A Step-by-Step Guide on How to Set up a Money Exchange Company in the United Kingdom

Abdelrahman Abdeltawab
Trainee Solicitor

Overview of Financial Services in the UK

In the UK, banks, insurers, investment firms, fintechs, and money transfer companies provide essential financial services. These include banking, investment, insurance, foreign exchange, and digital payments, all vital to the economy.

Why Compliance Matters

Handling large transactions carries risks, including potential misuse. Regulators aim to maintain financial stability, prevent crime, protect consumers, promote fair markets, meet international standards, avoid penalties, and build trust with stakeholders.

UK Financial Regulatory Bodies

The UK financial sector has four main regulators:

1. Bank of England – Manages monetary policy, systemic risks, and oversees clearing houses and payment systems.
2. HM Revenue and Customs (HMRC) – Enforces anti-money laundering (AML) rules for specific sectors like Money Service Businesses (MSBs).
3. Financial Conduct Authority (FCA) – Regulates financial markets and protects consumers.
4. Prudential Regulation Authority (PRA) – Ensures banks and insurers remain financially sound through prudential regulation.

Step-by-Step Legal Requirements for Starting an MSB in the UK

1. Choose the Right Business Structure

Set up your business as a separate legal entity, such as a Limited Company or LLP. This protects shareholders and supports MSB registration.
Register your company online or by post with Companies House.

• Online fee: £50
• Postal fee: £71

2. Register with the Financial Conduct Authority (FCA)

The FCA regulates money exchange businesses under the 2017 Money Laundering Regulations.

• If you handle over €3 million monthly, apply for an Authorised Payment Institution (API) licence (£2,720 to £5,440 fee).
• If you handle under €3 million, apply for a Small Payment Institution (SPI) licence (£540 fee).

The FCA application takes 6 to 12 months. We recommend professional legal help to avoid delays or rejection. The FCA checks your compliance with business principles, rules, and minimum standards.

3. Register with HM Revenue and Customs (HMRC)

If your business deals with currency exchange, money transfers, e-money, cheque cashing, or telecom/digital payment facilitation, register as an MSB under the 2017 Money Laundering Regulations.

• Register online with HMRC.
• Individuals in key roles must pass a Fit and Proper Test assessing integrity, competence, and reliability.
• Implement robust AML and Counter-Terrorist Financing (CTF) frameworks, including appointing an AML officer and allocating resources for compliance.
• AML officers can work part-time and do not need to be UK nationals but must meet fit and proper standards and understand UK regulations.

Fees:

• Premises registration: £300 annually per premises (£150 if added in the second half of the year)
• Fit and Proper Test: £150 per individual
• Small businesses (turnover below £5,000) can claim a £120 refund on the £300 fee.

4. Implement Anti-Money Laundering (AML) Policies

Create thorough policies, controls, and procedures to address money laundering, terrorist financing, and proliferation risks.

• Conduct customer due diligence and ongoing monitoring.
• Apply enhanced due diligence for Politically Exposed Persons (PEPs) and close associates.
• Assign an officer to manage suspicious activity reports and liaise with the National Crime Agency.
• Train staff regularly and update policies to stay compliant.
• Keep accurate records for oversight and compliance.

5. Address Additional Legal and Operational Requirements

Data Protection
Register with the Information Commissioner’s Office (ICO) and comply with UK GDPR. Fees range from £40 to £60 based on business size.
Inform customers clearly about data use to prevent financial crime and provide all required privacy information under GDPR, including rights and data handling details.

Ongoing Compliance
Senior managers must regularly audit AML processes, meet FCA reporting standards, and ensure HMRC inspections go smoothly.

Capital Requirements

• SPIs don’t have specific capital requirements but must cover operational and compliance costs.
• Larger firms need at least €20,000 initial capital under FCA rules.

Banking
MSBs face strict banking requirements due to high-risk classification. Banks require detailed info on business models, AML policies, and proof of regulatory compliance.
Options include traditional banks (harder to secure), specialist payment providers, and fintech companies with tailored services.

Insurance
Consider these types of insurance to protect your business:

• Professional Indemnity Insurance (for legal claims due to errors or negligence)
• Crime Insurance (for losses from theft or fraud)
• Public Liability Insurance (for injury or property damage claims)
• Cyber Insurance (for protection against data breaches and online fraud)

Conclusion

Starting a money exchange business in the UK requires careful planning and thorough knowledge of regulatory obligations. Legal advice is essential to set up correctly and ensure compliance from day one.

At GOOD LAW INTL, we specialize in providing tailored legal support to help you navigate UK regulations, licensing, and AML compliance. Our expert team helps ensure your business meets all requirements and succeeds in this tightly regulated industry.

For specialist advice and support. please get in touch with our divorce solicitors in London now by calling 020 7139 9266 or contacting the GOOD LAW INTERNATIONAL office.

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