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.