The Small Payment Institution (PL: ,,Mała instytucja płatnicza”, ,,MIP”) has been operating in the Polish legal order since 2018. Its establishment allows for the provision of payment services to a limited extent and, for many entities, represents a very important transitional stage preceding the establishment of a National Payment Institution (NPI). What do you need to keep in mind if you are operating an MIP or considering setting one up?
What are the current requirements for obtaining a MIP licence?
The primary obligation of an entrepreneur applying for MIP status is to submit an application to the Financial Supervision Authority (FSA) on an official form, a specimen of which is available on the FSA website. The content of the form should indicate:
- data concerning the applicant, i.e. his/her name and surname or firm, KRS number (if assigned), place of residence or registered office and the list of payment services the entrepreneur intends to provide;
- details concerning the MIP agents, if the applicant intends to use their services, including the agent’s name, domicile or registered office, and the agent’s principal place of business.
The application must be accompanied by a number of additional documents, including:
- a flowchart with a description of the payment services the applicant intends to provide;
- a statement of fulfilment of the requirements to become an MIP (to be submitted under penalty of law);
- a description of the organisational arrangements for calculating the total monthly amount of transactions;
- a description of the organisational arrangements that allow for the implementation of procedures to prevent money laundering and terrorist financing as referred to in the AML Law;
- a programme of operations and a financial plan for the first 12 months of operations;
- a procedure for managing the risks to which the MIP may be exposed (taking into account the different types of risk, e.g. IT, personnel, organisational);
- a description of other activities to be carried out in addition to the provision of payment services, if the applicant intends to do so;
- a description of how the funds that the MIP receives from users for the provision of payment services are protected;
the procedure for handling complaints.
In addition, complete contact details of the applicant should be attached to the application. In practice, it often happens that the FSA requests additional information or explanations beyond those provided with the application.
It is worth noting that companies that are MIPs do not have to meet any additional requirements in relation to the provisions of the Commercial Companies Code. The applicable regulations also do not introduce requirements for MIP managers to have specific knowledge or qualifications.
Who can become an MIP?
Although payment institutions may be associated with large companies operating internationally, in reality the legislator is liberal in this respect. A small payment institution may become a natural person, a legal person or an organisational unit that provides at least one of the payment services envisaged for MIPs.
The prerequisite for carrying out the activity in accordance with the law is to be registered in the ERUP register kept by the Financial Supervision Authority. Unlike PIEs, MIPs do not have to apply for a payment services licence. Payment services can only be provided once an entry has been obtained. Obtaining an entry is subject to a stamp duty of PLN 616. Proof of payment of the fee must be submitted to the FSA together with the application.
What are the restrictions on the activities of an MIP?
The scope of activities of a small payment institution is indicated in Article 2 paragraph 17b of the Payment Services Act. It largely overlaps with, but is not identical to, the capabilities of a National Payment Institution (KIP). What are the limitations on the activities of an MIP?
Scope of services provided
MIPs may provide the following services:
- accepting cash deposits and making cash withdrawals from a payment account and all activities necessary for the operation of that account;
- executing payment transactions, including transferring funds to a payment account with the user’s provider or with another provider (by direct debit, by using a payment card or by credit transfer);
- the execution of the above payment transactions against funds made available to the user by means of credit; the issuance of payment instruments;
- acquiring, i.e. a service consisting of the processing of a payment transaction initiated by the payee (either directly or through the payer) with a view to transferring funds to the payee;
- the provision of a money transfer service.
Where does the boundary between MIPs and KIPs lie? MIPs are not authorised to provide PIS and AIS services, i.e. the initiation of a payment transaction and an account information access service.
Despite the restrictions imposed by the Act, an MIP can operate in the market in a very wide range of activities. Examples of such activities include, but are not limited to, operating currency exchange platforms, cryptocurrency exchange offices, Buy Now Pay Later (BNPL) services or applications for payment-enabling supermarket chains.
Restriction of safekeeping of funds
Article 117h paragraph 3 of the Payment Services Act should also be borne in mind. It imposes a limit on the amount of funds held at any given time for a single user, which may not exceed the equivalent of EUR 2,000.
MIP may only conduct business in Poland. It may not have branches or agents in other countries.
Maximum volume of operations
The operations carried out by a MIP (on an annual average basis) may not exceed the equivalent of EUR 1,500,000. If the turnover is higher, either an application must be made to the FSA for permission to register the MIP or the operations must be limited to fall within the statutory limits.
What is to be understood by ‘operating exclusively in the territory of the Republic of Poland’?
