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FCA gets the jitters about payments firms; rushes out new guidance

FCA gets the jitters about payments firms; rushes out new guidance

The UK's Financial Conduct Authority is pushing ahead with a priority review of payment firms, as the Covid-19 pandemic buffets loss-making fintech startups.

The watchdog is proposing a two-week consultation on additional safeguarding measures which will be applied to payments and e-money institutions, with a particular focus on strengthening risk management and arrangements for safeguarding customers' funds.

"The sector is developing rapidly and an increasing number of firms are entering the market," states the FCA. "However, some payments firms are unprofitable in the early stages while they seek to grow market share and many also rely on investor funds to remain solvent in the short-term. Firms may also be facing decreased revenues because of coronavirus and it could be impacting their ability to operate as well as their growth plans."

"We are also concerned that the pandemic will affect these firms’ financial strength and may affect the availability of their external funding."

The FCA says some firms have yet to implement the Electronic Payment Regulations 2011 or Payment Services Regulations 2017.

"Examples include commingling of customer and firm funds, firms keeping inaccurate records and accounts, and not having sufficiently effective risk management procedures," states the watchdog. "So, we are bringing forward a short consultation on temporary guidance to provide additional clarity to help strengthen firms’ prudential risk management and their arrangements for safeguarding customers’ funds to help them meet our authorisation and supervisory expectations in these areas. The proposed guidance also outlines how firms can put in place more robust plans for winding down."

The consultation, which will apply to all payments firms, will last for two weeks and closes on 5 June 2020. If confirmed, the final guidance will be published at the end of June.

Comments: (6)

Dinesh Katyal
Dinesh Katyal - Financial Data Exchange - San Francisco Bay Area 22 May, 2020, 14:33Be the first to give this comment the thumbs up 0 likes

Protection of customer funds with reserves to handle chargebacks and returns should have been a day 1 imperative. I'm curious as to what additional regulations will come out of this.

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 22 May, 2020, 17:08Be the first to give this comment the thumbs up 0 likes

A year ago, I asked on Twitter whether customers would get their money back if a fintech goes bust. At the time, it sounded hypothetical. But what a difference a year can make. I'm guessing, we'll find out the answer soon.

Anthony Pickup
Anthony Pickup - MYRECS LTD - Manchester 25 May, 2020, 09:24Be the first to give this comment the thumbs up 0 likes

It is not just thier customers funds at risk but also the customers credentials.  There will nee to be suitable suoervisory checks on administrators when engaging in the sale of the compant and or disposal of its assets. Otherwise there is a risk this valuable data could fall in to the hands for fraudsters / criminals.

A Finextra member
A Finextra member 25 May, 2020, 10:36Be the first to give this comment the thumbs up 0 likes

There are good reasons for payments to be a regulated industry. It is suprising that the FCA now wants to make a 2 week quick fix for payment firms that "do not yet meet the 2011 and the 2017 payments regulations". In a regulatory world those patment firms should have been stopped to conduct business a long time ago, until they can show evidence of complying with regulatory demands. Is it the fact that the firms call themselves "fintechs" and are owned by faceless private equity groups and position themselves as "heroes" taking on greedy, slow and customer unfriendly legacy providers that has given them a free-ride from rules that "high-street players" have to live with from day 1?

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 25 May, 2020, 13:05Be the first to give this comment the thumbs up 0 likes

Nothing new, really. Leveraging "regulatory gaps" has been the SOP of fintechs (and startups in many other industries) almost since the time of PayPal, as I highlighted in Fintechs Need Marketers And Lobbyists, Not Lawyers and Innovative Fintechs Don’t Need No PSD2 Regulation. In the past, only the biggest startups got away by becoming "Too Big To Be Regulated". Now the pandemic outbreak has given a free "get out of jail" card to every fintech.

Konstantyn Sydorenkov
Konstantyn Sydorenkov - SKM - Donetsk 25 May, 2020, 16:581 like 1 like

More than 4 months have passed since FCA has suspended work of "ePayments" ltd . And to be honest information is very scarce.

Does FCA plan to release an official statement regarding "ePayments" situation ? Any news would be very welcomed

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