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Dear CEO | Release Date: 4th July 2019

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

To access the original FCA document, click here.

Long Summary

The Financial Conduct Authority (FCA) has issued a critical directive to non-bank payment service providers, including authorised payment institutions (APIs) and e-money institutions (EMIs), emphasising the paramount importance of safeguarding customer funds. This communication outlines the FCA’s observations from their recent reviews and provides detailed guidance on expectations and compliance requirements under the Electronic Money Regulations 2011 (EMRs) and Payment Services Regulations 2017 (PSRs). The directive is driven by the need to protect consumers, especially since these institutions are not covered by the Financial Services Compensation Scheme (FSCS).

Importance of Compliance

The safeguarding of customer funds is identified as a crucial consumer protection measure within the regulatory framework. The FCA stresses that appropriate and effective safeguarding measures are essential to ensure that, in the event of a firm’s insolvency, customer funds can be returned promptly and in full. The directive underlines that safeguarding failures can lead to significant harm to consumers, potentially eroding trust in the financial system.

Key Findings from FCA’s Review

The FCA’s recent review focused on how well firms are adhering to the safeguarding requirements prescribed in EMRs and PSRs. The review uncovered several common issues that could jeopardise the safety of customer funds:

Problems with Fund Segregation:

Inadequate Risk Management and Oversight:

Guidance and Expectations for 2019/20

Given these findings, the FCA has set forth detailed expectations and actions for firms to enhance their safeguarding arrangements:

Comprehensive Review and Improvement of Safeguarding Arrangements:

Prompt Remedial Actions:

Continuous Monitoring and Updating:

Attestation and Reporting Requirements

Conclusion and Next Steps

The FCA’s directive concludes with a strong reminder of the importance of safeguarding customer funds and the role of compliance in maintaining market integrity and consumer trust. Firms are encouraged to actively engage with the regulatory process, continuously improve their safeguarding measures, and maintain transparent and open communication with the FCA.

Key Takeaways and Actions for Firms

Immediate Review and Compliance Check: Firms should urgently review their safeguarding procedures and ensure full compliance with FCA guidelines.

Engagement and Transparency with the FCA: Open lines of communication with the FCA are crucial, especially in instances of potential non-compliance.

Regular Updates and Continuous Improvement: Regularly update safeguarding measures to accommodate changes in business practices and market conditions.

This summary aims to provide CEOs and compliance officers with a comprehensive understanding of the FCA’s expectations regarding the safeguarding of customer funds and the necessary steps to ensure compliance and protect consumer interests

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