FCA proposes applying its fundamental rules to payment services and e-money firms
The FCA’s Principles set out its basic expectations of firms in the regulatory system. The FCA has suggested applying these Principles to payments firms and e-money issuers for the first time. The rules should reflect current practice but firms will need to consider their practical impact, especially for customer communications.
Focus of the proposals
The FCA’s latest consultation paper makes three main proposals:
1. extending its Principles to all payments firms, e-money firms and registered account information service providers
2. extending to those firms rules and guidance on communicating with retail banking customers
3. introducing rules for banks, payment firms and e-money firms on the communication and marketing of currency exchange transfer services.
According to the FCA, these changes are intended to ensure that firms meet the high standards of behaviour and treatment of customers required across the market. The FCA is focused on consumer harm that may result from firm’s communication practices such as misleading advertising and marketing of services.
Impact of the proposals
1. Extension of Principles
The FCA’s Principles do not currently apply to all payment services and e-money issuance. Under the proposals, the FCA’s disciplinary powers would apply to any breach of these high-level rules by a payment services or e-money firm.
The FCA believes that this would make it easier to supervise existing standards. For example, the FCA would expect firms to comply with relevant EBA guidelines as part of the requirement to conduct its business with due skill, care and diligence (Principle 2). It could also take action where it determines that customers are not treated fairly (Principle 6) or have received misleading communications (Principle 7).
In its press release, the FCA pointed out that, for many businesses, the proposals will reflect current good practice.
“For some, however, it should be a clear signal that through our rules, supervisory and enforcement action, we will not tolerate customers being misled or being treated unfairly.”
Christopher Woolard, FCA Executive Director of Strategy and Competition
2. Extension of rules on customer communications
The FCA has proposed changes to the conduct of business rules for banks. For example, the fair, clear and not misleading rule would be extended to apply to communications with, and marketing to, customers of payment and e-money services.
These changes reinforce Principles 6 and 7. The FCA believes that they would make it easier to intervene where it identifies harm. For example, the FCA says it has received complaints about payment services providers and e-money issuers about misleading advertising.
3. New rules on currency exchange transfer services
Finally, the FCA has suggested new rules and guidance businesses providing payment or e‑money services involving a currency conversion. Banks will need to apply these new rules as well.
Among the proposals:
- Firms should not claim a rate of exchange is available to consumers if that rate is not likely to be available in respect of a typical transaction
- Cost comparisons with competitors must be meaningful, presented in a fair and balanced way, and capable of being substantiated.
What happens next?
The consultation closes on 1 November 2018. The FCA expects the final rules to apply before the end of January 2019.