UK Conduct Regulator Warns E-Money Firms on Misleading Customers

The U.K. Financial Conduct Authority has written to the CEOs of electronic money firms asking them to ensure that their customers are aware of how their money is protected. According to the FCA, many e-money firms (some of which are start-ups and FinTechs) compare their services to traditional bank accounts and portray in their financial promotions their services as an alternative to a bank account, but do not adequately disclose the differences in protections between e-money accounts and bank accounts. In particular, e-money firms do not make it clear enough that Financial Services Compensation Scheme protection does not apply to e-money accounts. The warning follows the FCA's publication in summer last year of a letter to CEOs and guidelines on safeguarding which set out the FCA's expectations of e-money firms in light of the increased use of e-money accounts during the pandemic.

FCA rules require the communications of e-money firms to their customers to be accurate and to provide a balanced view of the potential benefits of a payment service or e-money service (e.g. account functionality) and the potential risks (e.g. lack of FSCS protection). Communications must be clear, fair and not misleading. Firms must also pay due regard to the interests of their customers and treat them fairly.

In its letter, the FCA asks e-money firms to write to their customers by the end of June this year reminding them of the risks. The FCA is also asking firms to review their financial promotions to ensure that: (i) they provide adequate information; and (ii) where the FCA is named as the regulator, it is clear that the FCA does not regulate the unregulated activities of the firm.

On April 26, 2021, draft legislation was laid before Parliament on a proposed Special Administration Regime for payment institutions and e-money institutions that fall within the scope of the Payment Services Regulations 2017 and the Electronic Money Regulations 2011. Key objectives of the regime will include returning customer funds as soon as reasonably practicable, facilitating timely cooperation with payment systems and authorities and rescuing the institution as a going concern or winding it up in the best interests of creditors.

View the FCA's letter to e-money firms.

View details of the draft legislation introducing a SAR for e-money firms.

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