FCA consults on proposed changes to the safeguarding regime for payments and e-money firms

The FCA has recently published a consultation paper (CP24/20) regarding proposed changes to the safeguarding rules for payments firms and e-money firms.

This is in light of some poor practice that still exists in the implementation of the current safeguarding requirements. For example, for firms that became insolvent between Q1 2018 and Q2 2023, there was an average shortfall of 65% in funds owed to clients. As such, both new interim-state and end-state rules have been proposed to further protect customers and keep money safe should these particular payment firms go out of business.

The proposed interim-state rules include quicker distribution of funds back to customers when a business has failed, enhanced monitoring and reporting including the submission of a new monthly safeguarding regulatory return and rules to ensure firms carry out both accurate and consistent reconciliations.

Proposed end-state rules include robust requirements on how payments firms must segregate and handle relevant funds, and holding funds under a statutory trust.

The changes will apply to authorised payment institutions, small payment institutions that voluntarily safeguard client funds, and e-money institutions.

Once the new rules have been published, the FCA proposes to give firms six months to implement the interim-state rules, which are currently expected to be put in place in the first or second quarter of 2025.  Firms will then be given 12 months to implement the end-state rules.

The consultation will close on 17th December 2024.