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MiFID II (Markets in Financial Instruments Directive II)

An EU legislative framework regulating investment services firms, trading venues, and market structures. It aims to increase transparency, improve investor protection, and harmonize regulations across the EU single market. (Relevant for "Investment Firm" licenses).

MiCA (Markets in Crypto-Assets Regulation)

A comprehensive EU framework designed to regulate crypto-assets and related service providers (CASPs) that are not already covered by existing financial services legislation. It aims to provide legal clarity, investor protection, market integrity, and financial stability related to crypto-assets. (Relevant for "CASP" licenses).

PSD2 (Payment Services Directive 2)

An EU directive regulating payment services and payment service providers. It aims to increase competition, improve security (e.g., through Strong Customer Authentication - SCA), foster innovation (like Open Banking via APIs), and enhance consumer protection in the payments sector. (Relevant for "PI" and "EMI" licenses).

CASP (Crypto-Asset Service Provider)

An entity authorized under MiCA to provide one or more crypto-asset services, such as custody, exchange operations (crypto-to-crypto or crypto-to-fiat), transfer services, or providing advice on crypto-assets.

EMI (Electronic Money Institution)

A legal entity licensed under the E-Money Directive (EMD) to issue electronic money (e-money), which is a digital equivalent of cash stored electronically (e.g., on prepaid cards or e-wallets). EMIs can often also provide payment services similar to PIs. Requires higher capital and stricter safeguarding than a PI.

PI (Payment Institution)

A legal entity licensed under PSD2 to provide specific payment services, such as executing payment transactions, money remittance, or account information services (AISP) and payment initiation services (PISP). PIs typically cannot issue e-money or take deposits like banks.

Passporting

A right granted under EU directives (like PSD2, MiFID II, EMD) allowing a firm authorized in one EU/EEA member state (its "home state") to provide its licensed services in other member states ("host states") without needing separate authorization in each one, either through establishing a branch or providing services cross-border. Note: UK firms lost EU passporting rights post-Brexit.

Substance Requirements

Regulatory expectations regarding the real operational presence of a licensed firm in its country of authorization. This often includes having a physical office, local management (e.g., resident directors), key operational functions (like compliance, risk management), and decision-making processes located within the jurisdiction. It aims to prevent firms from being mere "letterbox" entities.

Fit & Proper

A regulatory assessment process to ensure that individuals holding key positions (like directors, senior management, significant shareholders) in a licensed financial firm have the necessary integrity, competence, experience, and financial soundness for their roles. Regulators conduct tests based on criteria like criminal records, financial history, and relevant professional experience.

AML/CFT (Anti-Money Laundering / Countering the Financing of Terrorism)

A set of laws, regulations, and procedures designed to prevent financial systems from being used for money laundering or funding terrorist activities. Licensed firms must implement robust AML/CFT policies, including customer due diligence (CDD/KYC), transaction monitoring, and reporting suspicious activities to authorities.

Safeguarding

Regulatory requirements, primarily for EMIs and PIs, mandating how customer funds must be protected. This usually involves segregating client money from the firm's own funds and holding it in designated accounts with credit institutions or investing it in secure, liquid assets, ensuring funds are protected in case of the institution's insolvency.

ICAAP (Internal Capital Adequacy Assessment Process)

A process required for banks and some investment firms under prudential regulations (like CRD/CRR in the EU). Firms must internally assess the amount, type, and distribution of capital they need to cover all relevant risks associated with their business model and ensure they hold adequate capital buffers.

ILAAP (Internal Liquidity Adequacy Assessment Process)

Similar to ICAAP but focusing on liquidity risk. Banks and relevant firms must internally assess and maintain adequate levels of liquid assets to meet their payment obligations as they fall due, even under stressed conditions.