The Financial Conduct Authority (FCA) has issued a new ‘Dear CEO’ letter (dated 3rd February 2025) outlining its priorities for firms within the payments sector. This follows the previous letter from March 2023 and reaffirms the regulator’s focus on ensuring firms meet high standards in governance, financial integrity, and customer protection. You can read the full letter here: FCA Dear CEO Letter.
This latest communication is particularly relevant to firms authorised under the Payment Services Regulations 2017 (PSRs) and the Electronic Money Regulations 2011 (EMRs), including Electronic Money Institutions (EMIs), Payment Institutions (PIs), and Registered Account Information Service Providers (RAISPs).
The FCA’s three key outcomes for payments firms
The FCA has set out three critical outcomes that payments firms must consistently achieve:
- Effective competition and innovation to meet customers’ needs
- Firms must not compromise financial system integrity
- Firms must keep customers’ money safe
These outcomes serve as the foundation for the regulator’s expectations and shape the key actions firms must take to maintain compliance.
Effective competition and innovation to meet customers’ needs
The FCA acknowledges the ongoing evolution in payments, particularly through Open Banking, Open Finance, and digital currencies. While it supports innovation, it stresses that products and services must deliver good customer outcomes.
Key focus areas:
- Consumer Duty: The FCA notes that while many firms have implemented the Consumer Duty as expected, a significant number still have gaps to address.
- Foreign exchange transparency: There is a renewed focus on ensuring customers clearly understand the pricing of FX services.
- Regulatory engagement: The FCA encourages firms to participate in its Innovation Hub, Early and High Growth Oversight function, and Tech Sprints.
Financial system integrity: Fighting financial crime and strengthening resilience
Financial crime prevention remains a top priority, with the FCA highlighting persistent weaknesses in governance, risk management, and fraud prevention.
Key focus areas:
- APP fraud and reimbursement: Firms must ensure compliance with the Payment Systems Regulator’s (PSR) reimbursement requirements and take a proactive approach to ‘on-us’ (intra-firm) APP fraud.
- Risk-based and delayed payments: Firms must apply new payment delay legislation responsibly, balancing fraud prevention with minimal disruption to legitimate transactions.
- Operational resilience: By 31 March 2025, firms must have completed mapping and testing to ensure they can operate within impact tolerances for critical business services.
Keeping customers’ money safe
The FCA remains concerned about safeguarding standards, despite some improvements in financial resilience.
Key focus areas:
- Safeguarding: Firms must ensure proper identification, reconciliation, and segregation of customer funds. The FCA has proposed new safeguarding rules, with interim requirements expected in mid-2025.
- Prudential risk management: Firms must meet capital requirements at all times and plan ahead for financial stability.
- Wind-down planning: Effective and actionable plans are required to ensure an orderly and solvent closure if necessary.
Governance, oversight, and leadership
Weak governance remains a key concern for the FCA, with firms expected to:
- Implement robust governance arrangements with strong oversight and independent challenge.
- Ensure agent and distributor oversight is proactive and risk-based.
- Effectively manage outsourced functions to maintain compliance.
- Maintain a UK head office, with key decision-makers based domestically.
Preparing for the future
In addition to current regulatory expectations, firms must prepare for upcoming changes, including:
- The FCA’s evolving role as the UK’s Open Banking regulator.
- The replacement of Strong Customer Authentication (SCA) rules with more flexible fraud prevention measures.
- A continued focus on the impact of regulatory changes on payments, consumers, and firms.
Next steps for payments firms
The FCA expects all payments firms to review the letter, assess their current governance and compliance frameworks, and take necessary action to align with the regulator’s expectations.
At Neopay, we specialise in helping payments firms navigate complex regulatory requirements. If you need support in reviewing your existing arrangements through our tailored audit solutions, assisting with your employee’s training and awareness, or addressing any of the areas outlined in the FCA’s letter, from governance enhancements to safeguarding compliance, get in touch with our expert team today.
For further details, you can read the FCA’s full letter here: FCA Dear CEO Letter.
