04/06/2021

FCA requests Fintechs to clarify the position on payment protections

The FCA is asking FinTech companies to be clear with their customers on whether they qualify as banks over concerns that they may not be aware of the differences in protections offered. Here, Sarah Drew, from our financial services team, explores what this means for e-money and payment services firms.

The FCA has issued a ‘Dear CEO’ letter, setting out firms’ obligations to ensure customers understand how their money is protected.  

The letter, sent out on 18 May 2021, sets out concerns that e-money and payment services firms are comparing their services with those of traditional banks, without making it clear to customers that they do not have the same level of protection that the traditional banks offer. Their main concern is around information relating to the Financial Services Compensation Scheme (FSCS).  

In the letter, Paul Roe (Head of Payments Supervision at the FCA) reiterates Principle 7 of the Principles for Business and reminds firms that they are under a duty to consider the information needs of customers and act in a way that is fair, clear, and not misleading.  

This has been an area of concern for the FCA for some time and was flagged in a portfolio strategy letter and Final Guidance on Safeguarding Customer’s Funds, which were published in July 2020.  

The FCA is concerned that customers are not receiving sufficient explanation that money safeguarded by e-money and payment services firms is not protected by the FSCS, and if things were to go wrong for those firms, customers would not receive compensation for lost funds. The FCA is asking firms to act, and check whether their customers are aware of this.   

Of particular concern to the FCA is how a promotion sets out all positive aspects a product offers but leaves out risks (in contravention of Banking Code of Business Sourcebook 2.3.1AR). It is also concerning that firms are not differentiating in communications with customers, between regulated and unregulated activities, and what is and is not regulated by the FCA. These actions could potentially inflate the customer’s confidence, who may think that all the firms’ activities are supervised by the regulator.  

The FCA is asking e-money and payment services firms to address the above head-on and requests that they write to their customers to detail exactly how their money is protected and whether the FSCS is accessible to them.  

The FCA is also asking firms to review their financial promotions to check that they are giving customers sufficient information about the protections that their products have (or more importantly, don’t have) and that where the FCA is named as the regulator, there is adequate separation of regulated and non-regulated activities, making it clear to the customer which activities have recourse to the regulator and which don’t. 

Finally, this letter should be brought to the attention of the boards of affected firms. 

This is a direct appeal for payment services and e-money firms to review their compliance. The FCA has allowed six weeks (to 29 June 2021) for firms to get these communications out to their customers and businesses should act now to avoid further follow up from the FCA.  

If the FCA’s letter impacts your business and you would like any assistance with your communications to customers, our team will be happy to help, you can contact us here