FCA Steps in To Increase Consumer Protections When Payments Firms Go Out of Business | The Fintech Times

The Financial Conduct Authority (FCA) is consulting on proposals that it hopes will better protect consumers when payments and e-money firms go out of business. 

Despite the use of payments firms growing significantly in recent years, the FCA revealed it continues to see poor safeguarding practices from firms.

In March 2023, the UK regulator’s director of payments and digital assets, Matthew Long, wrote to payment firms urging them to take appropriate action to ensure they have robust controls and reduce the risk of customer harm, particularly amidst “tightening economic conditions and the cost-of-living crisis”.

In the letter, the FCA identified three outcomes it expects relevant firms to meet:

1. Ensure that customers’ money is safe;
2. Ensure that each firm does not compromise financial system integrity;
3. Meet customers’ needs, including through high-quality products and services, competition and innovation, and robust implementation of the FCA Consumer Duty.

Despite this, the FCA remains unsatisfied with the action taken, leading to it opening supervisory cases relating to around 15 per cent of firms that safeguard.

Currently, the Financial Services Compensation Scheme (FSCS) does not directly protect funds held by payments and e-money firms. Instead, firms must safeguard funds which can mean customers lose money or experience delays to funds being returned if the firm fails.

“We’re consulting on proposals to make safeguarding rules stronger and clearer for payment and e-money firms so customers get as much of their money back as quickly as possible if the firm goes out of business,” Matthew Long explained.

Recognising a need to reduce the risk for consumers, the FCA proposes that it replace the existing e-money safeguarding regime with a client assets (CASS) style regime designed to work with payment firms’ business models. The financial services regulator also plans to publish strengthened interim safeguarding rules for firms by the middle of next year.

The FCA has asked for all responses to the consultation by 17 December 2024.