Five Questions with Shachar Ronen, Legal Counsel & Co-Founder of Payset

1. First off, tell us a bit about your role as General Counsel for Payset. What do you get up to on a daily basis, and how does your work affect Payset clients?

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As general counsel for Payset, I provide ongoing and proactive strategic advice regarding legal, operational, technological, and financial business risks. I also advise on global regulatory issues concerning Payset’s activities, including review of the company’s compliance with regulatory rules and limitations. I manage and mitigate risks by designing and implementing company policies and procedures and promoting best practices throughout the company.

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As an internal legal function within Payset, I help shape how the company interacts with its clients and conducts its business, and as such, play a vital role in safeguarding clients’ interests by ensuring regulatory compliance, managing risks, resolving disputes, upholding ethical standards, and promoting transparency and fairness in the company’s interactions with clients. 

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Here are some examples:

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Financial services companies like Payset operate in a heavily regulated environment. The internal legal function ensures that the company maintains all required licences, as well as adheres to all relevant laws, regulations, and industry standards. This helps protect clients by ensuring that the company’s products, services, and operations meet the necessary legal requirements, reducing the risk of regulatory violations that could negatively impact clients’ interests.

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As general counsel, I draft terms of service and other agreements that outline the rights and responsibilities of both Payset and its clients. These documents are designed to protect clients’ interests and ensure transparency in the company-client relationship, as well as help design clear and fair terms preventing abusive or unfair practices.

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Additionally, as financial services involve various risks, including financial, operational, and legal risks, in my role as legal counsel, I help identify potential risks and develop strategies to mitigate them. By minimising risks, clients of Payset are less likely to experience negative consequences, such as financial losses or disruptions to services.

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Moreover, in an era of increasing digital transactions, data privacy and security are crucial. As legal counsel, I ensure that Payset handles clients’ personal and financial information in compliance with relevant data protection laws. This helps maintain clients’ trust in the Payset’s ability to safeguard their sensitive information.

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Another aspect with the potential to affect clients is marketing materials published by Payset. The legal team reviews marketing materials to ensure accuracy and fairness in representing Payset’s offerings to clients.

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Last but definitely not least, as general counsel, I help establish and enforce ethical standards within Payset. This can include preventing conflicts of interest and avoiding activities that could harm clients. Ethical behaviour contributes to maintaining clients’ trust in Payset.

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2. You are one of three co-founders of Payset. Could you tell us how the vision for the company came about and what your role was in the process? How do you feel the reality today relates to the original goals the founding team set in the beginning?

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Back in 2018, when we first started to ponder the idea, the vision for an electronic money institution (EMI) emerged as a response to the growing demand for digital financial services, including online payments, money transfers, and electronic wallets, especially at the intersection of fiat and crypto. As EMIs provide an alternative to certain traditional banking services by offering digital payment solutions, often with lower fees and greater flexibility, the vision was driven by the desire to tap into the increasing trend of digital transactions and the evolving consumer preferences for convenient, more inclusive, and efficient financial services.

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Initially, Payset opted for the United Kingdom as the preferred jurisdiction for obtaining its EMI licence. Clearly, the process of selecting a regulatory body holds significant importance for any financial institution, and the choice of the Financial Conduct Authority (FCA) in the UK was influenced by a range of factors. These included the FCA’s reputation for effective supervision, rigorous regulatory standards, and expertise in overseeing financial institutions. Notably, the FCA has established a reputation for promoting innovation within the financial domain through proactive regulatory innovation initiatives. Moreover, the FCA plays a pivotal role in ensuring market stability and credibility. It maintains active engagement and support for the industry while offering clear and comprehensive guidance to EMIs like Payset.

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In terms of my role in this process, I have been Payset’s legal counsel from inception and, to this day, am playing a multifaceted role in shaping the vision and guiding Payset through the complexities of the financial regulatory landscape. First, getting Payset licensed in the UK was my responsibility, which required an understanding of the regulatory requirements specific to EMIs in the UK to ensure that Payset’s operations align with the legal framework. In structuring the company and its business model, which has been constantly evolving since its inception, I have been collaborating with Payset’s executive management to structure it in a way that complies with regulations while also achieving Payset’s strategic goals. In this capacity, I have been assessing the regulatory implications of various operational aspects, such as safeguarding of client funds, capital requirements, and other multiple aspects. To sum up, my function and involvement with Payset was and still is to serve as a critical bridge between Payset’s strategic vision and the complex legal and regulatory environment in which it operates.

