FCA and payment services firms safeguarding arrangements

Robin Haslam, outlines  FCA scrutiny of payment services firms safeguarding arrangements and assesses the impact on firms.

In July 2019, FCA sent a ‘Dear CEO’ letter to non-bank payment service providers following a six-month review of how well firms meet the requirements to safeguard customer funds.   Although the FCA’s review only covered a sample of firms, their findings show:

1.Problems with segregation:

  • poor understanding of what funds are relevant and should be segregated;
  • delays in segregating funds following receipt;
  • failing to check that the correct amounts are being segregated frequently enough e.g. through a reconciliation process

2. Weak risk management and oversight of arrangements for managing the risks to customer funds

This included lack of detail and rationale in policy documentation and the lack of effective monitoring and review.  In addition, several firms reviewed had rapidly evolving business and operating model and few of those firms could demonstrate adequate consideration of the impact of the changes on safeguarding arrangements.

Priority areas for improvement

FCA went on to detail priority areas for improvement, which include examples of how firms have operationalised the requirements in line with the rules.

Impact for payment services firms

Although the Dear CEO letter was only issued early in July, firms have been asked to review their safeguarding arrangements to ensure that they meet the requirements and provide FCA with an                 attestation by 31 July, confirming that they have carried out a review and that the firm complies with the safeguarding requirements.

The short time scale and the nature of the response required by FCA indicates the importance of adherence to the safeguarding requirements and non-bank payment service providers may wish to take appropriate professional advice in assessing their compliance and providing a necessary response to the regulator.

For more information on this topic, contact robin.haslam@wilkinskennedy.com