Critical steps to take before purchasing a PSP
Is your business considering purchasing a company with a payments licence or an electronic money licence (which we shall refer to in this article as a “PSP”) to avoid going through the prolonged process with the Financial Conduct Authority of obtaining a licence from scratch?
The length of time it takes to obtain a payments licence or electronic money licence from the FCA has increased in recent years, undoubtedly made worse by the pandemic. We have noticed a trend of businesses purchasing PSPs rather than trying to obtain such a licence from scratch, which can take up to or more than a year from submission of the application.
If a PSP is on the market, particularly one with limited operational history, purchasing it may be the most commercially astute option for those seeking authorisation. It is important that you know the critical steps that you need to take to ensure a commercially sound purchase and a smooth and quick transition to a functioning PSP under new ownership without getting bogged down in red tape.
Carry out due diligence
Gathering information on the PSP should be your priority as buying without having all the information makes you vulnerable to liabilities which you otherwise would not have been aware of, for example, costly leases or employees/consultants/contracts that you might not otherwise have been aware of. At the outset, you should prepare a full list of questions for the seller that will give you the full picture of exactly what you’re buying. A trusted legal professional can assist you in asking the relevant questions.
Once you have established the initial picture of the PSP, you must then decide on how deep a due diligence dive is required before purchase.
If the PSP has not done much trading, you might be happy to go ahead with the purchase and deal with any issues as they surface. If however the ‘target’ PSP is an already operational, complex business, a far keener eye will be required to ensure the PSP is a safe purchase.
The last thing a prospective PSP purchaser wants to deal with is a mess of legal or commercial problems inadvertently inherited from the previous owners. Such due diligence might include a full review of employment contracts, leases, legal terms and conditions and outsourcing contracts.
The level of due diligence should be commensurate with the risk you take on by purchasing the PSP. A trusted legal professional can assist you in ascertaining how much due diligence should be carried out and in carrying out this due diligence.
You should also ascertain what consents you need or are desirable from third parties, prior to completion. You require consent from the FCA before you can purchase the shares of a PSP.
In addition, you would want to get comfortable that the PSP’s bank, which provides it with segregated client accounts, which are absolutely essential for operating a payments/electronic money business, is content to continue its relationship with the PSP after you come onboard as the new owner.
Likewise, if the PSP is a member of any of the card schemes or has any other critical third party contracts, consents and approvals should be obtained where necessary.
Draft good legal documentation
You should engage a trusted professional to draft documentation which contains the protections and assurances you require and to begin negotiations. Effective project management, in addition to well drafted legal documentation, is a must for anyone hoping for a cost effective and timely purchase of a PSP.
Even in a ‘straightforward’ purchase of a PSP, a legal expert can help ensure a prospective buyer is protected. Attempting such a purchase without legal advice could leave a buyer exposed to significant risks stemming from insufficient due diligence or incomplete documentation.
Creed Solicitors has an established history of acting for buyers in the purchase of PSPs. We can provide guidance at every stage of the process.
For more information, please see: https://creedsolicitors.com/share-purchases/
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