At Modulr, we work hard to ensure that all our customer communications are clear and we’re committed to playing our part in increasing standards across the industry. So, we welcomed the chance to offer further clarity around the differences in protections between our services and traditional banking and answer some frequently asked questions.
Who is Modulr?
Modulr is the embedded payments platform for digital businesses that need a faster, easier and more reliable way to move money. We provide the digital infrastructure that enables our customers and software partners to embed payment and account functionality directly into their platforms, workflows and customer experiences - and all with a single, flexible and scalable API suite.
Is Modulr a bank?
Modulr is not a bank, we are an E-money Institution (EMI).
An EMI is an organisation that has been authorised by the regulator to issue electronic money and eMoney accounts. In the UK, we're authorised and regulated by the Financial Conduct Authority (FCA) and in the EU we're regulated by De Nederlandsche Bank.
Our authorised EMI status enables us to offer companies an embedded payments platform, rather than them needing to rely on legacy wholesale and commercial transaction banking infrastructure. Our payment accounts come with sort codes or Euro IBANs, access to payment schemes and everything else you would expect, but all in a faster, easier and more reliable way.
How is Modulr different from a bank?
The main difference between Modulr, an EMI, and a bank is that a bank lends money, whereas an EMI is prohibited from lending. Specifically, banks receive deposits from customers that they use to lend money out and make a profit on the difference (the Net Interest Margin). By contrast, an EMI such as Modulr holds 100% of client funds at all times, does not lend customer funds or offer interest.
Our payments service however is regulated by the same payments regulations that govern banks.
How does Modulr protect customer funds?
Modulr uses Safeguarding to protect customer money. This means we ensure that 100% of the funds we receive in exchange for electronic money are safeguarded on receipt, meaning that these are segregated from all other funds that we hold and they cannot be used for any other purpose. This is completely separate from the additional capital resources that Modulr holds to meet its corporate obligations.
Furthermore, as an EMI, we must also hold an additional 2% of the total value of safeguarded client funds in our own funds, which are held separately to those client funds. The purpose of the funds is to ensure that, in the case of any business issues, there are enough funds to support an orderly business wind-down and the process of returning of client funds held back to clients. Combining this ‘own funds’ 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 FSCS is not applicable, the regulatory regime outlined above can be relied upon instead and protects the balance of customer funds, as opposed to only compensating up to a limit.
What is the FSCS and is it applicable to Modulr?
The Financial Services Compensation Scheme (FSCS) offers consumers protection of their bank deposits up to £85,000 maximum, or £170,000 for a joint account, in the event of a bank failure. The FSCS scheme only applies to banks, and therefore is not relevant to an EMI such as Modulr. However, as mentioned, Safeguarding means that 100% of customer money at Modulr, regardless of the amount, is segregated from all other funds that we hold and cannot be used for any other purpose.
What would happen in the unlikely event of Modulr’s insolvency?
In addition to the safeguarding and further ‘own fund’ requirements, we are also required to prepare orderly wind down planning. These plans include the early identification of a potential insolvency event and the return of your funds before an insolvency process. We have to provide these plans to the FCA and they are subject to external audit review. This further reduces the unlikely event of your funds 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 any effect on your funds.
An independent insolvency professional (referred to as an ‘insolvency practitioner’) will be appointed to return your funds to you. However, where an insolvency practitioner is unable to take their costs of sending the funds to you from elsewhere (for example, the general pot of Modulr funds remaining or from the additional 2% own funds described above) they are entitled to take their costs from your funds. In this unlikely circumstance, while you’ll likely receive most of your funds you may not receive the total value if costs are deducted. The process of returning your funds by an insolvency practitioner is likely to take longer than if you were making a claim via the FSCS.
Where is my money stored?
Modulr uses a range of clearing banks for different services but, with our direct access to Faster Payments and Bacs, Modulr is one of a few non-bank Payment Service Providers to hold funds associated with GBP domestic flows directly at the Bank of England. Our safeguarding processes are subject to independent external audit, providing confidence that we adhere to the regulations.
Who regulates Modulr in the UK?
Modulr FS Ltd (FRN: 900573) is licensed as an authorised E-Money Institution (EMI) and regulated by the Financial Conduct Authority (FCA). This enables Modulr to issue electronic money (e-money) to its customers, hold customer funds in safeguarded e-money accounts and provide related payment services to customers. Modulr Finance Limited (FRN: 900699) is registered with the Financial Conduct Authority as an EMD Agent of Modulr FS Limited.
Payment services in the UK are subject to the Payment Services Regulations (PSRs). The PSRs apply to all payment services, meaning in relation to payment services, there is no difference in how Modulr, other payment service providers and banks are regulated.
Who regulates Modulr in the EU?
Modulr Finance B.V. is licensed and regulated by De Nederlandsche Bank (Relatienummer R182870) as an Electronic Money Institution.