Small Payment Institution in Poland

1. Small Payment Institution in Poland

Small payment institution (in Polish: ‘mała instytucja płatnicza’, ‘MIP’) is a form / way of conducting payment services in Poland, among others like: national payment institutions, payment services bureaus, electronic money institutions, banks and credit institutions.

Small payment institution enables small entities, especially start-ups, to provide the majority of the payment services with less strict requirements than national payment institutions. Small payment institution is a particularly good solution for entrepreneurs who want to try out the Polish market, get used to the legal requirements, the approach of the Polish Financial Supervisory Authority, and the needs of the targeted clients.

As of August 2022 there are approximately 134 small payment institutions registered, which is three times more than national payment institutions (41 on the Polish market).

Small Payment Institutions can operate as hybrid institutions, i.e. provide both payment and
non-payment services, therefore it can fit into the business model of entities that simply want to expand the services offered so far with the possibility of, for example, payment processing.

There is no requirement for a legal form of small payment institution, which means that payment services can be conducted by a joint-stock company, a limited liability company or a sole proprietor. The formal requirements for registration are simplified, therefore there is easier and wider access to this institution for more entities. There are no capital requirements if the entity applying for Small payment institution status (except requirements set out in the Polish Commercial Companies Code, or other specific laws, e.g., the Consumer Credit Act, if the MIP will additionally provide consumer loans).

1.1. Scope of allowed activity

Small payment institution can offer almost all type of payment services, that is:

• keeping payment accounts (e.g., storing funds accepted from users, making cash withdrawals),
• executing transfers from the account,
• executing transfers from cards, or other instruments (mobile application),
• executing direct debits,
• issuing payment instruments (e.g. payment cards, mobile applications, BLIK),
• acquiring (e.g. enabling the acceptance of card or mobile applications, BLIK),
• providing money remittance services.

Small payment institution is not allowed to conduct the following payment services, that are connected with open banking:

• initiation of payment transactions (PIS),
• accessing account information (AIS).

1.2. Limitations

Despite of a broad range of payment services, operating as a small payment institution has limitations such as:

• it can provide services only in Poland (that provision includes Small payment institution’s branches),
• the amount of funds that a client can keep on all payment accounts maintained by small payment institution must not exceed 2,000 euros,
• the average monthly value of all executed payment transactions from 12 months must not exceed 1,500,000 euros (including transactions made through agents).

If small payment institution exceeds 1,500,000 euros per month in transactions, then within 30 days from the end of the period in which the overrun occurred it needs to:

• adjust the size of its payment services business to fit the limit or,
• apply for a national payment institution license.

1.3. non-payment services (hybrid payment institutions)

It is often the case that small payment institution status is merely an adjunct to the economic activities already carried out by the entities. In such a situation, when the small payment institution is not exclusively providing payment services, we are dealing with a hybrid entity (hybrid small payment institution).

A description of additional (beyond payment services) activities should be submitted to the KNF with the application, and in the case of a change in the business model after obtaining registration, the small payment institution should notify the KNF of this fact.

2. Small vs Regular Payment Institution

	Small Payment Institution	National Payment Institution
Payment services
Acceptance of cash deposits into and making cash withdrawals from a payment account and any operations required for account maintenance	Yes	Yes
Executing direct debits	Yes	Yes
Executing payment transactions made by payment card or a similar payment instrument	Yes	Yes
Executing transfer order	Yes	Yes
Payment credit	Yes	Yes
Issuance of payment instruments	Yes	Yes
Acquiring	Yes	Yes
Money remittance	Yes	Yes
Payment initiation services	No	Yes
Account information services	No	Yes
Transaction limits
	Small Payment Institution	National Payment Institution
Monthly transaction limit	PLN 1,500,000	none
Limit of funds held in the user’s accounts	EUR 2,000	none
Formal requirements
Minimal capital	none	EUR 20,000-125,000
Legal form	one-person business business or commercial company	limited liability company or joint-stock company
Territory of operations	only Poland	–
Management board	Clean criminal record *no links to Russia and Belarus	Clean criminal record Experience and education Time dedicated to the function of a board member *no links to Russia and Belarus Polish language (at least 50% of the board member)
Licensing time	up to 3 months	in practice around 1 – 1,5 year
Internal documents	Mainly business plan, financial plan, AML procedure, risk management procedure, safety incidents and client’s complaints procedure and more	Extensive documentation

