The FCA chose 5pm on the Friday before the Spring Bank Holiday weekend to launch its latest initiative to tighten control on payment service providers (PSPs) and electronic money institutions (EMIs). (see ‘FCA acts to strengthen protections for customers using payment firms’)
It takes the form of a short consultation exercise ending two weeks later on Friday 5 June 2020.
It poses only four leading questions that clearly expect the answer Yes.
This is without precedent in this firm’s view.
The questions are set out below and focus on safeguarding accounts (client money accounts in old money) and prudential standards.
FCA issued an Approach Paper on 3 June 2019 and it is clear from the current initiative that both PSPs and EMIs are still failing to comply with its guidance.
At chapter 10 the guidance sets out a series of straightforward requirements over 11 short pages.
On 4 July 2019 the FCA sent a ‘Dear CEO letter’ to payment service providers.
Failure by PSPs and EMIs to follow the ‘safeguarding’ requirements is a concern, especiallygiven the pressure on this sector recently.
FCA attached a proposed ‘acknowledgement letter’ for use by firms to get their bankers and others to confirm that they understand the nature of segregated client money accounts.
There are two other major concerns in the FCA consultation –
The absence of third party committed funding and the uselessness of uncommitted intra-group funding for PSPs/EMIs
The need to reduce the capital [CET1] available to PSPs/EMIs for regulatory purposes by subtracting intra-group receivables
There is more to this FCA initiative with further detail given in our firm’s Briefing Note.
Our firm advice is that PSPs/EMIs comply with the safeguarding provisions in the Approach Paper and promptly require their banks to provide acknowledgement letters in the FCA’s proposed terms.
The collapse of ipagoo (a FinTech company which went bust lacking committed financial backing) led FCA to freeze customer accounts on 26 July 2019 and take other measures.
It was authorised to provide both e-money and payment services.
Later in August 2019 an Anglo-Dutch investment firm sought to buy ipagoo out of administration subject to FCA approval.
FCA Consultation: the four questions –
1. ‘Do you agree that we should provide additional guidance on safeguarding, managing prudential risk, and wind-down plans? If not, please explain why.’
2. ‘Do you agree with our proposed guidance on safeguarding? If not, please explain why.’
3. ‘Do you agree with our proposed guidance on managing prudential risk? If not, please explain why.’
4. ‘Do you agree with our proposed guidance on wind-down plans? If not, please explain why.’
If the response to these questions is not a resounding ‘Yes’, then we suggest some immediate remediation planning is commenced.
FCA : Coronavirus and safeguarding customers’ funds: proposed guidance for payment firms 22 May 2020
FCA : Proposed acknowledgement letter for banks and custodians 22 May 2020
FCA acts to strengthen protections for customers using payment firms – press release 22 May 2020
FCA : Non-Bank PSP : Requirements for Safeguarding of Customers’ Funds : ‘Dear CEO letter’ 4 July 2019
FCA : Payment Services and Electronic Money – Our Approach : 3 June 2019
The FCA’s role under the Payment Services Regulations 2017 and the Electronic Money Regulations 2011
Payment Services Regulations 2017 [SI 2017/752] interactive version
Payment Services Regulations 2017 reg 23 safeguarding
Payment Services Directive 2015 [(EU)2015/2366] [PSD2]
Consumer Protection from Unfair Trading Regulations 2008 [SI 2008/1277]