Financial Regulatory Body (FCA) Reveals Amendments to Payment Security Directives
The Financial Conduct Authority (FCA) has announced new safeguarding rules for payment and e-money firms, effective from May 2026. These rules are designed to better protect consumers' money by ensuring it is properly separated and available for return if a firm fails.
Key elements of the new rules include:
- Annual audits by qualified auditors to verify safeguarding compliance, with smaller firms holding less than £100,000 in customer funds exempt from audit requirements.
- Monthly reporting to the FCA by payment firms on their safeguarding arrangements, improving regulatory oversight.
- Daily checks (or reconciliations on non-weekend/non-holiday "reconciliation days") to confirm the correct amount of customer money is safeguarded and segregated from the firm’s own funds.
- Improved planning for firm failure, including maintaining a resolution pack of documents and contingency plans to ensure prompt return of customer money, minimizing delays during insolvency procedures.
- Due diligence requirements on third parties that hold or manage customer funds and rules about safeguarding insurance policies or guarantees, ensuring these protections remain valid and effective.
These updates aim to address historical weaknesses where insolvent payment firms had average shortfalls of 65% in customer funds, often causing consumers to lose money or face long delays in receiving refunds. By tightening monitoring, record-keeping, and contingency planning, the FCA intends to reduce such losses and enhance consumer confidence in payment services.
The FCA's director of payments and digital assets, Matthew Long, emphasized the need to raise standards to protect people's money and build trust in payment firms. He stated that payment firms are crucial for managing people's financial lives and that when payment firms fail, customers are often left without their funds.
Mr. Long also highlighted that the new rules are designed to be proportionate, especially for smaller firms. He mentioned that the effectiveness of the improvements made by the payment firms will help the FCA determine whether further tightening of rules is necessary.
The FCA will monitor how firms implement these rules and consider further tightening if necessary to ensure the highest levels of consumer protection.
- The new safeguarding rules, effective from May 2026, will require payment and e-money firms in the industry to undergo annual audits by qualified auditors, implement monthly reporting to the Financial Conduct Authority (FCA), perform daily checks on segregated customer funds, and maintain a resolution pack for firm failure, all aimed at enhancing consumer confidence in business and banking-and-insurance services.
- To address historical weaknesses in the handling of consumer funds, the FCA's new rules on payment and e-money firms will tighten monitoring, record-keeping, and contingency planning, especially for smaller firms in the finance sector, ultimately aiming to reduce losses and protect consumers.
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