The Financial Conduct Authority (FCA) has stepped up its scrutiny of Small Payment Institutions (SPIs), revoking several registrations in 2025 for inactivity and non-compliance. For founders, owners and senior leaders of Money Service Businesses (MSBs) in the UK, this development underscores a broader trend: regulators expect institutions to be active, transparent and robust in their governance. This article explores the FCA’s recent enforcement actions, contextualises them within the regulatory landscape, and offers practical guidance to ensure your organisation stays ahead of compliance requirements.
Understanding the SPI framework
SPIs are a sub-category of payment institutions that can provide money transfer or remittance services without the full authorisation required for Authorised Payment Institutions (APIs). They are designed for firms whose average monthly payment transactions do not exceed €3 million . SPIs cannot provide account information services or payment initiation services and must meet the FCA’s fit-and-proper, governance, anti-money laundering, and safeguarding standards . These institutions offer a relatively low-barrier route into regulated financial services, especially for start-ups and niche providers. However, they come with ongoing obligations to file regulatory returns, safeguard client funds and adhere to consumer-protection principles.
FCA’s recent enforcement actions
In mid-2025 the FCA cancelled the registrations of two SPIs for failing to operate or report after obtaining their licences. On 15 May 2025, the regulator revoked Fidelity Payment Services’ registration because the firm never provided payment services after registering . The FCA stated that the business had not commenced activity and thus could no longer rely on its SPI status. Shortly after, on 13 June 2025, Transfer Now Limited faced the same fate . The firm failed to provide payment services within 12 months and did not submit required annual regulatory returns (FSA057) . In both cases, the FCA emphasised consumer protection and the need for market integrity, sending a clear message that licences are contingent on active, compliant operations.
Consultancy firm Cosegic described the FCA’s stance as “use it or lose it.” The regulator is using regular reporting (such as the FSA057 return) to identify dormant firms and remove them from the register . This not only reduces systemic risk but also ensures consumers are not misled by the presence of non-operational entities in the market.
Why the crackdown matters
Protecting consumer trust
Payment institutions handle client funds, including remittances and day-to-day payments. Dormant or inactive firms represent a potential risk because they may not maintain appropriate safeguarding arrangements or have sufficient operational infrastructure. By revoking registrations, the FCA reduces the risk that an unprepared firm suddenly begins operating without proper systems in place. Consumers benefit from confidence that active SPIs meet contemporary compliance standards.
Maintaining market integrity and competition
The existence of dormant licences can distort the marketplace. Potential competitors may be deterred if they see a long list of authorised institutions, assuming the sector is crowded or saturated. Removing inactive entities clarifies the competitive landscape and can encourage genuine entrants. Regulators also signal to prospective investors and strategic partners that only serious, well-governed businesses will be permitted to operate.
Aligning with broader regulatory priorities
The crackdown dovetails with other regulatory reforms affecting payment firms. Safeguarding rules are being overhauled, with the FCA proposing to move from the current Electronic Money Regulations framework to a Client Assets Sourcebook (CASS)–style statutory trust regime . This change demands daily reconciliations, designated safeguarding accounts, monthly regulatory returns and audited resolution packs . Payment providers that are not operational or do not have robust systems would struggle to meet these requirements. In addition, the FCA’s multi-firm review found that none of the assessed e-money and payment firms met expectations in risk management and wind-down planning . Weaknesses included immature liquidity risk frameworks and high-level wind-down plans without adequate financial triggers . Revoking dormant SPIs may be part of efforts to clean the slate before the new regime takes effect.
Lessons for MSB owners and senior leaders
1. Treat authorisation as the starting line, not the finish
Obtaining an SPI or EMI licence is often celebrated as a milestone. However, the FCA’s enforcement shows that authorisation is merely the start of a continuous oversight journey. Firms must be operationally ready when they obtain their licence. If you are still finalising systems or searching for product-market fit, consider delaying your application until you are prepared to start processing transactions.
2. Use it or lose it—ensure timely product launch
The FCA expects SPIs to begin providing payment services within 12 months of registration . Failure to go live can lead to cancellation, which in turn creates reputational damage and may jeopardise future licensing attempts. If you encounter delays—due to technology integration, market conditions or regulatory challenges—communicate proactively with the FCA and document your progress. Consider launching a limited pilot or focusing on a narrower set of services to start generating transactions while you scale up.
3. Submit all regulatory returns on time
Regulatory reporting is not optional. The FSA057 return (annual statement of payment services) allows the FCA to monitor operational activity. Missing filings signals non-compliance and invites enforcement . Build automated reminder systems and assign responsibility to a specific compliance officer or senior manager. Even if your operations are minimal, transparent reporting demonstrates your commitment to governance.
4. Invest in safeguarding and risk management systems
The new safeguarding rules require firms to segregate client funds, perform daily reconciliations and maintain documentation such as a resolution pack . Likewise, the FCA expects firms to embed enterprise-wide risk management and credible wind-down plans . If your SPI is part of a larger group, ensure risk management spans group-level exposures and includes stress testing for liquidity and operational resilience. Integrating risk management early makes compliance routine rather than reactive.
5. Plan your business model strategically
While an SPI licence is suitable for smaller-scale operations, it has limitations. SPIs cannot offer account information or payment initiation services and cannot passport services into other European Economic Area (EEA) states . If your business model involves larger payment volumes, cross-border services or new fintech products, you may need to plan for an API or EMI licence. Understanding the differences in capital requirements, safeguarding obligations and regulatory scope will help you scale without breaching your existing permissions.
6. Keep abreast of upcoming regulatory changes
Besides the crackdown on dormant licences, MSB leaders should prepare for:
- Safeguarding reforms: The proposed statutory trust model will require daily reconciliations and monthly reporting .
- Risk management expectations: Strengthen enterprise-wide frameworks, liquidity stress testing and wind-down planning .
- Failure to Prevent Fraud offence: From September 2025, large firms must demonstrate reasonable procedures to prevent fraud, with potential unlimited fines for non-compliance . Even smaller firms should adopt similar frameworks, as best practices often become mandatory over time.
- Buy Now Pay Later regulation: Deferred Payment Credit products will come under FCA regulation from July 2026 . If your service offering includes or plans to include instalment payments, start designing creditworthiness assessments and consumer-duty compliance now.
7. Maintain open communication with regulators
If you anticipate delays in launching services or experience operational difficulties, contact the FCA early. Regulators prefer transparent dialogue to silent non-compliance. Providing evidence of your progress, challenges and plans can demonstrate good faith and may help prevent enforcement action. The FCA’s approach is increasingly data-driven; offering meaningful data and updates helps build trust.
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Conclusion
The FCA’s cancellation of dormant SPI registrations is more than a procedural housekeeping exercise; it is a warning shot for all Money Service Businesses. The regulator wants assurance that every firm listed on the register is active, compliant and equipped to safeguard client funds. For founders and senior leaders, the message is clear: embed regulatory compliance and operational readiness into your business plan from day one. Treat your licence as a living obligation; launching and actively operating under your permissions is essential for maintaining it. By investing in robust safeguarding, risk management and reporting frameworks, your organisation not only meets regulatory standards but also builds trust with customers, partners and investors. The UK payments ecosystem is evolving rapidly, and those who adapt early will be best placed to seize the opportunities ahead.
