The U.K.’s Financial Conduct Authority has given Wirecard permission to resume banking services that were shut down after the online bank’s parent company confessed to fraud and entered bankruptcy.
Millions of online bank users and payment cardholders faced days with frozen accounts and had no access to their money after the FCA declined to lift restrictions on a Wirecard subsidiary.
On 26 June 2020, the FCA demanded an almost immediate shutdown of Wirecard Card Solutions Ltd. after the firm’s parent company entered bankruptcy and confessed to an extensive financial fraud. The shutdown by the FCA required “that the firm must not dispose of any assets or funds, that it must not carry on any regulated activities and that it must set out a statement on its website that it is no longer permitted to conduct any regulated activities.”
The shutdown resulted in millions of Wirecard Card Solutions-managed banking apps and payment card accounts being suspended. About a dozen card services have been affected by frozen accounts including Pockit, Anna Money and U Account.
On 29 June 2020, the FCA announced an update stating Wirecard’s activities would remain halted because the financial watchdog wasn’t yet satisfied that funds weren’t being mishandled.
“We are maintaining pressure on the firm to resolve these issues which would allow it to operate under certain conditions,” Forbes reported the FCA initially stated. “However, we cannot lift the restrictions without reassuring ourselves that the firm has been able to satisfy all our concerns for example that all clients’ money is safe. We hope to be able to issue an update soon.”
While it may have been little comfort to bank customers with frozen accounts, the FCA maintained their first priority was to protect the interest of Wirecard owners, according to Forbes.
On 29 June 2020, the FCA gave written consent to Wirecard that services could resume and frozen accounts would be lifted on 30 June.
The restrictions being lifted meant Wirecard users could use their cards and accounts as usual. The FCA worked closely with Wirecard to verify that the firm was able to meet the requirements to repeal certain conditions that FCA appointed.
The FCA acknowledged that many customers were faced with frozen accounts over the weekend, but the actions taken were meant to protect everyone’s funds.
“We have worked with Department of Work and Pensions (DWP), Her Majesty’s Treasury (HMT), and the Home Office over the weekend in order to help any customers suffering financial distress and directed people to that support on our website,” the FCA said in a statement.
There are still some requirements in place for Wirecard. The FCA continues to work with Wirecard on restrictions on where it can hold customers’ funds and restrictions over transferring its own assets.
If any customers are concerned about the safety of their money, there are rules as to how their money should be protected via ‘safeguarding.’ The FCA has explained safeguarding as “a key consumer protection measure within the Electronic Money Regulations 2011 and the Payment Services Regulations 2017, which are the rules setting how e-money and payments firms should conduct their businesses. The purpose of safeguarding is to protect and return customer money if a firm was to fail.”
Wirecard is required under the Electronic Money Regulations to manage suitable measures to protect customers’ money. Wirecard maintains this by holding customers’ money separate from its own in accounts with other banks (or another credit institution). Adequate safeguarding measures are urgently important to help establish that customers’ funds are protected and given back if a firm fails. Appropriate safeguarding arrangements complying with the requirements are a prerequisite of Wirecard’s ongoing FCA authorisation.
The FCA is working with Wirecard to progress with these issues. If customers are still experiencing difficulties, they can contact their card provider or the FCA.
Do you think the FCA handled the shutdown of Wirecard and other firms properly? Let us know in the comments
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