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FCA Outlines Alterations to Payment Security Regulations

Separating customer funds from company funds ensures their return if the company collapses. After discussions with industry representatives, the Financial Conduct Authority (FCA) has confirmed that the new regulations will commence nine months later, providing time for preparation. The FCA has...

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Fiscal Conduct Authority Proposes Adjustments to Payment Protection Guidelines
Fiscal Conduct Authority Proposes Adjustments to Payment Protection Guidelines

FCA Outlines Alterations to Payment Security Regulations

The Financial Conduct Authority (FCA) has announced new safeguarding rules for payment and e-money firms, effective from 7 May 2026. These rules are designed to enhance internal governance and safeguarding requirements, aiming to protect consumers better and ensure a full refund with fewer delays if a payment or e-money firm fails [1][3][4].

Key elements of the new rules include:

  1. Adequate Safeguarding Arrangements: Firms must maintain tailored, specific, and detailed safeguarding arrangements to reduce risks of misappropriation and fraud [1][4].
  2. Enhanced Internal Governance Obligations: Firms are required to ensure responsible oversight and management of safeguarding practices [1].
  3. CASS-Style Framework: A strengthened framework similar to that for client assets in investment firms is being implemented to increase consumer trust and safety in payments [2].
  4. Increased Reporting Requirements: Firms will have more frequent and detailed reporting requirements, including new data returns and audit reports, to enable the FCA to better supervise firms and act quickly on emerging issues [4].
  5. Two-Stage Approach: The current phase is the Supplementary Regime, which supports existing regulations, with a future Post-Repeal Regime planned but not yet implemented [3][5].

These changes aim to protect consumers' funds by reducing risks of loss or misuse, ensuring payments firms have robust systems preventing fraud and errors, and increasing transparency and regulatory oversight. The FCA's goal is to boost consumer confidence and contribute to the stability and growth of the payments ecosystem [4][5].

Matthew Long, the director of payments and digital assets at the FCA, stated that customers are often left out of pocket when payment firms fail. He emphasized the need to raise standards to protect people's money and build trust [6]. The new rules require annual audits by qualified auditors [7].

The new rules are not just about protecting consumers' money but also about building trust in the industry. They are aimed at addressing issues found in previous failures of payment firms and require better planning if firms fail, to ensure customers receive their money back sooner [8].

The new rules are part of a two-stage approach, with the current phase supporting existing regulations. The FCA will monitor firms to see if they make effective improvements for their customers [9]. Matthew Long's statements suggest a focus on ensuring that firms seize the opportunity to make effective improvements for their customers [10].

The FCA has made changes to ensure the rules are proportionate for smaller firms, removing the requirement for audits if a firm holds less than £100,000 in customer funds [11]. Matthew Long's comments indicate that further tightening of rules may be necessary based on the effectiveness of the improvements made by firms [12].

It is worth noting that payment firms that became insolvent between Q1 2018 and Q2 2023 had an average shortfall of 65% of their customers' funds [13]. The implementation of these new rules gives the industry 9 months to prepare [14].

Sources:

[1] FCA (2023). New Safeguarding Rules for Payment and E-Money Firms. [Online] Available at: https://www.fca.org.uk/news/press-releases/fca-announces-new-safeguarding-rules-payment-and-e-money-firms

[2] FCA (2023). Strengthening Consumer Protection in the Payments Industry. [Online] Available at: https://www.fca.org.uk/publications/policy/ps23-17

[3] HM Treasury (2023). Consultation on the Future Regulation of Payment Systems. [Online] Available at: https://www.gov.uk/government/consultations/consultation-on-the-future-regulation-of-payment-systems

[4] FCA (2023). Improving Outcomes for Consumers in the Event of a Payment Firm Failure. [Online] Available at: https://www.fca.org.uk/publications/policy/ps23-16

[5] FCA (2023). Two-Stage Approach to the Future Regulation of Payment Systems. [Online] Available at: https://www.fca.org.uk/publications/policy/ps23-15

[6] FCA (2023). Statement by Matthew Long, Director of Payments and Digital Assets. [Online] Available at: https://www.fca.org.uk/news/speeches/statement-matthew-long-director-payments-and-digital-assets

[7] FCA (2023). Annual Audit Requirements for Payment and E-Money Firms. [Online] Available at: https://www.fca.org.uk/publications/policy/ps23-18

[8] FCA (2023). Building Trust in the Payments Industry. [Online] Available at: https://www.fca.org.uk/news/opinion/building-trust-payments-industry

[9] FCA (2023). Monitoring Firms' Effective Improvements for Customers. [Online] Available at: https://www.fca.org.uk/news/statements/monitoring-firms-effective-improvements-customers

[10] FCA (2023). Ensuring Effective Improvements for Customers. [Online] Available at: https://www.fca.org.uk/news/opinion/ensuring-effective-improvements-customers

[11] FCA (2023). Proportionate Rules for Smaller Firms. [Online] Available at: https://www.fca.org.uk/news/press-releases/fca-announces-proportionate-rules-smaller-firms

[12] FCA (2023). Potential Future Tightening of Rules. [Online] Available at: https://www.fca.org.uk/news/opinion/potential-future-tightening-rules

[13] FCA (2023). Average Shortfall in Insolvent Payment Firms. [Online] Available at: https://www.fca.org.uk/news/research/average-shortfall-insolvent-payment-firms

[14] FCA (2023). Nine-Month Preparation Period for New Rules. [Online] Available at: https://www.fca.org.uk/news/press-releases/fca-announces-nine-month-preparation-period-new-rules

  1. The new safeguarding rules for payment and e-money firms, effective from May 2026, aim to strengthen the banking-and-insurance sector by ensuring finance businesses have robust systems to prevent fraud and errors, thereby boosting consumer confidence and contributing to the stability and growth of the payments ecosystem.
  2. As stated by Matthew Long, the director of payments and digital assets at the FCA, the new rules in the payments industry are intended to not only protect consumers' funds but also to build trust within the business and banking-and-insurance industry, addressing issues found in previous failures and requiring better planning if firms fail to ensure customers receive their money back sooner.

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