The FCA says that payment firms that became insolvent between Q1 2018 and Q2 2023 had average shortfalls of 65% of their customers' funds. It has now announced the final details of new rules to protect consumers' money. The changes aim to improve safeguarding practices among payment firms.
Safeguarding means that customer money must be kept separate from a firm's own money so that it is available to be returned if the firm fails. Funds held by payment and e-money firms are not directly protected by the Financial Services Compensation Scheme (FSCS). Instead, firms must safeguard funds, which can mean customers lose money or experience delays to funds being returned if the firm fails.
There are two stages to the reforms – the Supplementary Regime and the Post-Repeal Regime. The FCA has confirmed that the new rules under the first stage will come into effect from 7 May 2026, giving industry nine months to prepare.
The rules aim to make sure that consumers are better protected, and if a payment or e-money firm fails they are more likely to get a full refund and with fewer delays.
The new rules require:
- Annual audits by qualified auditors.
- Monthly reporting for payment firms.
- Firms to conduct daily checks to make sure the right amount of money is being safeguarded to protect customers.
- Better planning if firms fail, so customers receive their money back sooner.
These rules aim to address problems the FCA has found in previous failures of payment firms.
The FCA has also made changes with the aim of making sure that rules are proportionate for smaller firms and in response to feedback. These include:
- Reconciliations will not be required on bank holidays or at weekends.
- Introducing a threshold of £100,000 for relevant funds, under which payments firms will not be required to arrange a safeguarding audit.
- The FCA has removed the requirement for a limited assurance audit for payments firms holding no relevant funds.
The FCA received a lot of feedback on the Post-Repeal Regime. Much of it raised concerns about the impact of imposing a statutory trust and receiving relevant funds directly into a designated safeguarding bank account. The FCA is not proposing to implement the proposals without further consideration and consultation. Once a full audit period has been completed, after the Supplementary Regime has come into force, it will review its implementation and consult on further proposals if changes are necessary.
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