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  • UK Conduct Regulator Presses Non-Bank Payment Service Providers for Compliance with Safeguarding of Customer Funds Requirements
    07/04/2019
    The U.K. Financial Conduct Authority has published the outcome of its multi-firm review into the safeguarding arrangements of customer funds by non-bank payment service providers. The FCA assessed how 11 non-bank PSPs complied with the requirements for safekeeping of customer funds under the U.K.'s Payment Services Regulations 2017 and Electronic Money Regulations 2011. These Regulations require authorized payment institutions and e-money institutions to take measures to safeguard their customers' funds, including segregating relevant funds and performing reconciliations, to ensure that in the event of the insolvency of the firm, the client's funds can be returned in a timely and orderly way. The FCA has provided guidance on complying with the requirements in the relevant Approach Document. Customer funds held by these types of institutions are not protected by the Financial Services Compensation Scheme.

    The FCA's review found that firms were generally segregating funds appropriately. However, there was sometimes an inadequate understanding of which funds needed to be segregated, delays in segregating funds after receipt by the institution of the funds and failures to carry out proper reconciliations. The FCA also found that some firms did not have up to date safeguarding policies, particularly where operational changes had been implemented to accommodate changing business models. Furthermore, some firms did not have effective oversight of agents and distributors.

    The FCA has written a "Dear CEO" letter to all e-money and authorized payment institutions, requesting the firm to review their safeguarding arrangements and to provide a written attestation that the firm complies with these requirements to the FCA by July 31, 2019. If a firm cannot so attest, it should contact the FCA as soon as possible.

    View the outcome of the review.

    View the Dear CEO letter.

    View the FCA's Approach Document.

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    TOPIC: Payment Services