3. Small Payment Institution License

3.1. Shareholders and Beneficial owners

Small payment institution can have both Polish or foreign shareholders and beneficial owners. Although, currently any affiliation of the licensed entity, its significant shareholders, and persons managing it with the Russian Federation or the Republic of Belarus, in the form of origin (citizenship) from those countries, the concentration of its social, professional, or business activity in those countries or close personal or business ties with entities concentrating their activity there, is and will be treated by the Financial Supervision Authority as a significant doubt that the activity of the licensed entity will be conducted in a correct manner law-abiding, honest, transparent, prudent and stable, therefore may affect the licensing process and result in refusal of registration or deletion from the register.

3.2. Directors and significant officers

Management Board

The only legal requirement for the management board member is a clean criminal record (in the scope of the crime against the administration of justice, a crime against economic turnover, a crime against money and securities, financing terrorism crime, a crime committed for financial or personal gain, or a fiscal crime). During the application process, KNF will not assess the experience and education of the board members in managing a payment institution. There is no technical requirement to present a clean criminal record along with the motion. The certificate is replaced by a written statement of compliance with the statutory requirements, submitted under penalty of criminal liability.

AML/CFT compliance officer

Under the Polish AML Act, each small payment institution, as an obliged institution should appoint an AML/ CFT compliance officer, unless:

• it is a sole trader,
• has a very limited number of employees,
• the following reasons occur that justify the non-appointment (reasons should be well documented by the obliged institution):
  • the nature of the financial institution’s business and the ML/TF risks associated therewith, taking into account its geographical exposure, customer base, distribution channels, and products and services offered,
  • the size of its operations in the jurisdiction, the number of its customers, the number and volume of its transactions, and the number of its full-time equivalent employees,
  • the legal form of the financial institution, including whether it is part of a group.

Under EBA Guidelines on policies and procedures concerning compliance management and the role and responsibilities of the AML/CFT Compliance Officer (EBA/GL/2022/05) dated July 14, 2022, financial institutions should, prior to the appointment, assess whether the AML/CFT compliance officer possesses:

• the reputation, honesty, and integrity necessary to perform his/her function,
• the appropriate AML/CFT skills and expertise, including knowledge of the applicable legal and regulatory AML/CFT framework, and the implementation of AML/CFT policies, controls, and procedures,
• sufficient knowledge and understanding of the ML/TF risks associated with the business model of the credit or financial institution to perform his/her function effectively,
• relevant experience regarding the identification, assessment, and management of the ML/TF risks, and
• sufficient time and seniority to perform his/her functions effectively, independently, and autonomously.

Small payment institution should ensure that the AML/CFT compliance function operates on an ongoing basis as part of its overall business continuity management. It should cater for the possibility of having the AML/CFT compliance officer discontinue his/her functions and the availability of a delegate with appropriate skills and expertise to take over the functions of the AML/CFT compliance officer in the event that he/she is absent for a period of time or the integrity of the AML/CFT compliance officer is called into question.

Where a separate AML/CFT compliance officer is not appointed, small payment institution should organize the performance of the AML/CFT compliance officer tasks by either the member of the management body or the senior manager responsible for AML/CFT, or by outsourcing operational functions.

Person responsible for internal control in the company

In accordance with corporate governance principles, supervised institutions, including small payment institution, should have (as long as its size permits) a person responsible for internal control functions.

During the licensing process, there is no obligation to submit a resume of such a person (unlike the KIP), however, it is necessary to ensure that the function is performed by a person with relevant experience and who gives the guarantee of the proper performance of his/her duties.

3.3. Capital requirements

There are no capital requirements for small payment institution other than generally applicable to all companies under the Commercial Companies Code (minimum for a limited liability company is PLN 5,000, for the joint-stock company it is PLN 100,000, and for the limited joint-stock partnership it is PLN 50,000).

