Payment and e-money institutions have long called for clearer guidance on the FCA’s expectations of how they meet their obligation to protect customers’ funds. Friday week ago, the FCA issued a consultation on temporary guidance they wish to put in place on safeguarding and capital adequacy ‘in light of the exceptional circumstances of the coronavirus pandemic’.
The consultation is due to close this Friday after only two weeks of consultation. It’s important all payment and e-money institutions consider the guidance and put forward their views, whether directly to the FCA or via their trade association.
My colleagues and I at fscom are analysing the impact the new guidance will have on our clients and we are working with our trade associations, the Emerging Payments Association, AFEP and others, to ensure all voices are heard and issues are raised given the importance of the matter to consumers and the firms involved.
At first blush, many of the clarifications will be obvious to our clients and will not require any changes. They will, for example, have already provided their rationale for the number of reconciliations undertaken in a day and documented their reconciliation procedures. They will actively monitor their safeguarding partners’ ability to appropriately protect the clients’ funds, though most will comment that their options are extremely limited were they to determine that their safeguarding partner is not sufficiently stable. They will have already undertaken stress testing on their financial forecasts, as per our advice last year following the FCA’s consultation on new guidance for firms on assessing the adequacy of their financial resources.
Other clarifications, such as the trust letter, the opening of an additional bank account for unallocated funds and getting alternative arrangements in place in respect of intragroup capital resources and liquidity are likely to take time and resources, which may be problematical where capacity is stretched because of the pandemic arrangements.
Importantly, though, we are concerned that some of the guidance could have unintended consequences and disappointed that the opportunity wasn’t taken to clarify parts of the approach document that cause confusion, namely when the safeguarding obligation ends and the possibility that one payment or e-money institution could safeguard the funds for the underlying customer on behalf of another.
As noted above, we are discussing these issues broadly to make sure we put forward the right comments and questions on the proposed guidance and its gaps. Our discussion with the FCA to date leads us to make two important observations.
- We understand the FCA will be treating the consultation responses as a numbers game so it’s vital that you contribute your comments both through your trade association and individually.
- The FCA will work fast to publish this guidance. In my view, it’s likely they will seek to write to the CEOs with the finalised guidance within weeks if not within the week.
We’d be pleased to hear your comments and questions on the safeguarding and capital adequacy guidance. Please get in touch with me or one of my colleagues to discuss.
If you would like further reading on the problems with the current safeguarding legislation and guidance, please see here for a briefing paper I have written with Nilixa Devlukia.
Our other blogs and reports on safeguarding are available here.