On Feb. 3, UK FCA issued letter on its priorities for payments firms.
FCA letter sets out priorities for firms supervised by the FCA in the payments portfolio.
Follows UK FCA Mar. 2023 issued letter on priorities for payments firms, see #166543.
Progress
Since previous letter of Mar. 2023 highlighting priorities for payment firms, FCA has seen improvements by firms to deliver outcomes it sets, but still more for firms to do.
Regulator concerned that are still risks of harm to consumers and financial system integrity, so sets out 3 key outcomes for firms, essential to good customer outcomes.
Effective Competition and Innovation
First outcome is Effective competition and innovation to meet customers' needs, characteristics and objectives, FCA sets out priorities to ensure these are met.
Regulator is committed to supporting firms to innovate in interest of consumers and markets, gives link to Innovation Hub support services, how to take part in sprints.
On Consumer Duty, recent multi-firm work showed that many firms implemented as they should, but a significant proportion of firms still has more to do on this.
FCA will continue to monitor implementation, support firms through remediation of any deficiencies, take appropriate action against firms consistently not meeting standards.
A sector-specific priority on this is examining clarity of foreign exchange pricing in payment services, will assess extent to which firms' approaches help ensure consumers are able to clearly understand the price they pay for these services.
Financial System Integrity
Second outcome in letter is that Firms do not compromise financial system integrity.
Reducing and preventing financial crime is a focus area here, while many firms have improved over last year, weaknesses in some firms' governance, oversight, and systems and controls make them a target for bad actors, which risks loss of services.
Should ensure firm's governance arrangements and systems and controls are effective and proportionate to nature, scale and complexity of business, risks it is exposed to.
CEOs should read Oct. 2024 letter on UK PSR reimbursement requirements for APP fraud and should ensure good consumer outcomes, FCA will engage with firms on this.
For unauthorized fraud firms should show the same diligence as with APP fraud.
And be aware of FCA's guidance on recently introduced payment delays legislation.
Another focus under this outcome is operational resilience, FCA has seen weaknesses in some firms' technological resilience which has resulted in business interruption.
Should ensure firm's governance, systems and controls are effective in this area.
FCA has set out final rules and guidance on new requirements to strengthen operational resilience, transition period for new rules ends on Mar. 31, 2025.
Firms must have performed mapping and testing so firm is able to remain in impact tolerances for each important business service, consistently operate within tolerance.
Keeping Customers' Money Safe
Third outcome is Firms keep customers' money safe, despite improvements FCA remains concerned that customer money is not always safe if payments firms fail.
Outlines areas of focus relating to specific weaknesses it has seen, one of these is safeguarding, firms should ensure firm is safeguarding customers' funds in line with requirements, identify which are relevant funds, ensure records up to date.
FCA has consulted on new safeguarding rules, will issue final interim rules in mid-2025.
Other areas of focus re customers' money are prudential risk management, including meeting regulatory capital requirements, and having effective wind-down plans.
Governance, Oversight and Leadership
FCA emphasizes importance of governance, oversight, and leadership in order that firms meet the regulator's outcomes and expectations, should ensure arrangements proportionate to scale, size, complexity of firm, including agents and distributors.
Policy Priorities
Some of FCA's priorities include: open banking; strong customer authentication; monitoring impact of regulatory change on payments, consumers and firms.
And will continue cooperation with other authorities, including UK PSR and UK BoE.
Next Steps
CEOs are responsible for their firm consistently delivering the outcomes in the letter.
Should discuss the contents of the letter with their board, identify the messages relevant to their firm, and take appropriate action to deliver on the outcomes set.
FCA will be engaging with firms to ensure that this is the case.
