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Dear CEO | Release Date: 18th May 2021

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

To access the original FCA document, click here.

Short Summary

The Financial Conduct Authority (FCA) has issued a directive to e-money firms, expressing concern about inadequate disclosure of the protections available to customer funds, especially in comparison to traditional bank accounts. The FCA highlights that many e-money firms fail to clarify that the Financial Services Compensation Scheme (FSCS) does not cover e-money accounts, potentially misleading customers about the safety of their funds.

The FCA’s concerns stem from observations that e-money services are often presented as alternatives to banks without adequately explaining the absence of FSCS protection. This lack of clear communication could mislead customers about the risks associated with storing their money in e-money accounts versus bank accounts. E-money firms are therefore urged to enhance their communications to customers, ensuring that these are clear, fair, and not misleading, as stipulated in the FCA’s regulations.

Firms are instructed to contact their customers within six weeks to explain how their money is protected, explicitly stating that FSCS protection does not apply to e-money accounts. This communication should be distinct from promotional activities and should consider the best communication methods for their customer base, including vulnerable customers.

Additionally, e-money firms are required to review their financial promotions to ensure compliance with FCA rules, particularly those concerning the accuracy of information regarding FCA regulation and the risks related to the absence of FSCS protection.

Key Take-Aways and Actions for Affected Readers:

E-money firms must urgently reassess their customer communications and financial promotions to ensure transparency about the non-applicability of FSCS protection. Firms should prepare to communicate this clearly to their customers and review and adjust promotional materials accordingly. Compliance with these expectations will be monitored by the FCA, and firms are expected to involve their Board in the review and implementation of these changes to avoid potential regulatory action.

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