Though the use of payment firms has grown in recent years the Financial Conduct Authority (FCA) says it continues to see poor safeguarding practices from firms.

Funds held by payments¹ and e-money² 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 when money has to be returned if the firm fails.

What has the FCA done to protect consumers?

The FCA wrote to payments and e-money CEOs in March 2023 about their safeguarding and wind-down arrangements and then opened supervisory cases relating to approximately 15% of these firms to address its concerns about their safeguarding measures.

Now the FCA is looking at how it can improve the protection of customers when payment and e-money firms go out of business.

Matthew Long, Director of Payments and Digital Assets, said: “We’re consulting on proposals to make safeguarding rules stronger and clearer for payments and e-money firms so customers get as much of their money back as quickly as possible if the firm goes out of business.”

The FCA’s Financial Lives Survey showed a five-fold increase in the use of current accounts with e-money institutions between 2017 and 2022.

Under the FCA’s proposals, the existing e-money safeguarding regime will be replaced with a client assets (CASS) style regime designed to work with payments firms’ business models. It will also publish strengthened interim safeguarding rules for firms by the middle of 2025.

 Payment services are listed in Schedule 1 to the Payment Services Regulations 2017 (PSRs). In summary, they are:

  1. services enabling cash to be paid into or withdrawn from a payment account and all of the operations required for operating a payment account
  2. execution of payment transactions – such as direct debits, credit transfers and card payments
  3. issuing of payment instruments (for example credit or debit cards)
  4. acquiring payment transactions
  5. money remittance
  6. account information services
  7. payment initiation services

 Electronic money (e-money) is electronically (including magnetically) stored monetary value, represented by a claim on the issuer, which is issued on receipt of funds for making payment transactions.

It must be accepted as a means of payment by a person other than the electronic money issuer. Types of e-money include:

  1. pre-paid cards
  2. electronic pre-paid accounts for online use