The payments industry is shaped by strict regulations, multiple layers of licensing, and various types of agents who operate under specific legal frameworks. Among these, sub-licenses have attracted considerable attention, often sparking confusion and assumptions. Payment institutions (PIs) and electronic money institutions (EMIs) may engage agents or distributors to expand their operations, but the roles of these agents and the limitations of sub-licensing remain widely misunderstood. This article breaks down six persistent myths surrounding payment sub-licenses to offer a clearer understanding of how they work, who uses them, and what rules actually apply.
What is a PI Agent?
A Payment Institution Agent (PI Agent) acts on behalf of a licensed payment institution to deliver regulated services without holding a full license. Misunderstandings often arise when people hear the term EMI agent used interchangeably or assume these agents can freely operate as fully licensed entities. In practice, a PI Agent must be registered with the relevant financial authority and is strictly bound by the principal institution’s regulatory permissions. This means the agent can only carry out services within the scope of what the licensed payment institution is authorized to do. The relationship is tightly supervised and regularly audited to ensure compliance. Unlike a sub-license that implies a degree of autonomy, PI Agents operate under direct oversight and cannot subcontract or delegate their role to others without prior approval.
Sub-Licenses Grant Independent Regulatory Status
One of the most common misconceptions is that a sub-license allows a business to act independently under its own regulatory umbrella. In reality, there is no such thing as an official regulatory sub-license in the legal framework of most financial jurisdictions. What people often refer to as a “sub-license” is a contractual arrangement under a principal license holder, such as an EMI or PI. This arrangement allows the partner company to operate under the supervision of the license holder, but it does not transfer any regulatory standing. The partner remains reliant on the license holder’s permission, oversight, and compliance systems.
Sub-Licensed Agents Can Passport Across the EU Freely
The idea that agents or partners operating under a sub-license can immediately pass their services across the EU stems from a fundamental misunderstanding of the European regulatory framework. While licensed PIs and EMIs can passport their services across EU member states, agents working under them must still be individually registered in each country they intend to operate. This registration is not automatic and must be initiated by the principal license holder. The process involves regulatory notifications and sometimes additional requirements depending on the jurisdiction. Ignoring these steps can result in unauthorized operations and expose the agent and license holder to serious legal risks.
Sub-Licensing Reduces Compliance Obligations
A dangerous myth is that operating under a sub-license exempts a business from compliance responsibilities. On the contrary, the use of agents or partners requires an even greater level of compliance coordination between the license holder and the partner. Regulatory authorities expect the principal to perform extensive due diligence on their agents, maintain control over AML (Anti-Money Laundering) procedures, and actively monitor ongoing compliance. Any misconduct by the agent is treated as a failure by the license holder. This shared liability makes compliance obligations more demanding, not less. The notion that using a sub-license arrangement offers a shortcut around regulatory scrutiny is not only incorrect but potentially damaging.
All Services Can Be Outsourced Through Sub-Licenses
Another widespread belief is that all aspects of a payment institution’s services can be outsourced to agents or partners via sub-license-like arrangements. This is not accurate. Certain functions, such as safeguarding client funds, issuing electronic money, or holding client money accounts, must be handled by the license holder directly or through explicitly authorized entities. While some customer-facing or technical operations may be handled by partners, these must be clearly defined, monitored, and approved by regulators. Attempting to outsource critical regulated services beyond what is allowed can result in regulatory breaches and revocation of the license itself.
Sub-Licenses Are a Quick Route Into the Market
Many startups or new market entrants view sub-licensing as a shortcut to offering financial services without going through the full licensing process. While entering into a partnership with a licensed institution can be faster than applying for a license independently, the process is still complex and heavily scrutinized. Reputable license holders perform deep due diligence before entering into such relationships. They are required to assess the financial health, risk management procedures, business model, and personnel of the prospective partner. Regulators may also demand documentation and justification for adding a new agent or distributor. Rather than a quick fix, joining a licensing network demands time, investment, and robust internal structures.
The role of sub-licensing in the payments sector is frequently misunderstood, and often conflated with full licensing or independent operational authority. By addressing these myths, the goal is to promote greater clarity and responsible growth within the regulated financial services space.
