The Financial Conduct Authority (FCA) said this week that it is proposing new rules to better protect customers when payments and e-money firms go out of business.
The FCA explained that while the use of payment firms has grown in recent years, it “continues to see poor safeguarding practices from firms,” putting customers at risk of losing their money.
While funds held by these firms are not directly protected by the Financial Services Compensation Scheme (FSCS), firms are required to have safeguards in place to ensure that customer funds are returned promptly in the event of a firm’s failure.
“The FCA wrote to payments and e-money CEOs in March 2023 about their safeguarding and wind-down arrangements and has since opened supervisory cases relating to approximately 15% of firms that safeguard, to address its concerns,” the regulator said.
In response to concerns, the FCA has proposed a new client assets (CASS) style regime for payments and e-money firms, which will replace the existing e-money safeguarding regime.
The new regime is designed to be more effective and adaptable to the specific business models of these firms.
“We’re consulting on proposals to make safeguarding rules stronger and clearer for payment and e-money firms so customers get as much of their money back as quickly as possible if the firm goes out of business,” said Matthew Long, Director of Payments and Digital Assets at the FCA.
The FCA is also planning to publish strengthened interim safeguarding rules for firms by the middle of next year.
Additionally, the FCA said the cost-benefit analysis of its proposals has been reviewed by the new independent CBA Panel.