Britain’s Financial Conduct Authority (FCA) has told UK-based fintech Modulr to stop onboarding some new customers over regulatory concerns, Sifted has learned.
The company, which provides the payments infrastructure for businesses — including numerous fintechs like Sage and Liberis — says it’s working with the regulator on its “systems and processes”.
Modulr, which is regulated as an e-money institution by the FCA, was issued with a restriction by the watchdog on October 4. It prevents the firm from bringing on new “partner” clients, which includes agents and distributors who use its payments infrastructure for cards or accounts, the company confirmed to Sifted.
“With many new and revised UK regulations coming into force in 2023 and 2024, we have agreed to temporarily pause onboarding certain new customer segments in the UK,” a spokesperson for Modulr tells Sifted.
These include regulatory changes including the new UK consumer duty; changes to push payment fraud reimbursement; and a ban on incentive marketing for high-risk assets like crypto, Modulr reveals. The spokesperson says the firm is taking the new regulations “very seriously”.
Modulr began telling new partners last week that they may not be able to onboard them until Q1 2024, a person familiar with the matter tells Sifted. The firm declined to comment on the deadline.
Fintech companies like Modulr provide the plumbing for companies that want to provide payments, current accounts and cards. The sector is sometimes referred to as “embedded finance”, or otherwise brought under the umbrella term “banking-as-a-service” (BaaS).
A number of companies operating in this subsector have attracted recent regulatory scrutiny in the UK and EU over concerns about financial crime.
The restrictions placed on Modulr follow moves from the German financial regulator, BaFin, to halt new partnership onboarding for German BaaS provider Solarisbank earlier this year.
Embattled fintech Railsr, which was sold to a consortium of investors in March this year in a fire sale, had its European e-money licence revoked by the Bank of Lithuania in June this year after an investigation by the regulator found “gross, systematic and multiple violations” of laws.
The Lithuanian regulator had previously restricted the Railsr unit from onboarding new clients in February this year while it investigated the company.
Modulr last raised an £83m Series C round in May 2022 from international investors including General Atlantic, Frog Capital, Highland Europe and PayPal’s venture arm.
The headline on this story was changed to reflect that the decision to stop onboarding some new customers was agreed with the FCA.