If small payment institution will also provide loans to consumers, then it is additionally subject to the regime of the Consumer Credit Act, and then there is an obligation to have a minimum capital of PLN 200,000.

4. Licensing process

4.1. General information

Registering an entity as a Small Payment Institution itself is not complicated. The application shall be submitted on the specific form provided by the Polish Financial Supervisory Authority (KNF). However, it is important to clearly specify which payment services will the small payment institution provide, describe separately the scheme for the flow of information and funds, and provide a graphic diagram of the service. In this regard, we recommend that you contact the attorneys of our Fintech department, who will help in the effective drafting of the application, so as to receive a positive decision from the KNF as soon as possible. This is because each request from the authority to supplement information / correct the application is associated with prolonging the licensing process.

The application itself also requires basic information about the applicant, i.e. name, address, KRS number. A statement from the entity representative on completeness and truthfulness of the information submitted is a mandatory attachment, along with the information on whether the entity intends to use agents while providing payment services.

There is a fixed duty stamp for submitting the application of 616 PLN. The motion can be filed to KNF in 3 different ways:

• via ePaup (electronic platform),
• by mail,
• in person.

4.2. Application processing time

The maximum time limit for KNF to enter small payment institution into the payment services providers register is 3 months, provided that the application is complete. If the application require additional information, then 3-month period runs from the date when the application is corrected.

In our practice, we noted that the average time to process the small payment institution motion is about 1 month.

4.3. Documents required to operate as small payment institution

Once the small payment institution license is granted, KNF will send a request to present to the authority a list of internal documents, and several statements, inter alia:

• business plan for the first year of small payment institution operation,
• financial plan for the first year of small payment institution operation,
• procedures regarding risk management,
• internal AML procedure,
• description of organizational solutions allowing to calculate the total montlhy amount of conducted payment services,
• procedure for monitoring and handling safety incidents and client complaints,
• rules for handling funds from the clients,
• description of informing the users of conducted payment services,
• statements regarding the current address, providing services exclusively in Poland, on compliance with the limit of the average total amount of payment transactions.

It is worth taking into account, that under art. 117k of the Polish Payment Services Act, the date of commencement of operations as a small payment institution shall be deemed to be the date of registration in the register of small payment institutions. Therefore, all the above mentioned documents should be prepared before the application, the latest between the application and registration date.

In addition, small payment institution should have documentation related to customer onboarding, i.e., payment services agreements templates, regulations for the provision of payment services, outsourcing procedure, especially when small payment institution uses cloud solutions, GDPR documentation.

5. Supervision of KNF

The supervisory authority over the small payment institution is the Financial Supervisory Authority. KNF is authorized to take appropriate supervisory actions, including punishment for violations. In particular, the KNF will examine whether the interests of users and consumers (e.g., in terms of fees and information obligations) are being respected. Finding a violation, the KNF might issue recommendations. These may include demands to take certain actions specified in the summons and aimed at correcting violations. The KNF also has a number of coercive measures to correct violations. These will include, for example, financial penalties, demanding the dismissal of the entity’s managers, and even, in extreme cases, issuing a ban on operating as an small payment institution.

Small payment institution, as part of its operations, is required to pay the costs of supervision. The maximum rate is 0.025% of the total value of the amount of transactions performed by small payment institution in a previous year.

