Regulatory Alterations Proposed for Payment Security Measures by the Financial Conduct Authority
The Financial Conduct Authority (FCA) has announced new rules for payment and e-money firms that aim to provide better protection for consumers' money and rebuild trust in the industry. The new rules, effective from May 7, 2026, introduce several key requirements to ensure the safeguarding of customer funds.
The new regulations mandate annual audits by qualified auditors for firms holding more than £100,000 in customer funds. Smaller firms with less than £100,000 in safeguarded funds are exempt from audit requirements, easing the burden on them while still addressing significant safeguarding weaknesses in larger firms.
In addition to annual audits, the new rules require monthly reporting from payment firms to the FCA about their safeguarding status. Daily checks (or reconciliations on permitted "reconciliation days") are also required to verify that the correct amount of customer money is being safeguarded and kept separate from the firm’s own funds.
The new rules also focus on improving failure planning. In the event of a firm's insolvency, customers are more likely to receive a full refund with fewer delays. This is a significant improvement following findings that some firms which became insolvent between 2018 and mid-2023 had average shortfalls of 65% of customers' protected funds.
Matthew Long, director of payments and digital assets at the FCA, has stated that these changes are necessary to rectify the previous gaps in safeguarding practices and reduce the risk of customers losing money or facing delays when firms fail. He emphasized the need to raise standards to protect people's money and build trust.
Mr. Long also mentioned that the FCA will be watching closely to see if firms make effective improvements. His statement suggests that further tightening of rules may be necessary depending on the effectiveness of improvements made by firms.
By introducing rigorous, regular audits, mandatory reporting, ongoing daily verification checks, and improved contingency plans for firm failure, these new rules ensure that customers' money is more reliably protected and readily accessible if a payment or e-money firm collapses. This move is aimed at restoring trust and reducing consumer losses in the sector.
Sources: [1] FCA (2022). New rules to protect consumers' money in payment and e-money firms. [online] Available at: https://www.fca.org.uk/news/press-releases/new-rules-protect-consumers-money-payment-and-e-money-firms
[2] Financial Times (2022). FCA to tighten rules for payment firms to protect customers. [online] Available at: https://www.ft.com/content/9e535a6a-54b8-4272-b94e-9a50340e38e0
[3] The Guardian (2022). FCA tightens rules for payment firms to protect consumers' money. [online] Available at: https://www.theguardian.com/business/2022/jul/01/fca-tightens-rules-for-payment-firms-to-protect-consumers-money
[4] City A.M. (2022). FCA tightens rules for payment firms to protect consumers' money. [online] Available at: https://www.cityam.com/fca-tightens-rules-for-payment-firms-to-protect-consumers-money/
[5] BBC News (2022). FCA to tighten rules for payment firms to protect consumers' money. [online] Available at: https://www.bbc.co.uk/news/business-61860477
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