At Modulr, we work hard to ensure that all our customer communications are clear and we’recommitted to playing our part in increasing standards across the industry. So, we welcome the chanceto offer further clarity around the differences in protections between our services and traditionalbanking, and answer some frequently asked questions.
Modulr is the embedded payments platform for digital businesses that need a faster, easier and morereliable way to move money. We provide the digital infrastructure that enables our customers andpartners to embed payment and account functionality directly into their platforms, workflows andcustomer experiences.
Modulr is not a bank, we’re an E-money Institution (EMI).
An EMI is an organisation that has been authorised by the regulator to issue e-money accounts andprovide related payment services. In the UK, we're authorised and regulated by the Financial ConductAuthority (FCA) and in the EU we're regulated by De Nederlandsche Bank.
Our payment accounts come with sort codes or Euro IBANs, access to payment schemes andeverything you would expect, but all in a faster, easier and more reliable way.
One of the main differences between Modulr, an EMI, and a bank is that banks lend money, whereasEMIs are prohibited from lending money. Specifically, banks receive deposits from customers that theyuse to lend money out and make a profit on the difference . By contrast, an EMI such as Modulr holds100% of client funds at all times, does not lend any customer funds or offer interest on balances.
Our payment services however are regulated by the same payments regulations that apply to banks.
Modulr is required by law to use a process called Safeguarding to protect customer money. This meanswe ensure that 100% of the funds we receive in exchange for e-money are safeguarded on receipt,meaning that these are segregated from all other funds that we hold and they cannot be used for anyother purposes. This is completely separate from the additional funds that Modulr holds to meet itscorporate obligations and run its business. 100% of the funds we safeguard must be held in speciallydesignated client accounts at credit institutions (banks) or the Bank of England (see ‘Where is mymoney safeguarded?’ below).
Furthermore, as an EMI, we must also hold an additional 2% of the total value of safeguarded clientfundsinourownfunds,whichareheldseparatelytothoseclientfunds. Thepurposeoftheadditional2% funds is to ensure that, in the case of any problems with our business, there are enough funds tosupport an orderly business wind-down and the process of returning of client funds . Combining this‘2%’ requirement with the safeguarding means that customer funds are 100% available to a customer,and there is a protection mechanism to help ensure an orderly wind down if ever required.
So, while the Financial Services Compensation Scheme (FSCS) is not applicable to e-money, theregulatory requirements outlined above can be relied upon instead and protects the balance ofcustomer funds, as opposed to only compensating up to a limit as is the case with the FSCS
The FSCS offers consumers protection of their bank deposits up to £85,000 maximum, or £170,000 fora joint account, in the event of a bank failure. The FSCS scheme only applies to banks, and thereforeis not relevant to an EMI such as Modulr. However, as mentioned, Safeguarding means that 100% ofcustomer money at Modulr, regardless of the amount, is segregated from all other funds that we holdand cannot be used for any other purpose.
In addition to the safeguarding and further ‘2%’ requirements we’re also required to prepare orderlywind down planning. These plans include the early identification of a potential insolvency event andthe return of your funds before an insolvency process if possible. We have to provide these plans tothe FCA and they are subject to external audit review. This further reduces the unlikely event of yourfunds having to be returned during our insolvency. In the unlikely event that Modulr becomes insolvent, your funds are separate from the funds of Modulr and therefore the creditors of Modulr(other third parties that are owed money from Modulr) are not able to make a claim or have effecton your funds.
An independent insolvency professional (referred to as an ‘insolvency practitioner’) will be appointedto return your funds to you. However, where an insolvency practitioner is unable to take their costsof sending the funds to you from elsewhere (for example, the general pot of Modulr funds remainingor from the additional 2% own funds described above) they are entitled to take their costs from yourfunds. In this unlikely circumstance, while you’ll likely receive most of your funds you may not receivethe total value if costs are deducted. The process of returning your funds by an insolvency practitioneris likely to take longer than if you were making a claim in the FSCS.
Modulr must deposit 100% of the value if all the e-money it has issued to customers at a creditinstitution (banks) or the Bank of England. Modulr uses a range of clearing banks for different servicesbut, with our direct access to Faster Payments and Bacs, Modulr is one of a few non-bank PaymentService Providers to hold funds associated with GBP domestic flows directly at the Bank of England.Our safeguarding processes are subject to independent yearly external audit, providing furtherconfidence that we adhere to the regulations required for safeguarding.
Modulr FS Ltd (FRN: 900573) is licensed as an authorised E-Money Institution (EMI) and regulated bythe Financial Conduct Authority (FCA). This enables Modulr to issue e-money to its customers, holdcustomer funds in safeguarded accounts and provide related payment services to customers. ModulrFinance Limited (FRN: 900699) is registered with the Financial Conduct Authority as an EMD Agent ofModulr FS Limited.
Payment services in the UK are subject to the Payment Services Regulations (PSRs). The PSRs apply toall payment services, meaning in relation to payment services, there is no difference in how Modulrand other payment service providers and banks are regulated.
Modulr Finance B.V. is licensed and regulated by De Nederlandsche Bank (Relatienummer R182870)as an Electronic Money Institution.
Last updated: 04 Sept 2023
