Author: Niall Hearty
29 March 2023
3 min read
Niall Hearty of Rahman Ravelli details the action that the Financial Conduct Authority expects to see from hundreds of companies.
The Financial Conduct Authority (FCA) has written to the CEO’s of 291 payments firms to warn them they will be shut down if they do not tackle “unacceptable" risks to consumers and the integrity of the financial system.
In the letter entitled “FCA Priorities for Payments Firms’’, the FCA's director for payments and digital assets, Matthew Long, says the watchdog welcomes the competition and innovation that has flourished in the UK's payments sector.
But he adds: “We remain concerned that many payments firms do not have sufficiently robust controls and that as a result some firms present an unacceptable risk of harm to their customers and to financial system integrity."
The letter highlights common shortcomings regarding the safeguarding of customers' money in the event of payments firms failing “in a disorderly way’’.
In July 2020, the FCA published new guidance requiring payments firms which undertake a statutory audit to also conduct an annual audit of their safeguarding arrangements. The director’s letter says there has been evidence of audits resulting in safeguarding improvements. But it adds that some firms have not yet appointed auditors and states that the FCA is not being consistently informed of adverse findings or the actions being taken to address them.
It says that each firm must:
The letter states that the FCA has identified a need for improvement in firms’ prudential risk management. It identifies issues such as a lack of appropriate liquidity risk management, failure to consider whether the firm should hold capital above its regulatory requirement in order to adequately mitigate the risks it faces, and a lack of scenario planning and stress-testing.
The letter says firms should regularly review their prudential risk management arrangements to ensure they:
He highlights the following areas as “material issues’’:
The letter concludes by saying: "We will continue to intervene using our full range of supervisory tools. In cases where firms can’t meet the conditions for authorisation, we will take more assertive action sooner and will remove or sanction firms who cannot or will not meet our standards."
In addressing what it sees as possible shortcomings, the FCA has reiterated its commitment to protecting consumers from bad actors and, by doing so, protecting the integrity of the UK financial system - two of its core objectives as the UK’s financial watchdog.
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