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The Financial Conduct Authority (FCA) is introducing new measures to protect customers in the event that payment and e-money firms go bankrupt, as the use of these companies has significantly increased in recent years. Despite this growth, the FCA continues to witness inadequate safeguarding practices in the industry.
Unlike banks, funds held by payment and e-money firms are not covered by the Financial Services Compensation Scheme (FSCS). Instead, these companies are required to safeguard customers’ funds. However, in the case of a firm’s failure, customers may face losses or delays in getting their money back.
Last year, the FCA issued warnings to nearly 300 payment companies, expressing concerns about their safeguarding practices and wind-down arrangements. As a result, the regulator has opened supervisory cases into roughly 15% of firms that are required to safeguard funds.
To address these issues, the FCA is proposing new rules aimed at replacing the current e-money safeguarding regime with a system modeled on the Client Assets (Cass) framework. Under this approach, relevant funds and assets would be held in trust for consumers, offering better protection.
The FCA is inviting feedback from firms until December 17 as part of the consultation process.
Matthew Long, the FCA’s Director of Payments and Digital Assets, commented, “We’re consulting on proposals to make safeguarding rules stronger and clearer for payment and e-money firms so that customers can recover their funds as quickly as possible if a firm goes out of business.”
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