Switching BIN Sponsor / e-money issuer – top legal issues to consider
Kemp Little’s highly ranked fintech team provides specialist knowledge, industry experience and resource helping fintech clients to navigate the obstacles of switching BIN sponsors and e-money issuers.
Our team combines expertise in financial regulation, commercial contracts and technology deals, giving clients a streamlined service.
If you want to discuss switching BIN sponsors or e-money issuers with a member of the team, we offer a free initial call. Contact Chris Hill at email@example.com.
Not ready for a discussion? For a quick guide on points to consider, read our article below:
The news of Wirecard AG’s insolvency may prompt a number of the group’s customers to think about moving operations to other providers of similar services. Even aside from the Wirecard situation, switching or terminating a relationship with a BIN Sponsor or e-money issuer (referred to below collectively as “BIN Sponsors”) is not uncommon. It is in fact quite normal for fintechs to start up with a BIN Sponsorship relationship and then move the operations in-house once they get their own regulatory licences, just as Monzo and Revolut have done in the past. However, whilst it is tempting to think that you can switch a BIN Sponsor just as you might switch any IT provider, the regulated nature of the services means that this is not an entirely straightforward process, and a number of legal and operational issues will need to be thought through in the context of any move.
Want to talk? Contact Chris Hill for a free initial call at firstname.lastname@example.org.
We have listed below some of the key factors to consider in relation to any such move:
- The termination of the contract itself. Do you actually have a right to terminate the contract? Have any conditions for termination actually been met? Is there a cost associated? If so, what form of notice do you have to give, to whom, and by when? There is a risk that if you get this part of the process wrong, you could potentially be sued for wrongful termination, or find that you are still bound by the contract for a further period.
- Transition assistance and post-termination services. BIN Sponsors differ greatly in the amount of detail they offer in contracts as to the level of assistance they will provide to their customers / distributors, in transitioning accounts, services and end customer relationships to a new provider. Where the contract just says “we’ll work it out at the time”, as a customer you are very much on the back foot when asking for transition services to be provided, often at a time when the relationship with the BIN Sponsor may have soured significantly. Many BIN Sponsors take a sensible and pragmatic approach to transfers, but this is by no means always the case – so the more detail in the contract the better.
- Duration of transition. Many services offered by BIN Sponsors operate on the basis that the “end customer” (i.e. the customer of the BIN Sponsor’s customer) contracts directly with the BIN Sponsor, and under payments law the services cannot be terminated unliterally on less than two months’ notice. This means that, unless you give the BIN Sponsor notice to terminate the BIN Sponsorship contract more than two months before the end of the contract, you will by default end up having to ask for – and pay for – post-termination services to keep the e-money accounts running for the full duration of that 2-month period.
- Exclusivity. Is there an exclusivity clause that prevents you from contracting with – or even talking to – another BIN Sponsor? If so, how long does it last and are there any carve-outs? There is a danger that if the exclusivity lasts until the end of the contract, you will again by default end up having to request and pay for post-termination services.
- Data ownership and usage. In many BIN Sponsorship arrangements, the customer of those BIN Sponsorship services (often referred to as a “distributor” or “programme manager”) actually has the vast majority of the day-to-day dealings with end customers, and holds all the data. However, because the activity carried out by the BIN Sponsor is often regulated, the BIN Sponsor is often the “controller” of that data for GDPR purposes, even though it is physically held by the customer / programme manager. As such, the transition services should deal with the transfer of ownership and control of such data, so that when you move to a replacement BIN Sponsor you know that you can, for instance, continue to show previous transaction history, and rely on previously gathered KYC information.
- Communications with customers. As noted above, in many cases the bulk of the activity carried out by the BIN Sponsor is regulated, and is governed by a contract that applies directly as between the BIN Sponsor and the end customer. As such, communication about the contract for those regulated services – including as to its termination – must be made by the BIN Sponsor itself. This means in practice that the BIN Sponsor’s communication with customers will form a key part of any transition strategy, and must be factored into any discussions around potential termination.
- Regulatory obligations. If you change BIN Sponsor, you will need to carry out appropriate due diligence on the new provider and consider having a back-up provider in place as well. Also consider what changes are needed to your customer terms and conditions as a result of such a change and how much notice you will need to give. Additionally, you’ll need to consider whether terminating a BIN sponsor and appointing a replacement triggers any FCA notification requirement.
Review your current BIN sponsorship contract to see what your options are and where the risks points lie.
These are just some of the issues that will need to be considered. For further information please contact Chris Hill at email@example.com for a free initial call.
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