While there is no doubt that the activities of an MIP itself may be exclusively domestic, there is no consensus in doctrine as to whether it is possible for a small payment institution to outsource a transfer abroad. In the view of the Polish Financial Supervision Authority, such actions are unacceptable and an MIP must limit all aspects of its activities to the Republic of Poland even if its service ends up being the ordering of a transfer that will be handled by a foreign payment institution.
What does the FSA’s sector letter actually clarify and change?
On 31 August 2020. The FSA has taken an official position on the subject of small payment institutions. It is sent to MIPs in the form of a sector letter, which is intended to dispel doubts about the restrictions on the operation of MIPs. It is worth reading it carefully and responding to the extent requested, such as:
- the need to post a range of information on the MIP website;
- the use of framework agreements and regulations;
- informing service recipients of the MIP’s scope of activities, safeguards, limitations and other issues in a manner that is easy to understand.
It should be mentioned that the FSA also has the right to send other sectoral letters (so-called shepherd letters) to representatives of the regulated sector, which mainly have a coordinating and admonishing role. They are intended to harmonise the standards of service provision by MIPs. In this way, the FSA avoids imposing more severe sanctions.
Responding to sector letters is crucial to maintaining the legality and reliability of the services provided. Failure to act in this respect may lead to a payment institution being placed on the FSA’s public warnings list. As a result, the MIP risks, among other things, termination of all contracts by banks, difficulties in obtaining external financing, as well as image losses.
New regulations for MIPs in the Payment Services Act
One of the most recent amendments to the Payment Services Act has imposed a number of requirements on entrepreneurs who are Small Payment Institutions. What should be paid particular attention to?
First of all, the addition of Article 117ha makes it possible for MIPs to carry out credit transfer operations opened by a bank or SKOK primarily for this purpose. This raises potential questions as to whether financial institutions provide payment accounts on an objective, non-discriminatory and proportionate basis so that payment services can be provided without hindrance and in an objective manner.
A further requirement is that a number of documents, as indicated above, must be submitted with the ERUP application.
It is also worth pointing out that the MIP is required to communicate certain events to the FSA, including the conclusion of a payment account agreement together with the transfer of the payment account agreement. The refusal of a bank to conclude a payment account agreement prevents the provision of payment services. A breach of these obligations carries a penalty of PLN 1,000 for each day of delay (not more than PLN 250,000).
What changes may await us in the Payment Services Act?
The Polish legislator has already announced further amendments to the Payment Services Act, which will come into force in 2024. What novelties should entities subject to these provisions prepare for?
Article 4b – an obligation to verify whether the PESEL number of a consumer customer is restricted before concluding or amending a payment account credit agreement;
Article 117q paragraph 3 – the average of total transactions over the preceding 12 months must not exceed, during the period of recognition of the application, the amount specified in the notification made by the MIP taking into account Article 117p paragraph 1, point 1(b), i.e. the average for each period of 3 months and 12 months including transactions carried out by agents;
Article 117q paragraph 4 – MIPs may not submit a request for an extension of the range of payment services it is entitled to provide on the basis of the register during the period in which the average total amount exceeds the maximum volume of transactions;
Article 130 paragraph 1 – the rate of fees paid for supervision costs by PSPs is reduced – from 0.025% to 0.023%.
It is worth considering in advance whether, in connection with the announced amendment, there is a need to amend the MIP already in place so as to adapt it to the new requirements. This applies in particular to the new possibility of securing PESEL and the extension of the business profile.
How much does it cost to prepare for an MIP?
At first glance, it may seem that obtaining MIP status is cheap and that you only need to pay the stamp duty on the ERUP application. In practice, a great deal depends on the state of the company’s deployed technology. The more modern the digital facilities a company has, the less work is waiting for it before starting to provide payment services.
It is important to remember that small payment institutions are required to implement appropriate digital safeguards, as well as a number of procedures (including extensive AML requirements). It may be necessary to commission a series of IT works to strengthen security and stabilise the company’s technological processes before applying for entry into the FSA. Without this work, it may not be possible to provide payment services in accordance with the law.
It is worth pointing out that under Article 117u of the Payment Services Act, the MIP is obliged to make contributions to cover the costs of supervision under the rules and in the amount determined by the relevant regulation.
Although the establishment and operation of a small payment institution is much simpler than in the case of a KIP, it still requires compliance with certain regulations and the fulfilment of a number of obligations listed in the Payment Services Act. In addition, exceeding the turnover limit entails taking swift and decisive action before the FSA.
How to obtain MIP status in Poland? – Linke Kulicki Law Firm
Linke Kulicki Law Firm offers comprehensive support to all entrepreneurs who operate a MIP or plan to establish one. We will help with both the registration of the entity, its ongoing legal services and the fulfilment of statutory obligations to the FSA. If necessary, we will carry out the transformation of a small payment institution into a KIP.