6. Reporting obligations

Obligation	Competent authority	Deadline
Change of the information in register	KNF	Within 14 days of obtaining information about the change
Information obligation of the acquirers	NBP	Quarterly – by the end of the month following the end of the quarter to which the data relate, i.e.: by April 30, by July 31, by October 31, by January 31.
Information obligation of payment instrument issuers	NBP	Quarterly – by the end of the month following the end of the quarter to which the data relate, i.e.: by April 30, by July 31, by October 31, by January 31.
Notification of exceeding the threshold of EUR 1,500,000	KNF	Within 14 days of the end of the month, quarter or year.
Notification of the initiation of criminal proceedings or proceedings for fiscal offenses against the person managing the small payment institution	KNF	Within 14 days of becoming aware of the initiation of proceedings.
Small payment institution information on the total value and number of transactions	KNF	Quarterly – by the end of the month following the end of the quarter to which the data relate, i.e.: by April 30, by July 31, by October 31, by January 31. and annually – by January 31 of the following year as well as Monthly by the 15th of the following month**
Information on the number and value of money transfers and transactions aimed at violating or circumventing the law	NBP	At the request of the NBP, every six months – by the end of the last working day of the month following the end of the half-year to which the data relate.
Information on open and transferred accounts  – if applicable.	KNF	Annually – by January 31 of the following year.
Assessing and updating procedures for operational risk management	KNF	Annually – by January 31 of the following year.
Data on fraud related to the payment services provided, taking into account the different ways of providing payment services	KNF	Annually – by January 31 of the following year.
Information on a serious operational or security incident, including of a data communications nature	KNF	a preliminary report within 4 h of the discovery of the incident, an interim report within 3 working days of the previous report, a final report must be submitted within 2 weeks of the end of the incident.
Annual financial and statistical report	KNF	Annually – within 15 days from the date of approval of the annual financial statements by the entity’s approving authority.
Reporting on suprathreshold transactions	GIIF	within 7 days of: accepting the deposit or making withdrawals of funds with an equivalent value of more than 15,000 euros. executing a payment transaction for the transfer of funds with an equivalent value of more than €15,000 (except as indicated in Article 74(1)(2) of the UAML, making available the recipient’s payment funds, originating from a transfer from outside the territory of the Republic of Poland, conducting or brokering a transaction for the purchase or sale of foreign exchange values, the equivalent of which exceeds 15,000 euros.
Notification of suspicion of a crime	GIIF	Immediately but no later than 2 working days after the Company confirms its suspicion of a crime.
Notification of a suspicious transaction	GIIF	Immediately
Notification of the prosecutor	The competent prosecutor	Immediately

7. FAQ:

7.1. Is small payment institution allowed to execute international payment transactions?

Technically yes, in practice no. Under Article 117f (1) of the Polish Payment Services Act payment services may be performed only in the territory of the Republic of Poland. Usually, we would assume that the transaction is conducted in place where it is ordered. Nevertheless, KNF’s position is that the transaction cannot cross the Polish border, therefore following a precautionary approach, we assume that small payment institution cannot conduct international transactions.

7.2. Can small payment institution be upgraded to national payment institution license?

Yes, small payment institution can apply for KIP license voluntarily anytime, provided that it meets the formal requirements. small payment institution is obliged to apply for KIP license when it exceed 1,500,000 euros per month in transactions, and it is not able to adjust the size of its payment services business to fit the limit.

7.3. Is small payment institution allowed to exchange currency?

Yes, under Article 117f (5) and 74 (1 p. 1) of the Polish Payment Services Act, the small payment institution can provide currency exchange services that are closely associated with payment services – e.g. a situation in which a payment transaction with currency conversion is performed, i.e. when the funds accepted from the payer are in a different currency than the currency in which the payee’s account will be credited.

7.4. Is small payment institution allowed to provide crypto currency services (storage, trade)?

Yes, such business model is acceptable, in fact in the Polish market there are several entities who links providing payment services with cryptocurrency services. It is important to note, that in such a case, the entity will be obliged to both (i) get a small payment institution license and (ii) register itself in the virtual currency register (under Article 129m of the Polish AML Act).

7.5. How long does it take to obtain the small payment institution license?

It should take maximum of 3 months. Usually, it takes 1 – 2 months if the motion is prepared with a professional help.

7.6. Can a foreigner / non-Polish resident be a director in a small payment institution?

As a general rule yes. With small payment institution, the only legal requirement for the management board member is a clean criminal record (in the scope of a crime against the administration of justice, a crime against economic turnover, a crime against money and securities, financing terrorism crime, a crime committed for financial or personal gain, or a fiscal crime). During the application process, KNF will not assess the experience and education of the board members in managing a payment institution. There is no technical requirement to present a clean criminal record along with the motion.

