The UK’s Financial Conduct Authority (FCA) has introduced new rules designed to improve consumer protection in the event of payment and e-money firm insolvencies, following evidence that past failures have left serious gaps in customer safeguards.
According to Finextra, between Q1 2018 and Q2 2023, the FCA found that payment firms entering insolvency held on average just 35% of the money owed to customers—leaving a staggering 65% shortfall. The new regime aims to tighten oversight and force stronger safeguarding practices among e-money institutions.
Effective from May next year, the rules will apply to all electronic money and payment institutions. Firms holding over £100,000 in customer funds will be required to conduct annual audits, while all firms must carry out daily reconciliations to verify the correct level of safeguarded funds. They must also submit monthly reports detailing their safeguarding position to the regulator.
FCA director of payments and digital assets Matthew Long said, “People rely on payment firms to help manage their financial lives. But too often, when those firms fail, their customers are left out of pocket.”
Long added, “We’ll be watching closely to see if firms seize the opportunity and make effective improvements that their customers rightly deserve – this will help us to determine whether any further tightening of rules is necessary.”
While the FCA has positioned the changes as an essential upgrade to the safeguarding framework, consumer advocates have criticised the regulator’s delayed response to what they call years of damage.
Andy Agathangelou, founder of the Transparency Taskforce, said the new rules were “too little, too late” for those who had already suffered major financial losses due to firm failures. “The FCA is essentially admitting they’ve presided over a consumer protection disaster for the past seven years,” he said.
“These aren’t technical failures – these are real people losing their life savings, house purchase deposits, and emergency funds because the regulator failed to act. It’s simply scandalous that it’s taken this long for the FCA to acknowledge what consumer groups have been warning about.”
The Taskforce is calling for faster implementation of the rules, mandatory audits for all firms regardless of size, and a comprehensive review into the FCA’s handling of consumer protection from 2018 to 2023. It is also urging the adoption of Financial Services Compensation Scheme (FSCS)-equivalent coverage for all e-money customers.
Despite the FCA’s announcement being framed as a proactive step, criticism remains over the long lead time and limited scope of the rules, suggesting further regulatory tightening may be required to rebuild trust and adequately protect customers.
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