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Dear CEO | Release Date: 18th May 2021

To read a shorter summary of this Dear CEO letter, click here.

To access the original FCA document, click here.

Long Summary

This letter serves as an imperative reminder for all Chief Executives in the e-money sector regarding the critical nature of transparent communication to customers about the protection of their funds. It addresses ongoing concerns about the adequacy of information provided by e-money firms, especially concerning the non-applicability of the Financial Services Compensation Scheme (FSCS) protections.

Background and Regulatory Concerns

The Financial Conduct Authority (FCA) has noted significant growth in the e-money and payment services sector, particularly in the context of the economic challenges posed by the COVID-19 pandemic. With this growth, there is an increasing risk that consumers may not fully understand how their funds are protected differently compared to traditional banking services.

Misleading Comparisons and Communications

Many e-money firms are observed to compare their services with traditional bank accounts or position themselves as alternatives without adequately disclosing the key differences in protections. Such communications often fail to highlight that e-money accounts do not benefit from FSCS protection, which can significantly impact consumers if a firm becomes insolvent.

FCA’s Expectations from E-Money Firms

The FCA requires that all communications to customers must be clear, fair, and not misleading. This includes providing balanced information that does not overemphasise potential benefits without a fair indication of the risks involved. The FCA’s detailed guidance and the portfolio strategy letter issued in July 2020 highlight these requirements and the expectations from firms to adequately safeguard consumer interests.

Actions Required from Firms

Direct Communication to Customers

E-money firms are instructed to proactively contact their customers within six weeks from the date of this letter to clarify how their money is protected and explicitly state that FSCS protection does not apply to e-money accounts. This communication should be clear and separate from promotional activities, ensuring it reaches all customers, including those who may be vulnerable.

Review of Financial Promotions

Firms must also review their financial promotions to ensure compliance with the FCA’s rules on fair communication (BCOBS 2.3.1AR and BCOBS 2.3.4G). This review should verify that:

Governance and Oversight

The FCA expects the issues highlighted in this letter to be taken to each firm’s Board for consideration and action. The Board should approve the measures taken in response to these directives to ensure that all communications and practices align with regulatory standards and effectively protect consumer interests.

Monitoring and Compliance

The FCA plans to follow up with a sample of firms to assess the actions taken in response to this letter. This follow-up will evaluate the adequacy of steps taken to enhance consumer protection and compliance with the outlined requirements.

Conclusion and Contact Information

Firms are encouraged to take immediate and effective action to address the concerns raised. For any queries or further clarification, firms should contact the FCA directly through the provided email or their normal supervisory contact.

Key Takeaways for Affected Readers

Immediate Action Required: E-money firms must communicate with their customers within six weeks regarding the protection of their funds.

Compliance Review: Firms should review their financial promotions to ensure they are not misleading and comply with FCA regulations.

Board Involvement: The issues discussed must be escalated to the firm’s Board for oversight and approval of actions taken.

FCA Follow-up: The FCA will conduct follow-ups to assess compliance and implementation of required actions.

This letter underscores the FCA’s commitment to ensuring that the e-money sector operates transparently and continues to safeguard consumer interests effectively amidst its rapid growth and evolution.

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