UK payments industry cautioned to prevent consumer harm

The FCA has called on boards of payments services firms to interrogate their approach to regulatory compliance in several areas and has warned it will take swift and decisive action if firms fail to meet its expectations. We look at the main points to note from the FCA’s intervention and the important actions for firms to take.

Call to action for CEOs of payment services firms

The FCA has sent a Dear CEO letter to payment services firms – which includes payment institutions and e-money institutions – spelling out specific areas where it believes firms need to take action to prevent consumer harm.

Although it refers to its new guidance on safeguarding (see below), the messages in the letter extend to several wide-ranging aspects of regulatory compliance including financial crime, consumer communications, record-keeping and Brexit.

The letter also calls on senior management to ensure that governance and oversight processes are reviewed regularly and that governance functions are appropriately scaled to reflect growth.

We have produced a two-page guide – which is available on request – outlining the main actions for firms to take when re-evaluating their compliance with the areas covered by the FCA’s letter.

Finalised guidance on safeguarding

After an expedited consultation process, the FCA has finalised its temporary guidance on safeguarding, risk management and wind-down plans and released a statement responding to feedback from the consultation.

The finalised guidance is broadly in the form consulted on, with some clarifications added by the FCA. It applies to authorised payment institutions and small PIs, e-money institutions and small EMIs, and credit institutions and custodians. We discussed the FCA’s proposed guidance in our payments monthly podcast.

What happens next?

The FCA has not specified a timeframe for compliance but expects firms to familiarise themselves with the safeguarding guidance as soon as possible and take steps to ensure that their procedures and controls meet the revised expectations. The guidance is in place on a temporary basis until the FCA conducts a full consultation into changes on its Approach Document later in 2020/21.

In the meantime, the FCA intends to test firms’ compliance and will “act swiftly and decisively” if a firm fails to meet its expectations. The FCA expects boards of payments firms to discuss the points raised in the letter and finalised guidance and agree what further action they should take to ensure compliance.