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As for your question on how the reality today relates to the original goals we set in the beginning, in general, I would say that we have reached our initial goals and we keep updating them and reaching for the stars in terms of aiming to provide our clients with ever-growing, all-inclusive and superior services while maintaining the highest industry standards, keeping track of the continuous regulatory developments and integrating new legal and regulatory frameworks adopted by this fast-moving industry. 

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Obviously, Brexit presented a new challenge for UK financial institutions when the regulatory playground in Europe changed. When Payset sought authorisation as an EMI back in 2018, prior to Brexit, the FCA’s regulatory jurisdiction allowed EMIs authorised in the UK to provide services across the European Economic Area (EEA) without the need for additional authorisations. This “passporting” regime facilitated cross-border business for EMIs operating in multiple EU countries. This has since changed, and Brexit has resulted in UK firms like Payset losing their right to pursue business in the EEA, which in turn brought the need for additional regulatory clearances in the Continent in order to be able to offer services to EU clients as well. The Payset group is, therefore, currently undergoing a review by a reputable top-class regulator in the EU in pursuit of securing an EMI authorisation in Europe which will allow it to offer services to such clients.

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3. What would you say are the key legal challenges for an EMI like Payset operating in the UK? Would you say the laws have kept up with the technology in the payments industry?

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As always, the key challenge for an EMI is to maintain at all times the financial well-being of its customers, be it in protecting their funds (by safeguarding them in separate accounts, as well as by maintaining the financial resilience of the EMI), in securing the confidentiality of their personal and transactional data, and in providing them with world-class customer service. While a business challenge in its essence, this challenge dictates my work as legal counsel in ensuring that Payset indeed upholds all requirements in a way that meets those challenges.

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Moreover, other than the obvious need to obtain and maintain the necessary licences and authorisations from the FCA, which can be a complex process, requiring compliance with specific requirements and ongoing reporting, EMIs are faced with various legal challenges, such as ensuring compliance with complex regulations, including Anti-Money Laundering (AML) and Know Your Customer (KYC) regulations, to which EMIs are subject. Additionally, payment services regulations and open banking regulations, which require EMIs to provide access to customer account information and payment initiation services to authorised third parties, all require EMIs to ensure secure and compliant integration with these services. Same goes for data protection regulations such as the GDPR, imposing strict requirements on how personal data is collected, stored, and processed, thereby requiring EMIs to handle customer data in a secure and compliant manner. Additionally, EMIs often operate across multiple jurisdictions, which can lead to challenges related to differing regulatory requirements, cross-border transactions, and compliance with local laws. Lastly, fraud prevention and cybersecurity are major challenges to any EMI, as those financial institutions handle sensitive financial transactions, making them potential targets for cyberattacks and fraud. Implementing robust cybersecurity measures to protect customer data and funds is, therefore, essential.

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Whether or not the laws have kept up with the technology in the payments industry is a challenging question to answer. Unlike what Alfredo, played by Philippe Noiret in the famous Italian film Cinema Paradiso, said about “progress always coming late,” digital payments represent an ever-evolving landscape of innovation and technology, which remains the driving force behind transformations within the payments industry. As a result, there is a growing need for enhanced regulatory scrutiny. Regulatory authorities and financial legislators across the UK and the EU are diligently striving to keep abreast of this rapidly progressing industry and are actively working to tailor legal frameworks that foster innovation and healthy competition while also safeguarding against criminal activities and ensuring consumer protection. Regulation will always be chasing innovation, but in general, I can say that regulators and legislators in this space are doing a great job of supporting the payment industry and providing the legal frameworks required to grease its wheels and allow its participants to be strong competitors to banks in many avenues.

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4. I’d imagine as Legal Counsel, you have a unique perspective on how Payset operates. What do you think makes Payset unique?

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I could talk for hours about what makes Payset unique. First and foremost, it is our dedicated staff and their personal touch and superior professionalism in whatever aspect of our operations. They make this company what it is for its customers. 

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But if I need to describe our uniqueness from a bird’s eye view, I would have to say that a key term that comes to mind is interoperability. While a characteristic taken from a different discipline, interoperability is key within financial services firms like Payset, as it denotes the ability of diverse systems, technologies, and platforms to communicate seamlessly, share data, and collaborate cohesively to offer streamlined and integrated services. This forms a pivotal facet of contemporary financial infrastructure, as it enables various components (whether technological or human) within the firm’s ecosystem to collaborate effectively, thus ensuring a smooth flow of information and transactions. We at Payset take pride in our continuous attempt to implement this unique capability into our day-to-day operations.

