Legal and Operational Obligations of Small-scale Payment Service Providers

Are you a foreign FinTech company looking to enter the EU market? This guide provides clear answers on obtaining a small-scale payment service provider license in the Czech Republic. Our international law firm, operating from Prague, European Union, explains the entire process, from application to ongoing obligations, helping you navigate the legal requirements with a trusted English-speaking lawyer.

Do you need advice on this topic? Contact the ARROWS law firm by email office@arws.cz or phone +420 245 007 740. Your question will be answered by "Mgr. Jáchym Petřík", an expert on the subject.

What Is a Small-Scale Payment Service Provider (SSPSP)?

An SSPSP license is a strategic entry point into the European Union's vast single market. Governed by the Czech Act on Payment Systems (Act No. 370/2017 Sb.), which aligns with the EU's Second Payment Services Directive (PSD2), this license offers a streamlined path for FinTech firms.

This authorization allows you to provide a wide range of payment services. These include processing cash deposits and withdrawals, executing fund transfers, issuing payment instruments like cards, and offering money remittance services. This makes the license ideal for payment gateways, P2P transfer apps, and other innovative financial technologies.

However, the "small-scale" designation comes with two key limitations. First, your average monthly transaction volume cannot exceed €3 million, calculated over a rolling 12-month period. Second, the license is valid for providing services in the Czech Republic only and is not "passportable" to other EU states.

Despite this, you can still serve an international clientele from your base in the Czech Republic. The key is that your business plan must demonstrate a credible focus on the Czech market to satisfy the regulator, the Czech National Bank (CNB). Our lawyers are ready to assist you with structuring your application – email us at office@arws.cz.

How Do You Get an SSPSP License from the Czech National Bank?

The CNB's licensing process is rigorous and requires meticulous preparation. The application must be submitted electronically, and the administrative fee is CZK 10,000 (approximately €400). While the official decision timeline is 30 days, the entire process typically takes 6 to 9 months.

The most critical part of your application is the business plan. It must be supported by realistic economic calculations and provide a detailed forecast for the first three years of operation. A generic plan is the fastest way to rejection, especially for foreign applicants from non-EU countries, who face heightened scrutiny.

You must also provide extensive documentation for the company and its key personnel, including founders and directors. This is to satisfy the CNB's "fit and proper" test, which assesses professional competence and integrity. While there is no legally mandated minimum initial capital, you must provide verifiable proof of the origin of all funds contributed to the company.

FAQ – Legal tips about the SSPSP application

• Do I need a physical office in the Czech Republic?
  Yes, the law requires that at least part of your payment service business is operated within the Czech Republic. This means you need genuine operational substance in the country, not just a mailing address. For help with establishing your presence, contact us at office@arws.cz.
• Can I hire employees from outside the EU?
  Yes, your employees can work remotely from anywhere in the world. The license governs where the service is legally provided from, not where your staff is located. Need legal help with cross-border employment? Contact us at office@arws.cz.

What Are Your Ongoing Compliance Obligations?

Obtaining a license is just the beginning. You must adhere to strict ongoing compliance obligations to avoid severe penalties. The term "small-scale" does not mean "light regulation."

• Safeguarding Client Funds

You must strictly segregate all client funds from your company's operational funds. These funds must be held in a dedicated safeguarding account at a supervised bank and cannot be used for any other purpose. This protects customer money in case of your firm's insolvency.

• Anti-Money Laundering (AML/CTF)

As an "obliged entity" under the Czech AML Act, you must implement a robust "Know Your Customer" (KYC) process, monitor transactions for suspicious activity, and report any concerns to the Financial Analytical Office (FAU). ARROWS law firm can provide professional training for your employees on these matters.

• Data Protection (GDPR)

You must fully comply with the EU's General Data Protection Regulation (GDPR). This includes processing data lawfully, minimizing data collection, and implementing strong security measures to protect personal information from breaches.

• Risk Management and Reporting

You are required to maintain an effective system for managing operational and security risks. You must also submit detailed quarterly reports on your business activities and financial results to the CNB, with strict deadlines for submission.

How Can You Avoid Legal and Financial Risks?

The CNB is an active supervisor with the power to conduct inspections, impose fines, and revoke licenses. Non-compliance can lead to financial penalties reaching millions of Czech koruna and significant reputational damage, as the CNB publishes its final decisions.

