In the wake of Wirecard's demise, Nigel Verdon, Railsbank co-founder and CEO, has called on the industry and regulators to introduce new provisions for material outsourcers such as card issuing platforms as a further safeguard to protect client money.
Verdon points to the example set by the Monetary Authority of Singapore, which has put in place new rules regarding outsourcing to give the industry comfort on matters like orderly shutdown, service levels and step-in rights.
In the UK, the FCA's decision to freeze client money held at Wirecard led to widespread panic in the fintech sector, as firms which relied on the German processor for operational support were thrown into stasis.
In a letter to the FT last week, Antony Elliot, founder of the Fairbanking Foundation, said the Wirecard affair showed how vulnerable customers were receiving “second class protection” from the FCA.
“Far better scrutiny is required of the regulatory gap to ensure the financial services industry is meeting the needs of vulnerable customers,” he wrote.
Verdon says fundamental changes could and should be made in the industry to ensure healthy market growth and stability.
“eMoney safeguarding regulations in the UK should sit under trust law very much like the FCA’s existing and well-regarded Client Assets Sourcebook (CASS) client money regime," he says. "That way we will avoid a similar crisis occurring in the future, where there is conflict between safeguarding in the Financial Services and Markets Act and company liquidation law under the Companies Act where the liquidator on behalf of creditors under certain circumstances can claim client money.”
He says that if the changes suggested were implemented, it would have created a more orderly situation in the wake of Wirecard’s collapse, with minimal-to-zero impact upon consumers.
“Change is possible," says Verdon. "But for that to happen, the industry must unite and work together with all key stakeholders, including the Financial Conduct Authority.”