In a drive to strengthen consumer protection from risks arising from insufficient control and oversight of payments made through payment firms, the Financial Conduct Authority (FCA) sent a Dear CEO letter to payment firms registered under the Payment Services Regulations and Electronic Money Regulations pointing out that there is concern that some payment firms do not have the degree of robustness to control and protect their customers transactions which leaves their customers exposed to risk.

The FCA set out what it considers to be three essential measures that the payment firms must undertake:

  • Ensuring that the customers' money is safe through the safeguarding of the funds
  • The firm itself must not compromise the financial system's integrity
  • Customers' needs are met through high-quality products and services,competition and innovation, including the robust implementation of the FCA Consumer Duty.

Furthermore, the FCA states that it expects the firms to implement the following as priorities

  • Governance and leadership, including oversight of agents and distributors
  • Operational resilience
  • Regulatory reporting

Joanna Bailey, head of the financial fraud and banking litigation department, commented "the FCA has valid concerns, given the widespread financial fraud frequently encountered, as the risk of losses through financial transactions is rising. The nt firms will risk punitive financial sanctions if they do not take urgent steps to comply with the FCA dear CEO letter." Joanna further remarked "customers who are failed by payment firms are not able to access the Financial Services Compensation Scheme (FSCS) and have to rely on the firms' safeguarding process. Both banks and payment firms often initially reject claims for compensation when customers lose money due to poorly executed transactions. Often only capitulating when faced with legal action."

Giambrone & Partners financial fraud lawyers point out that the FCA has developed a 2022-2025 Strategy aimed at reducing harm from all sources but in particular from firm failure and is concerned about the safety of customer money "if payments firms fail in a disorderly way." A number of common failings have been highlighted, such as the failure to have documented processes to identify customer funds, safeguarding If a payment firm enters insolvency and a lack of due diligence. The FCA has clearly outlined its expectations on how the failures should be addressed in the future.

Frequently customers embark on financial transaction through payment firms with no idea of their regulatory status or how their money is protected. There are broadly three types of non-banking payment firms. The protections extended to customers vary.

Electronic money institutions (EMIs):

  • Electronic money ?is stored electronically. This can be on a pre-paid card or in an online wallet or account. An EMI can also provide a non-bank current account. Usually in an online account or wallet, or on a prepaid card. EMIs employ a safeguarding process to customers' money.

Authorised payment institutions (APIs):

  • APIs provide a range of payment services. For example, if you're looking to send money abroad, you may use a third-party money remitter, which is a type of API. APIs also employ a safeguarding process to customers' money.

Small payment institutions (SPIs):

  • SPIs provide much the same services as APIs, but there are limitations on the value of payments they can make over a period of time. Often the SPI only sends money to one country because of this restriction. SPIs have no obligation to safeguard their customers' money.

Part of the safeguarding process employed by EMTs and APIs requires that customers' money is placed in a safeguarding account with a bank or the money must be protected by insurance or a similar type of warranty. Should a firm then go out of business there is the potential to receive most of your money back. All payment firms must be regulated by the FCA and there is a list of regulated firms on the FCA website.

Giambrone & Partners financial fraud and banking litigation department regularly assists clients to recover money misappropriated or lost through transactions executed by banks and payment firms with slack safeguarding protocols and protections related to their dealings with customers' funds. Frequently banks and payment firms reject claims that eventually transpire to be valid. Giambrone & Partners' lawyers are experienced in dealing with the financial sector and the attempts to off-set liability and reject legitimate claims without a thorough review of the circumstances.

If your initial claim is rejected, we can help; our highly competent lawyers have extensive experience at successfully overturning decisions and will methodically build your case drawing on the firm's extensive experience in obtaining satisfactory outcomes and the restoration of our clients' lost funds. Our lawyers' expertise and regulatory knowledge enables them to recognise the all too familiar the attempts to avoid responsibility for failures to protect their customers from inadequate reconciliation procedures, for such reasons as lack of due diligence and failing to undertake internal and external reconciliations at least once a day to ensure that safeguarded funds are adequate. If you believe that you have lost money through the poor procedures of your bank or payment firm do not hesitate to contact Giambrone & Partners and we will assess the situation and assist you in the return of your funds, where at all possible.

Joanna Bailey heads the banking and financial fraud litigation department,Joanna frequently leads litigation against financial institutions in connection with financial fraud, cryptocurrencytrading disputes, as well as Forex investmentissuesand regulatory investigations and has some considerable success inretrieving our clients; funds lost in the fraud.

Joanna has developed a range of strategies both to find the assets of the individuals perpetrating the fraudulent schemes and restore the funds to our clients. As well as recognising culpability in the organisations facilitating (but not associated with the fraud), by failing to undertake adequate due diligence.

She is highly experienced in high-value out-of-court settlement negotiations and has in-depth knowledge of the Civil Procedure Rules as well as English common law.

If you would like to know more about how Giambrone& Partners can assist you to retrieve funds lost by banks and payment firms please contact Joanna's clerk SamGroom atsam.groom@giambronelaw.comor please click here.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.