Although, as a good practice (especially if small payment institution plans to become KIP), all the supervised entities, including MIP, should follow the recommendation of KNF:

• the number of members of the management board (and the supervisory board if applicable) should ensure the effective, proper, and prudent management of the institution, and in particular take into account the scope, scale, and complexity of its activities. Usually, at least 2-3 board members are recommended,
• the management board (and the Supervisory Board if applicable) should include persons with the appropriate educational profile, good reputation in connection with their functions, knowledge, competence, and experience necessary for effective, proper, and prudent management (or supervision),
• at least half of the board of directors including the chairman, and the member of the board responsible for risk management should speak Polish,
• the amount of time spent performing the duties of a board member should be sufficient to ensure effective management taking into account the size, specificity, and scope of the entity’s activities.

Additionally, it is important to note that on April 14, 2022 the KNF issued a resolution where it stated that that any affiliation of the licensed entity, its significant shareholders, and persons managing it with the Russian Federation or the Republic of Belarus, in the form of origin (citizenship) from those countries, the concentration of its social, professional, or business activity in those countries or close personal or business ties with entities concentrating their activity there, is and will be treated by the Financial Supervision Authority as a significant doubt that the activity of the licensed entity will be conducted in a correct manner – law-abiding, honest, transparent, prudent and stable. As a result, it is highly probable that in license or authorization proceedings, in which the assurance of proper conduct of business is a requirement for admission to and functioning on the financial services market or managing an entity operating on that market, this requirement will be deemed not fulfilled in the case of entities with such connections.

Consequently, this means that the KNF can deny an entity entry into the small payment institution register if the above-mentioned ties to Russia or Belarus occur.

7.7. Is a local Polish director required?

As a good practice and under the recommendation of KNF, we advise to have a Polish chairman of the management board, but it is not mandatory under the Polish Payment Services Act.

7.8. What is the fee for obtaining the small payment institution license?

There is a fixed duty stamp fee of PLN 616 for the small payment institution application.

In cases when small payment institution intends to:

• expand the scope of payment services,
• provide services by an agent,
• establish a branch;

the company should file an application in this regard, which is subject to a fee of PLN 308.

Moreover, small payment institution is also required to pay the costs of supervision conducted by the KNF. The amount depends on the value of payment transactions performed in a a given year and on the rate announced by the Chairman of the KNF. The maximum rate is 0.025% of the total value of the amount of transactions performed by the MIP.

7.9. What are the capital requirements for a small payment institution?

There are no capital requirements for small payment institution other than those under the Commercial Companies Code (minimum for limited liability company is PLN 5,000, for the joint-stock company it is PLN 100,000, and for the limited joint-stock partnership it is PLN 50,000).

7.10. Is small payment institution allowed to hold Client money?

If small payment institution maintains payment accounts for its customers, it may hold for one client funds not exceeding the amount of EUR 2,000.

The average of the total amount of payment transactions for the previous 12 months performed by small payment institution, including agents, may not exceed the amount of EUR 1,500,000 per month.

Small payment institution is obliged to protect the money received from customers on the following terms:

• cash accepted for payment transactions may not be combined at any time during storage with cash held by small payment institution on any other account;
• cash accepted for the purpose of executing payment transactions that has not been transferred to the recipient by the end of the business day following the day of receipt of such funds, should be: (i) deposited in a bank account set aside for this purpose, or (ii) invested in safe, liquid, low-risk assets, deposited in an a separate account for this purpose.

7.11. Can KNF refuse to enter the entity into the small payment institution register?

The KNF may refuse to make an entry in the Register if the application is incomplete and not has been supplemented within the prescribed period, or the data contained in the application is inconsistent with the actual state of affairs.

The KNF refuses entry (obligatorily), if:

• a final judgment has been issued prohibiting the entrepreneur from carrying out the business activity covered by the entry in the register of payment service providers,
• the entrepreneur in question has been removed from the register of payment service providers as a result of the KNF’s decision to prohibit that entrepreneur to carry out the activities covered by the entry in the 3 years preceding the submission of the application.