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In addition, Payset was intended from the outset to be a technologically superior EMI service. The experience accumulated since its launch has provided our team with insights into various business models, where we have identified core features that help us differentiate our services from the competition. For instance, fast, accurate onboarding. We are setting a new standard in onboarding speeds and compliance. 

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Another unique feature is our rule-based approach to transaction monitoring, where we ensure speedy confirmations of transfers, providing our customers access to their funds quickly. Additionally, our online portal will very soon employ a new core banking technology, allowing our product and development teams to introduce more flexibility and stability to ultimately provide a better user experience. 

An additional competitive feature for Payset would be its currency exchange offering. Unlike other competitors, Payset provides the ability to exchange currencies even when the market is closed. We are working with a number of major liquidity providers to find the best possible rate, allowing our customers to exchange currencies when they choose at the best possible rates. 

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In terms of future capabilities, one of the most exciting features is the account management API. Using strong customer authentication, Payset will allow its customers to view balance and transaction history so they are able to embed their multi-currency accounts into their applications, providing them with ease of use within their business model/own platforms/CRMs.

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Moreover, Payset draws on the diverse expertise of its ownership and management teams to offer a vision for a more intelligent and efficient business future. Payset is drawing on lessons learned in numerous tech- and finance-related industries to offer its customers smarter and cheaper e-money and payment services. The precision of its focus and roadmap allows it to present both corporate and individual customers with a more flexible service tailor-made to their needs. With Payset, there is no excess and no confusion of direction. We believe our products are superior because of the intelligence and planning that goes into our business model.

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Lastly, we consider our risk management a unique feature, separating us from other competitors. The backbone of Payset and the value proposition for customers, while maintaining the trust of our regulators and correspondents, is our strong compliance- and risk-management systems and controls. It is a goal toward which we direct our best technology and resources. Payset is fully committed to mitigating the high inherent risks of providing e-money and payment services to our customers by having a state-of-the-art risk rating of our customers and a seamless onboarding and ongoing monitoring of customers and transactions, in addition to applying high standards on information security and stability and safeguarding clients’ funds and sensitive payment data. Incidents are being dealt with instantly, and the overall risks of Payset are continuously assessed and mitigated, where appropriate.

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5. You work in Payset’s Tel Aviv office. Israel recently changed its regulations to allow UK-regulated EMIs like Payset to operate in the country. When we first covered this, we reported that the order would be valid until January 1, 2024. Are you aware of any updates? Do you foresee the order being renewed and Payset’s operations continuing in Israel?

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That’s actually an excellent question. Things have taken an interesting, yet foreseeable, turn since we reported in our blog the temporary order, approved by the Israeli Parliament, allowing foreign regulated financial firms in the U.S., U.K., and EU to provide certain services in Israel, with an exemption from obtaining a local licence in Israel. 

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In late May 2023, the Israeli legislature, the Knesset, approved the law for the regulation of payment and payment initiation services. The legislation aims to cover various aspects, including the licensing and oversight of payment services by non-banking entities. The legislation will take effect in June 2024, although it has been proposed to establish a transitional arrangement for existing service providers. This arrangement would allow them to apply for a licence until September 2024 and to continue their operations until a decision is made by the Israel Securities Authority (ISA) regarding their application.

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Generally speaking, entities providing payment services will need to obtain a licence as a payment company from the ISA. However, in the case of foreign-regulated entities like Payset, which are supervised by reputable financial watchdogs like the FCA, the new legislation empowers the ISA to exempt a foreign payment service provider from all or part of the prerequisites normally required in order to obtain a local licence. This can happen if the ISA is convinced that the foreign laws governing the foreign provider’s operations and its supervisory framework offer adequate safeguards concerning specific matters outlined in the legislation while considering the broader interests of the Israeli public.

Payset will be applying for a licence as a payment company in Israel and expects to be granted an exemption from most, if not all, of the requirements set out in the new law in Israel, due to the superior regulatory supervision it is subject to in its home country, the UK, and the protection afforded inter alia to its customers under the applicable UK regulations.

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We will post updates on our website once we have great news on the licensing in Israel, but in the meantime, Payset will keep operating in Israel and providing superior payment services to its Israeli client base.

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Thanks so much for your time, Shachar!