You're an e-money firm - not a bank!

Following the well-publicised failure of Premier FX, the FCA continues to be concerned that e-money firms are marketing themselves as an alternative to traditional banks without making clear that there are significant differences in the protections available - in particular that the Financial Services Competition Scheme ("FSCS") does not apply to e-money or payment services.  

Of course, in practice, the difference in protections should be academic. Where proper safeguarding is in place in accordance with the requirements of the Payment Services Regulations 2017, in the event of a failure of the firm, the funds should be safely tucked away in a ringfenced bank account for the benefit of customers. The problem is that experience shows that firms that fail leaving customers out of pocket are those with multiple failings, a key being that funds are not properly safeguarded.

Yesterday, a "Dear CEO" letter was sent to UK authorised e-money firms reminding them of the guidance published last July and requiring them all to write to their customers within the next six weeks reminding them that their e-money balances are protected through safeguarding and that they do not have the benefit of FSCS cover. In line with its heightened scrutiny of the governance of e-money firms, the FCA specifically asks for requirement to be brought to the attention of the board and for the board to  approve the action to be taken.

To ensure that firms take this seriously, the FCA will follow up with a sample of firms to see what has been done. Needless to say, if the results of that analysis do not evidence that firms are taking this seriously, we can expect to see more direct action being taken.