A payment services agent is a person or firm that provides payment services on behalf of an authorized principal, such as a payment institution, an electronic money institution or, in the United Kingdom, a registered account information service provider. The agent does not hold a license of its own. Instead, the principal applies to have the agent registered, the regulator decides whether to accept it, and the agent then operates within the principal's permissions, with the principal fully responsible for what the agent does.
The model is defined in the European Union by the Second Payment Services Directive (PSD2) and in the United Kingdom by the Payment Services Regulations 2017, supervised by the Financial Conduct Authority (FCA). It is widely used by money remitters, which rely on networks of shops and small businesses to collect cash and serve customers.
How agent registration works
Before an agent can act, the principal must notify its regulator and supply information about the agent, including its name and address, the services it will provide, the identity of the people responsible for its management, and a description of the internal control mechanisms used to meet anti-money laundering obligations. The regulator may refuse registration, for example if it doubts the fitness of the people involved or the adequacy of the controls. Once accepted, the agent appears on the public register against the principal's entry, so customers can check on whose behalf it acts.
Responsibilities of the principal
The principal remains legally responsible for anything done by its agents in the course of providing payment services. In practice this means the principal must:
- carry out due diligence on the agent and its managers before appointment;
- train agent staff on its AML program, KYC procedures and sanctions screening;
- monitor transactions and conduct at agent locations, and audit them periodically;
- ensure that funds collected by agents are protected under its safeguarding arrangements;
- make sure customers are told that the agent acts for the principal;
- remove and de-register agents that fail to meet its standards.
Weak agent oversight is a recurring theme in enforcement against remittance firms, because agents may process transactions that the principal never sees in detail.
Agents in cross-border operation
Under passporting, an authorized EU payment institution can appoint agents in other member states, and agents are treated as a form of establishment there. The host state regulator is notified and can supervise the agent's compliance with local anti-money laundering rules; some states require a central contact point where a firm uses many agents. Agents of firms using national exemptions, such as a small payment institution, cannot operate across borders.
Several neighboring roles are easily confused with a payment services agent:
- An EMI agent provides payment services for an e-money institution but cannot issue e-money; that remains the principal's activity.
- An e-money distributor distributes or redeems e-money on behalf of an EMI, for example by selling prepaid cards, but does not provide payment services and is not registered as an agent.
- An appointed representative carries out activities regulated under the UK Financial Services and Markets Act 2000 on behalf of a principal firm, a separate regime from payment services.
- In the United States, a similar structure exists between a licensed money transmitter, the principal MSB, and its authorized delegates or agents, although the rules are set state by state.
The agent model lets a licensed firm extend its reach quickly through existing businesses, but the regulatory and reputational risk stays with the principal, which is why registration depends on the principal's controls as much as on the agent itself.