The Financial Conduct Authority (FCA) is stepping in to strengthen protections for customers of payment and e-money firms. As the use of these services grows, so do concerns about safeguarding customer funds when firms go out of business. Despite the rising popularity of payments firms, the FCA has observed several firms still demonstrating poor safeguarding practices, leaving customer funds at risk.
Unlike banks, funds held by payment and e-money firms aren’t directly protected by the Financial Services Compensation Scheme (FSCS). Instead, these firms are required to safeguard customers’ funds—meaning customers may face delays or even risk losing their money if the firm fails. To address these ongoing concerns, the FCA has announced plans to tighten its regulations.
In March 2023, the FCA wrote to the CEOs of payments and e-money firms, urging them to review their safeguarding and wind-down arrangements. Following this, the FCA opened supervisory cases against approximately 15% of firms to address inadequate safeguarding practices.
Matthew Long, Director of Payments and Digital Assets at the FCA, emphasised the importance of these new measures:
“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.”
Key changes in the FCA’s proposals
The FCA’s proposals aim to implement a new safeguarding regime based on the Client Assets (CASS) rules, which have been successfully applied in other financial sectors. This new regime is tailored to fit the business models of payment and e-money firms, with the goal of ensuring that funds are better protected in the event of insolvency.
By mid-2025, the FCA plans to publish strengthened interim safeguarding rules, allowing firms time to adjust and comply before the final rules come into effect. The FCA’s cost-benefit analysis (CBA) of these proposals has also undergone review by an independent CBA panel to ensure the new rules are both effective and balanced.
What this means for payment and e-money firms
The FCA’s proposals represent a significant shift in the regulatory landscape for payments firms. If implemented, firms will need to closely examine their safeguarding practices, wind-down plans, and internal processes to ensure they meet the new standards.
Firms have until 17 December 2024 to respond to the FCA’s consultation. Now is the time for businesses to engage with these proposals and prepare for potential changes to the safeguarding regime.
At Neopay, we understand the complexity of navigating regulatory changes, and we’re here to support your business every step of the way. Our compliance solutions are tailored to your needs, ensuring you stay ahead of new regulations while continuing to grow your business with confidence. Reach out to us for expert advice on how these proposed changes might affect your firm and what steps you can take to remain compliant.