Risks and penalties during the application process

Risks and penalties	How ARROWS helps
Application rejection due to a weak or unrealistic business plan. This results in lost time, wasted fees, and significant delays to market entry.	Strategic business plan review. We ensure your plan meets the CNB's stringent expectations. Need help with your application? Write to office@arws.cz.
Failing the 'fit and proper' test for directors or founders. This leads to immediate application rejection and bars individuals from senior roles.	Pre-application due diligence. We vet key personnel to identify and resolve issues early. Ensure your management team is compliant by contacting us at office@arws.cz.
Unclear or poorly documented origin of funds. The CNB will reject applications on AML grounds if the capital source is not transparent.	Legal guidance on documenting proof of funds. We help you prepare the evidence to satisfy the regulator. Get tailored legal solutions by writing to office@arws.cz.

Recent enforcement actions show the CNB's readiness to act, especially against firms with weak AML controls or those that threaten financial stability. Understanding the risks is the first step to avoiding them.

Risks and penalties during operations

Risks and penalties	How ARROWS helps
Severe fines and license revocation for AML/CTF breaches. This can also lead to criminal liability for management.	Drafting internal AML policies. We create robust, compliant documentation tailored to your business. Do you need compliant documentation? Contact us at office@arws.cz.
Penalties for GDPR violations, including data breaches. Fines can reach up to 4% of your global annual turnover, causing immense financial and reputational harm.	Legal consultations on data protection. We help you draft privacy policies and data breach response plans. Want to understand your legal options? Email us at office@arws.cz.
Failure to properly safeguard client funds. This is a grave breach that can lead to immediate license revocation and civil liability to your clients.	Legal opinions on safeguarding procedures. We review and help design your internal processes to ensure full compliance. Our lawyers are ready to assist you – email us at office@arws.cz.
Inaccurate or late regulatory reporting to the CNB. This results in administrative penalties and damages your relationship with the regulator.	Representation before public authorities. We ensure your reports are accurate and timely. For immediate assistance, write to us at office@arws.cz.

What’s the next step?

The Czech SSPSP license is a powerful tool for entering the European FinTech market. The "Prague Springboard" strategy allows firms to build and test their models within a respected EU jurisdiction before expanding. However, success depends on expert preparation and continuous compliance.

ARROWS law firm, a leading Czech law firm in Prague, EU, is your trusted legal partner. With a network built over 10 years, ARROWS International has a presence in 90 countries, supporting clients like you in cross-border matters. We provide end-to-end license application management, from drafting your business plan and internal policies to representing you before the CNB.

Do not let regulatory complexity hold back your innovative business ideas. To start your journey into the EU market, contact our team for a consultation. Get tailored legal solutions by writing to office@arws.cz.

FAQ – Most common legal questions about small-scale payment service providers

• Is there a minimum initial capital requirement for an SSPSP?
  No, the law does not set a specific minimum capital amount, which is a key advantage. However, you must prove the company is sufficiently funded for its business plan and provide a verifiable legal origin for all contributed capital. For legal advice on your specific situation, contact us at office@arws.cz.

• Can non-EU residents be founders and directors?
  Yes, founders and directors can be residents of any country. Be aware that applications involving non-EU persons face a higher level of scrutiny from the CNB, and the process may take longer than the standard 6-9 months. For assistance with applications involving foreign nationals, write to us at office@arws.cz.

• Can I serve clients outside the Czech Republic?
  Yes, your customers can be located anywhere in the world. The critical requirement is that your business plan submitted to the CNB must demonstrate a credible and primary focus on the Czech market to be approved. To structure your business plan correctly, get in touch with our experts at office@arws.cz.

• What happens if my business exceeds the €36 million annual transaction limit?
  If you approach or exceed the transaction limit, you must apply to the CNB for a full Payment Institution (PI) license. The SSPSP framework is designed as a stepping stone, and planning for this transition is key to a successful long-term strategy. For help with transitioning to a full PI license, email us at office@arws.cz.

• What is the difference between an SSPSP and a Small-Scale Electronic Money Issuer (SSEMI)?
  An SSPSP processes payment transactions (moving money). An SSEMI can do everything an SSPSP can, but is also authorized to issue electronic money (e-money), such as balances stored in an e-wallet for future use. To determine the right license for your business model, do not hesitate to contact our firm – office@arws.cz.

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