”, its supervision was derogatory, in compliance with the FSA rules. CCE had been created in Cornwall five years ago. It also performed funds transfers and delivered travellers cheques.
- The FSA reminded that the status of Small PI is available to businesses with average turnover in payment transactions below three million euros per month. The registration process is performed through simple declaration. Unlike the fully authorised PI, the FSA does just check on the leaders’ curriculum. The customers must alone make sure the service provider does adhere to the Financial Services Compensation Scheme.
- Unlike France, the UK decided in 2009 to implement the PSD option enabling to alleviate the regular PI authorisation procedure for small businesses. The so-called “Small PIs” cannot however be recognised in other EU countries (no “European passport”). The FSA fully authorised 90 British PIs out of 750: all other PIs are only declared.
- The CCE case illustrates how unscrupulous businesses may exploit the FSA derogatory regime as a quality token to cover up other, completely unrelated, risky activities. Several reports of suspicions remained indeed unanswered since 2006. Furthermore, foreign currency exchange activities do not belong to the FSA’s remit and is not even regulated at all in the UK yet.
- Considering the 2008 financial crisis more generally, the British government has planned to abolish the FSA in 2012. Its responsibilities will mainly be transferred to the Bank of England. They will be shared between its Financial Policy Committee, in charge of detecting systemic risks and of following-up the unregulated banking system (“shadow banking”), and a Prudential Regulatory Authority, to serve as new regulator for banks and insurances. A third, independent, new entity, the Financial Conduct Authority, will be in charge of monitoring financial markets functioning and financial institution’s commercial practices, for instance, with regard to consumers. The question may be: will three authorities be more efficient, all the more since their attributions seem to overlap?
See March April 2009 Watch