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FCA calls on payments, e-money firms to protect customers

By Sunniva Kolostyak

July 10, 2020

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The Financial Conduct Authority (FCA) has issued a letter for payment services firms operating in the UK, setting out requirements and actions for increased customer protection.

In the letter, addressed to CEOs of payments institutions (PIs) and e-money institutions (EMIs), David Geale, Director of Retail Banking and Payments Supervision at the FCA, said the Covid-19 pandemic has increased the need to address weaknesses across six key areas in the payments services sector.

These areas, where non-compliance would harm consumers, are safeguarding, prudential risk management, financial crime, financial promotions and consumer communications, governance and oversight, and records management and reporting.

The letter highlighted which actions firms should take to address the concerns and noted that the FCA will act ‘swiftly and decisively’ if a firm fails to meet expectations.

“We base our action on intelligence and proactive analysis using a range of indicators to identify firms to proactively contact, or visit to ensure that the relevant standards are met. Where we identify weaknesses, we will take action to ensure that firms meet the requirements. If we see a firm’s actions are likely to lead to consumer harm we will act swiftly. This may include restricting permissions to conduct regulated activity and cancelling permissions if it will protect consumers,” the letter said.

The FCA also explained that the letter comes over concerns that consumers may not understand the lack of protections they have when using some FinTech products and services.

“Some firms are growing rapidly and many are unprofitable, while they seek to grow market share. We are concerned that the pandemic will affect payment services firms’ financial strength and may impact the availability of external funding. This means that firms that need to regularly raise fresh capital to remain solvent may fail.”

The payment services requirements come just weeks after the collapse of Wirecard, which has been seen as a blow to consumer confidence in the FinTech sector.

The FCA highlighted that while it welcomes innovation and competition in payments, it will closely monitor the sector for harms to consumers or market integrity it may cause, for continued public confidence.

Moreover, firms must prepare for the Brexit transition period to end on 31 December 2020, including deciding on an approach to service customers in the EEA.

Iana Dimitrova, CEO of OpenPayd comments on FCA
Iana Dimitrova, CEO of OpenPayd

Commenting on the restrictions, Iana Dimitrova, CEO of OpenPayd, said the FCA’s new requirements provide guidance that the payments sector has long awaited.

“Lightning-pace innovation and rapid scale coupled with recent scandals and the pandemic have revealed gaps in governance and compliance that have been overlooked but threaten the reputation of the entire payments sector,” Dimitrova said.

“To secure a thriving future, payment institutions and EMIs need to invest to make strong control functions and robust governance frameworks.

“Although smaller firms may struggle with the pace of regulatory change and the looming challenge that Brexit presents, the FinTechs these payment businesses serve need to ensure airtight protection for customers who simply expect more from their providers.”

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