On 9 July 2020, the FCA published finalised guidance regarding coronavirus and the safeguarding of customers’ funds. The finalised guidance applies to authorised payment institutions or small payment institutions, e-money institutions or small e-money institutions, credit institutions and custodians.
Guidance for firms on safeguarding and managing prudential risk is currently available in the FCAs payment services approach document (Approach document). However, in light of the COVID-19 pandemic and its impact on firms’ business models, the FCA is providing this additional temporary guidance to strengthen firms’ prudential risk management and arrangements for safeguarding customers’ funds during this period of economic stress. The FCA hopes to conduct a full consultation later in 2020/21 on changes to the Approach Document. This is likely to propose incorporating this additional guidance on safeguarding and prudential risk management.
The finalised guidance follows a consultation paper that the FCA published in May 2020 on coronavirus and safeguarding customers’ funds. The consultation closed in June 2020 and the FCA received responses from over 60 organisations. The FCA has also published a feedback statement in which it summarises and responds to the feedback received to its consultation. The main comments the FCA received were about: customer funds being held by firms on trust, calculating capital adequacy, conducting compliance audits and the treatment of unallocated funds.
On the same date, the FCA published a Dear CEO letter referring to its announcement in its 2020/21 Business Plan that the risks to consumers in the payment services sector are an FCA priority requiring supervisory focus and intervention. In the Dear CEO letter the FCA sets out the actions it expects payment institutions to take to prevent harm to customers by ensuring that they are compliant with their regulatory obligations in six key areas:
- Prudential risk management.
- Financial crime.
- Financial promotion and customer communications.
- Governance and oversight.
- Records management and reporting.
CEOs of payment institutions are expected to consider and discuss the contents of the Dear CEO letter with their boards and agree what further action should be taken to ensure that their firm meets the requirements. The FCA also expects principal firms to ensure their appointed agents comply with the contents of the Dear CEO letter that are relevant to them.