Payment Services Permission vs Proposition: Getting the Regulatory Perimeter Right

By Joel Bailey, Consultant, Complyport 

When seeking authorisation or registration from the Financial Conduct Authority (FCA), one of the most common causes of delay in Payment Institution (PI) or Electronic Money Institution (EMI) applications is a mismatch between a firm’s commercial proposition and the regulatory permission being applied for under the Payment Services Regulations 2017 (PSRs 2017) and/or the Electronic Money Regulations 2011 (EMRs 2011). 

This disconnect typically arises where the proposition is clearly articulated from a commercial perspective but does not map cleanly to the regulated activities set out in Schedule 1 to the PSRs 2017, or to the definition of electronic money and issuance under the EMRs 2011. In other cases, the issue stems from a disconnect between the documented proposition and the firm’s actual operating model. 

In our experience, the FCA expects a clear and logical line of sight from: 

• What customers actually do (customer journeys); 
• The nature of the service in regulatory terms (PSRs 2017, EMRs 2011, and any applicable exclusions); 
• The firm’s proposed regulatory scope (including, where relevant, e-money issuance under Regulation 2 of the EMRs 2011); and 
• The systems and controls that mitigate risk (e.g. safeguarding under Regulations 23–24 PSRs 2017 or Regulation 20 EMRs 2011, governance arrangements, financial crime controls and operational resilience). 

PERG Alignment: A Critical Anchor 

When determining the correct regulatory permission, firms must anchor their analysis in the FCA’s published perimeter guidance, particularly Chapter 15 of the Perimeter Guidance Manual (PERG 15), which addresses the scope of the PSRs 2017 and EMRs 2011. 

PERG 15 provides interpretative guidance on: 

• The definition of “payment services” (with reference to Schedule 1, Part 1 PSRs 2017); 
• The exclusions in Schedule 1, Part 2 PSRs 2017 (e.g. commercial agent, limited network, technical service provider); 
• The meaning of “payment account”; and  
• The definition of “electronic money” and what constitutes issuance under Regulation 2 EMRs 2011. 

While FCA supervisory feedback may vary depending on the case officer or factual nuances of a model, firms materially reduce the risk of miscategorisation by grounding their application in PERG 15 and clearly evidencing how their activities fit within, or fall outside, the regulatory perimeter. 

A well-structured PERG analysis also creates a more defensible position where regulatory interpretation is finely balanced 

Key Perimeter Focus Areas 

1. Receiving and Holding Customer Funds

A frequent perimeter issue is whether the proposition involves receiving, safeguarding or holding customer funds and on what legal basis. 

Where products are described as “wallets” or “payment accounts”, firms must carefully assess whether: 

• The account constitutes a “payment account” within the meaning of Regulation 2 PSRs 2017; 
• Funds are held for the purpose of executing payment transactions; or 
• The holding of funds constitutes electronic money issuance under Regulation 2 EMRs 2011. 

For authorised or small payment institutions, funds may only be held for the execution of payment transactions and must not be held indefinitely. Where value is stored for future spending without a specific payment transaction being initiated, this may indicate e-money issuance rather than pure payment services. 

2. Payment Services – Schedule 1PSRs2017 

The regulated “payment services” are set out in Schedule 1, Part 1 PSRs 2017 (and summarised in PERG 15 Annex 2). Firms must clearly identify which of these services they are providing (e.g. execution of payment transactions, issuing payment instruments, money remittance). 

It is insufficient to describe activities at a high level; the application must link each customer journey step to a specific Schedule 1 activity. 

3. Exclusions – Schedule 1 Part 2PSRs2017 

Excluded activities are set out in Schedule 1, Part 2 PSRs 2017 (summarised in PERG 15 Annex 3). 

Where a firm seeks to rely on an exclusion, such as: 

• Commercial agent 
• Limited network 
• Technical service provider 

it must demonstrate, with reference to contractual arrangements and actual fund flows, that the exclusion applies in substance, not merely in form. 

The FCA will assess both what a firm is doing and what it claims not to be doing. Assertions without documentary evidence typically result in challenge. 

4. Foreign Exchange and Ancillary Services

Where Foreign Exchange (FX) forms part of the proposition, firms must clearly explain: 

• Where conversion occurs; 
• Who performs it; 
• Whether the FX element is regulated; and 
• What the customer experiences contractually and operationally. 

Treating FX as “incidental” without proper analysis is a common weakness in applications. 

What Good Looks Like (and What Doesn’t) 

Common Pitfalls: 

• Selecting a preferred regulatory status (e.g. EMI) and retrofitting the model to justify it. 
• Using terms such as “wallet” or “account” as marketing language without regulatory analysis. 
• Assuming an exclusion applies without mapping it to the legal test in Schedule 1 Part 2 PSRs 2017. 
• Failing to reconcile customer terms and conditions with actual operational fund flows. 
• Overlooking the distinction between temporary holding for payment execution and e-money issuance. 

Strong Practices: 

• Customer journeys (from funding, holding, spending/refund to closure) form the foundation of the regulatory analysis. 
• A documented scope matrix mapping each journey to: 
• The relevant Schedule 1 payment service; 
• Any exclusion considered (and why it does or does not apply); 
• EMRs 2011 considerations where relevant. 
• Clear funds flow diagrams aligned to contracts and safeguarding arrangements. 
• Robust safeguarding frameworks (segregation method, timing, reconciliations, governance oversight and management information). 
• Consistent narrative across: 
• Business plan; 
• Regulatory business plan; 
• Website and app wording; 
• Customer terms; 
• Financial crime framework; 
• Risk and compliance documentation. 

A Practical Tool: The “Customer Scenario Map” 

To ensure perimeter clarity and PERG alignment, firms should consider developing a structured “Customer Scenario Map”. 

For each customer journey, document: 

• The regulated activity triggered (Schedule 1 PSRs 2017); 
• Whether electronic money is issued (Regulation 2 EMRs 2011); 
• Where funds move and why; 
• How long funds are held and what prevents indefinite holding; 
• Key risks (e.g. APP fraud, safeguarding risk, operational risk, complaints risk); and 
• The controls and MI used by senior management to oversee those risks. 

Although this exercise requires detailed analysis, it is significantly more efficient to resolve perimeter issues before submission than during an FCA information request cycle. 

How Complyport Can Help 

At Complyport, we specialise in translating commercial payment and e-money propositions into permission-accurate, FCA-ready applications grounded in PSRs 2017, EMRs 2011 and PERG 15. 

Our support includes: 

• Permission and perimeter strategy: Mapping your operating model and customer journeys to the correct Schedule 1 PSRs 2017 payment services and/or EMRs 2011 scope, and confirming what you should not be applying for. 
• Journey-to-scope mapping: Producing structured customer scenario maps that link each journey step to regulated activities, exclusions, customer experience and control frameworks. 
• Funds flows and safeguarding design: Designing and validating safeguarding arrangements in line with Regulations 23–24 PSRs 2017 or Regulation 20 EMRs 2011, including segregation methodology, reconciliations, governance and MI oversight. 
• Application pack support: Ensuring consistency across the regulatory business plan, compliance framework, financial crime documentation and customer-facing materials, while stress-testing the submission against common FCA challenge areas. 

Grounded in the Payment Services Regulations 2017, the Electronic Money Regulations 2011, PERG 15 and the FCA Approach Document. This article is for general information only. Regulatory outcomes depend on the specific facts of each model and how they are evidenced to the FCA. 

Contact Complyport today to arrange a meeting and ensure your regulatory scope is accurate, defensible and aligned with FCA expectations. 

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