The Financial Conduct Authority, the UK’s main financial regulator, has chastised many of the country’s payment companies, including payment institutions (PIs) and electronic money institutions (EMIs) for their lack of “sufficiently robust controls “thus posing “unacceptable risks” to their customers. . The watchdog also said it had evidence of financial crimes in the operations of the country’s payment firms over the past two years.
Matthew Long, director of payments and digital assets at the FCA, disclosed them in a 10 page letter addressed to the managing directors of payment companies under the authority’s supervision. Financial Times reports that the letter was addressed to 291 CEOs.
“The ability to provide banking-like services, willingness to serve high-risk customers, and weaknesses in some companies’ systems and controls make PIs and EMIs a target for bad actors,” Long noted.
In the letter, Long noted that the regulator, in its work with PIs and EMIs over the past two years, has identified “significant issues” with the firm’s financial crime systems and controls. These include the failure to implement adequate know-your-customer procedures and to regularly review and update risk assessments and control frameworks in an evolving threat landscape.
“We have seen high fraud rates in some IPs and IMEs. We are also concerned that there may be a further increase in fraud due to the cost of living crisis. It is therefore critical that companies take action now to address weaknesses in their systems and controls to prevent fraud,” Long explained.
Regarding the protection of client funds in the event of insolvency, the director explained that the watchdog has identified “common failures”, such as companies that do not have documented processes to consistently identify which funds are “relevant funds” and must be protected.
Furthermore, he noted that, in accordance with a 2020 orientation for payment companies to audit their safeguard agreement annually, some companies have not yet appointed auditors. The regulator added that “we are not routinely notified of adverse results or the steps taken to address them.”
Also on customer safety, the FCA director noted that many payment companies have yet to create “liquidation plans” and those that have already are not meeting expectations. He added that some of the plans seemed “too optimistic” about how long it would take to complete.
FCA denounces unauthorized acquisitions and poor service delivery
Writing later in the letter, Long noted that while the regulator has seen good examples of positive innovation by payments businesses, it has also identified instances where products and services “do not consistently deliver good results for consumers.” customers” and where payment companies are not acting in the best interests of customers.
Additionally, the director noted that the regulator has seen instances where payment services and e-money firms have finalized acquisition plans without FCA approval. The regulator described it as a criminal offence, warning it could use its prosecutorial powers to oppose it.
“We will continue to intervene with our full range of monitoring tools. In cases where companies cannot meet permit requirements, we will take stronger action sooner and remove or sanction companies that cannot or do not meet our standards,” Long noted.
The Financial Conduct Authority, the UK’s main financial regulator, has chastised many of the country’s payment companies, including payment institutions (PIs) and electronic money institutions (EMIs) for their lack of “sufficiently robust controls “thus posing “unacceptable risks” to their customers. . The watchdog also said it had evidence of financial crimes in the operations of the country’s payment firms over the past two years.
Matthew Long, director of payments and digital assets at the FCA, disclosed them in a 10 page letter addressed to the managing directors of payment companies under the authority’s supervision. Financial Times reports that the letter was addressed to 291 CEOs.
“The ability to provide banking-like services, willingness to serve high-risk customers, and weaknesses in some companies’ systems and controls make PIs and EMIs a target for bad actors,” Long noted.
In the letter, Long noted that the regulator, in its work with PIs and EMIs over the past two years, has identified “significant issues” with the firm’s financial crime systems and controls. These include the failure to implement adequate know-your-customer procedures and to regularly review and update risk assessments and control frameworks in an evolving threat landscape.
“We have seen high fraud rates in some PIs and IMEs. We are also concerned that there may be a further increase in fraud due to the cost of living crisis. It is therefore critical that companies take action now to address weaknesses in their systems and controls to prevent fraud,” Long explained.
Regarding the protection of client funds in the event of insolvency, the director explained that the watchdog has identified “common failures”, such as companies that do not have documented processes to consistently identify which funds are “relevant funds” and must be protected.
Furthermore, he noted that, in accordance with a 2020 orientation for payment companies to audit their safeguard agreement annually, some companies have not yet appointed auditors. The regulator added that “we are not routinely notified of adverse results or the steps taken to address them.”
Also on customer safety, the FCA director noted that many payment companies have yet to create “liquidation plans” and those that have already are not meeting expectations. He added that some of the plans seemed “too optimistic” about how long it would take to complete.
FCA denounces unauthorized acquisitions and poor service delivery
Writing later in the letter, Long noted that while the regulator has seen good examples of positive innovation by payments businesses, it has also identified instances where products and services “do not consistently deliver good results for consumers.” customers” and where payment companies are not acting in the best interests of customers.
Additionally, the director noted that the regulator has seen instances where payment services and e-money firms have finalized acquisition plans without FCA approval. The regulator described it as a criminal offence, warning it could use its prosecutorial powers to oppose it.
“We will continue to intervene with our full range of monitoring tools. In cases where companies cannot meet permit requirements, we will take stronger action sooner and remove or sanction companies that cannot or do not meet our standards,” Long noted.