Potential Obstacles for Payment Companies Arise from Revised FCA Safety Regulations

Potential Obstacles for Payment Companies Arise from Revised FCA Safety Regulations

The Financial Conduct Authority (FCA) has announced a new safeguarding regime for payment firms, aiming to protect consumers by ensuring they are refunded in full and quickly if a payment firm fails. The new regime, detailed in the FCA Policy Statement PS25/12, comes with a tight nine-month implementation period that begins immediately, and payment firms are urged to start taking steps now to ensure readiness.

Key Areas for Compliance

Under the new regime, payment firms must focus on several key areas to achieve compliance. These include:

1. Enhanced safeguarding practices: Firms must improve how customer funds are protected, keeping payments separate from their own money to prevent misappropriation and reduce shortfalls.
2. Daily checks and reconciliations: Firms will be required to perform daily checks to ensure the correct amount of safeguarded money is held, reducing risks of errors or fraud.
3. Annual audits and increased reporting: Independent qualified auditor reviews and monthly reporting to the FCA will increase transparency and allow early detection of issues.
4. Improved refund processes and failure planning: The regime emphasizes better preparation so customers receive their funds promptly in case of a firm’s insolvency.
5. Two-stage implementation: There will be an interim “Supplementary Regime” starting May 7, 2026, to strengthen existing rules and record-keeping, followed by a more robust “Post-Repeal Regime” that closely resembles the CASS client assets framework, coming later after consultation and legislation changes.
6. Proportionality for smaller firms: Some requirements, such as audits, are waived for firms safeguarding less than £100,000, aiming to keep compliance costs manageable for smaller entities.

Preparing for the Changes

To prepare for the new regime, payment firms should consider performing a gap analysis comparing current safeguarding practices with new rules and reporting metrics. Firms need to formalize due diligence processes and set diversification limits with board approval for third-party risk review. Payment firms should also develop resolution packs that are dynamic, easily accessible, and integrated with existing governance tools.

Engaging a qualified auditor, conducting dry-runs, and closing control gaps is essential for audit readiness. RSM UK suggests ensuring directors understand their obligations and can link safeguarding to Consumer Duty outcomes through board education. Payment firms are advised to discuss these changes with their advisors as soon as possible, as some may need to source alternative audit partners due to increased demand and potential capacity constraints.

Catherine Brittain, financial services partner at RSM UK, has stated that this is a full-scale operational change. Firms should prioritize rigorous record keeping, regular independent audit, robust internal controls, and clear contingency plans for safeguarding compliance under the new regime. These changes respond to prior sector failings revealed by high average safeguarding shortfalls (~65%) and aim to restore consumer trust by ensuring that payment firms more effectively protect customer money and meet FCA oversight expectations.

Deadline Approaching

From May 2026, payment firms' safeguarding audits must be performed by a qualified accountancy firm. The requirement for safeguarding audits to be performed by a qualified accountancy firm may lead to capacity constraints and increased demand for such services. Many smaller boutique companies may no longer be eligible to complete safeguarding audits, reducing the number of providers in the market.

Payment firms must act quickly to align with new compliance standards and secure qualified auditors ahead of the May 2026 deadline. The FCA's nine-month implementation period is considered extremely tight for many payment firms, and it is recommended they start taking steps now to ensure readiness.

1. To meet the requirements outlined in the FCA Policy Statement PS25/12, payment firms should focus on enhancing their safeguarding practices on ffnews.com, ensuring they separate customer funds from their own and implement improved protection measures to prevent misappropriation.
2. In preparation for the new safeguarding regime, payment firms need to engage a qualified accountancy firm for audits, beginning from May 2026, as they must comply with the new rules and ensure readiness well ahead of the deadline to avoid potential capacity constraints in the market.

Read also: