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FCA spells out systemic issues and risks of business failure among payment services firms

The Financial Conduct Authority (FCA) has warned bosses of payment services firms about their processes for consumer protection, via a ‘Dear CEO’ letter that also raises concerns about a company failure in the market.

In an open letter addressed to payment services and e-money providers, the FCA warned that “some firms are growing rapidly and many are unprofitable while they seek to grow market share.”


The regulator said there is a particular concern as the pandemic may affect payment services firms’ financial strength and availability of external funding. The FCA highlighted six areas where required standards have to be met to mitigate any risk:

  • Safeguarding;
  • Risk management;
  • Financial crime;
  • Financial promotions and consumer communications;
  • Governance and oversight;
  • Records management and reporting.

The FCA found that issues in these six areas were “widespread” with many firms failing to meet required standards to prevent harm to consumers.


The FCA warned of issues around how firms safeguard customer funds, such as a lack of clear records to evidence the relevant funds held. The letter detailed further systemic issues amongst payment services firms.


Risk of insolvency

Having reviewed the market, the regulator found that several firms had calculated their own funds requirement incorrectly. It also discovered that several firms had “inadequate governance and controls” to manage prudential risk appropriately.


While the letter included some additional guidance to strengthen firms’ prudential risk management, the FCA warned it will continue to test firms’ financial position and take appropriate action where businesses do not meet the requirements.


Financial crime

The FCA conducted a review of 100 firms’ anti-money laundering processes, which concluded that several firms were failing to properly manage financial crime risks. This included:

  • Firms not having an effective business-wide anti-money laundering risk assessment;
  • The absence of customer risk assessments or assessments that didn’t include all relevant risk factors;
  • A lack of effective due diligence for high-risk customers, and;
  • Senior management and firms not having adequate oversight of agents, particularly where these operate overseas

Communications to customers

The letter identified several issues around how firms marketed themselves, including claims made about service and pricing that cannot be substantiated. The letter also warned against the use of FCA regulatory status in a promotional way, including inappropriate use of terms such as “secure”.


The FCA cautioned that it will “act swiftly and decisively” if firms failed to meet its expectations, including restricting and cancelling permissions to conduct activity.


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