PSD Agents are entities that provide payment services on behalf of authorised payment institution or an electronic money institution (EMI). Below we take a closer look at the regulation and securing the relevant insurance.
PSD Agents act as intermediaries, that can access a user’s bank account information and potentially facilitate payment transactions without being fully authorised payment service providers themselves.
PSD agent activities can include money remittance, payment initiation services, and account information services. They typically work under the responsibility and oversight of the payment institution or an electronic money institution which they act as an agent.
In the UK, Payment Services Directive (PSD) Agents, also known as Payment Institution Agents, play a vital role in the payment services ecosystem. Their role is defined and regulated under the
Payment Services Regulations 2017, which in turn put the
EU’s Payment Services Directive 2 (PSD2) into UK law.
Appointment and Registration
While PSD Agents don't have to be authorised by the Financial Conduct Authority, they must at least be registered with them by the payment institution or EMI that appoints them. The registration is part of the regulatory framework to ensure oversight and compliance. The appointing payment institution or EMI must conduct thorough due diligence on prospective PSD Agents to ensure they are fit and proper to carry out the payment services. This included assessing their financial stability, governance structures, and compliance capabilities.
PSD2 Regulation and Compliance
Post-Brexit, the UK has adapted its regulatory framework to maintain alignment with PSD2 principles while addressing the specific needs of the UK market. Payment institutions and EMIs must ensure their PSD Agents comply with any new or adjusted regulations that may arise due to the UK’s departure from the EU.
The payment institutions or EMI that appoints PSD Agents is responsible for their activities and must ensure that they comply with relevant regulations and standards. This includes ensuring that PSD Agents adhere to anti-money laundering and counter-terrorist financing regulations. Payment institutions and EMIs must continuously monitor their PSD Agents’ activities, ensuring they operate within regulatory framework. They are also required to report to the FCA about the appointment and activities of their agents.
PSD Agents must implement adequate anti-money laundering and counter-terrorist financing measures, including customer due diligence (CDD), transaction monitoring, and reporting suspicious activities. The appointing payment institution or EMI must ensure these measures are in place and effective. PSD Agents must follow rules designed to protect consumers, such as providing clear information about fees, charges, and transaction terms. They must also handle customer complaints effectively and within the regulatory framework.
PSD Agent Insurance Requirements
It is a common misconception the payment institution or EMI will carry all the risk of the services provided. In fact, given the PSD agent has a contractual relationship with the client, they will generally be the party that is targeted with any legal action seeking compensation. Ultimately, the payment institution or an electronic money institution could be the responsible party and the PSD agent's insurance carrier may later seek to subrograte their loss against them.
Professional Indemnity Insurance
Typically a requirement of the payment institution, EMI, or the Financial Conduct Authority.
Professional indemnity (PI) Insurance will offer protection against claims of negligence, errors, or omissions in their provision of their services. Breach of contract claims will typically be the most common type of claim made under the coverage section.
Cyber Insurance
Combined with professional indemnity,
cyber insurance will provide protection for 3rd party liability claims and potentially 1st party costs and expenses, that result from a data breach or cyber attack. Given the sensitive nature of the data, the most common type of claims are related to data breaches.
Crime Insurance
Offered as a seperate cover,
crime insurance will provide protection for a criminal or fraudulent taking, obtaining or appropriation of money, securities or property. If the PSD agent can initiate payment instructions, the most common type of claims are related to funds transfer fraud.
We recommend you engage with an insurance broker early in the process, so we can offer guidance in securing the necessary insurance covers - arrange a call-back
What else to consider?
Operational Continuity and Resilience – PSD Agents may face operational disruptions due to unforeseen events. Business interruption insurance helps cover lost income and additional expenses incurred during such disruptions, ensuring business resilience and continuity. Insurance supports PSD Agents in implementing robust disaster recovery plans, providing financial resources to recover from major disruptions like natural disasters or significant IT failures.
Enhancing Trust and Credibility – Having comprehensive insurance enhances the credibility and trustworthiness of PSD Agents. It signals to consumers and business partners that the agent is well-prepared to handle potential risks and liabilities. EMIs and payment institutions will typically not engage unless they have professional indemnity coverage, as it reduces their own risk exposure and ensures that their agents can operate reliably and securely.
Risk Transfer and Management – Insurance allows PSD Agents to transfer some of their operational and liability risks to insurers. This risk transfer is crucial for managing the financial impact of potential adverse events and maintaining operational stability. Various insurance policies (e.g. cyber, crime, professional indemnity) collectively provide comprehensive coverage for the diverse risks faced by PSD Agents, supporting their overall
risk management strategy.
Oversight and Reporting – Payment institutions and EMIs must conduct due diligence on PSD Agents, including assessing their insurance coverage, to ensure they are fit and proper to provide payment services. Adequate insurance is often a key criterion in this assessment. The FCA requires payment institutions and EMIs to monitor their PSD Agents continuously. Part of this supervision involves ensuring that PSD Agents maintain appropriate insurance coverage to mitigate risks and comply with regulatory standards.
Legal and Regulatory –
Directors and officers insurance can protect the personal liabilities of individuals that make decisions on behalf of the company, ensuring they can make decisions without fear of personal financial loss. By securing appropriate insurance coverage, PSD Agents demonstrate their commitment to regulatory compliance, which is crucial for maintaining their registration and operating status with the FCA.
About the author
Ryan Nevin is an Account Broker at Get Indemnity™ - he is an ambitious professional who is currently studying towards being a Chartered Insurance Broker.
