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The U.K.’s financial regulator has come down hard on payment services firms in the wake of the Wirecard scandal, in which the FCA placed restrictions on the bank, causing millions of accounts to be frozen for about five days.
The Wirecard scandal involved massive financial fraud that caused the FCA to take action, but the suspension of business was lifted after a few days and customers were then able to access their accounts.
Less than two weeks after Wirecard’s downfall, the FCA has tightened rules for payment services firms to protect users.
On 9 July 2020, the FCA announced firmer measures to assure users of payment cards and digital apps are fully supported and protected, according to Pymnts.com.
“Reducing the risk of harm to customers in the payments sector has been a priority area for the FCA for some time,” an FCA spokesperson told Pymnts.com. “Today’s … final guidance concludes the consultation launched in May and makes very clear our expectations in light of coronavirus of what payments firms must do to protect customers’ money robustly.”
The new rules under the FCA include payment services firms being expected to maintain records of all monies received and to keep a “safeguarding account” for customer funds, amongst other rules, the Financial Times reported. The safeguarding account must also be thoroughly reviewed often to spot inadequacies.
In a letter to payment services firms, the FCA addressed several new regulations.
The FCA requested that firms use caution when choosing third-party service providers, including Wirecard, and advised them to review providers as often as necessary.
The FCA also demands that payment services firms have a clear knowledge of financial crimes, including terrorist financing, bribery and corruption. Firms need to know how to identify and combat these crimes in order to fully protect consumers. The FCA is planning to monitor firms and take action if there are any weaknesses within the firms.
The announcement of the FCA’s new rules has been in the works, and the updating of the regulations began months ago. However, the enforcement of the new rules was rapidly put in place as more consumers began using pre-paid cards during the turmoil caused by the COVID-19 pandemic.
“The sector has reached the scale where more regulation is required,” Matt Hopkins, audit director at global financial advisory firm BDO, told Pymnts.com. “This is the end of light-touch regulation of e-money and payment institutions.”
The FCA has told payment services firms that six main improvements are necessary to keep consumers’ money safe, and the following areas are weaknesses of many firms, according to their observations. The six areas of improvement are: safeguarding customers’ money; establishing risk management; battling money laundering and fraud; providing complete transparency in communication and promotions; robust reviews and oversights of processes; and records management and reporting.
“We will expect you to explain the actions you and your board have taken in response to this letter to ensure that your customers are adequately protected,” the FCA letter states.
The letter closes with expectations of the next steps and a warning of enforcement action if payment services firms do not comply with the new rules of the FCA.
The FCA also expects firms to confirm that their agents are informed and in compliance with the regulations.
The FCA says it will be monitoring firms to ensure they are rising up to meet the new requirements, and will act swiftly if any firm’s actions are likely to result in consumer harm.
In order to protect consumers, the FCA is willing and ready to restrict or cancel permissions until the new rules have been properly implemented.
Do you feel more comfortable using payment cards and digital banks now that you know the FCA has implemented tougher rules to protect us? Tell us your thoughts in the comments below.
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