Modulr Faces Temporary Onboarding Restrictions What You Need To Know

The UK’s Financial Conduct Authority (FCA) has recently thrown a curveball at the prominent fintech, Modulr. The regulatory body has directed the company to halt onboarding specific new customers. The move arises from growing regulatory apprehensions in the rapidly evolving fintech landscape.

What’s Modulr’s Role in the Fintech Ecosystem?

Modulr plays a crucial role in today’s financial tech domain. It delivers payment infrastructure solutions to many businesses, among which are well-known fintech firms like Sage and Liberis. Essentially, companies like Modulr function as the backbone or, as some might say, the “plumbing” for corporations desiring to offer payments, current accounts, and card services. These services fall into categories known as “embedded finance” and “banking-as-a-service” (BaaS).

The FCA’s Stance

The FCA, which oversees Modulr as an e-money institution, flagged this restriction on October 4. This limitation particularly affects Modulr’s capacity to onboard new “partner” clients. These partners are typically agents and distributors who rely on Modulr’s robust payment infrastructure for cards and accounts.

The backdrop to this move is a series of upcoming regulatory changes in the UK. Some of these shifts comprise the UK’s new consumer duty, amendments in push payment fraud reimbursements, and a pronounced ban on incentive marketing for volatile assets such as cryptocurrencies. Modulr’s spokesperson emphasized the firm’s commitment to adhering to these changes, noting that they are taking the forthcoming regulations “very seriously”.

Insiders have hinted that potential new partners were informed they might face delays in onboarding, possibly extending up to Q1 2024.

A Wider Lens: The Global Regulatory Environment

It’s not just the UK keeping a watchful eye on the fintech industry. Regulatory bodies across Europe are becoming increasingly vigilant. For instance, earlier in the year, the German financial regulator, BaFin, put a pause on new partner onboarding for the German BaaS provider, Solarisbank.

Moreover, another notable fintech player, Railsr, faced significant challenges. The company was acquired by a group of investors in a deal this year, only for its European e-money license to be terminated by Lithuania’s central bank a few months later. This move was triggered by an investigation which uncovered substantial and consistent legal violations. Railsr had already been under the radar, with restrictions placed on its client onboarding process earlier in the year.

In Conclusion

The fintech industry is undergoing a paradigm shift with increasing scrutiny from regulators. Companies operating in this realm, particularly those under the BaaS umbrella, are being called upon to ensure their operations align seamlessly with the evolving regulatory environment. While these developments pose challenges, they also underscore the importance of maintaining robust systems and processes that prioritize both business growth and compliance.