Guidance for payments firms implementing the Consumer Duty

The FCA has published a series of Dear CEO letters on the topic of Consumer Duty, including one titled “Implementing the Consumer Duty in payments firms”.

Totalling eight pages, the letter includes several useful highlights from the FCA’s communications to date and a series of suggested action points for payments firms so that they can deliver good outcomes for customers.

What does the letter tell us?

Targeted at firms within the FCA’s payments portfolio (i.e. those authorised or registered under the PSRs and EMRs, and registered AISPs), the letter is intended to help these firms implement and embed the Duty effectively. The FCA takes the opportunity to emphasise that meeting the Duty will require a significant shift in culture and behaviour for firms, which is consistent with other recent messaging.

Drawing on its recent feedback for firms on their implementation plans, the FCA identifies three key areas where firms should focus their attention (and where the firms’ boards and management bodies will want to focus and provide challenge). These areas relate to:

• effective prioritisation of implementation work, reflecting that some of the plans reviewed did not clearly indicate the basis for prioritising some implementation work ahead of other aspects;
• embedding substantive requirements rather than considering requirements superficially or firms being overly confident that their existing policies and processes are adequate; and
• the need to work with other firms in the distribution chain and share information.

Key things to consider

The most helpful part of the letter is Annex 2 where the FCA provides additional illustrative examples for payments firms against each of the outcomes. With somewhat limited payments / e-money focused case studies in FCA guidance to date, the examples do provide helpful additional clarity.

For example, the FCA says that payment service providers should consider the impact of strong customer authentication solutions on different groups of customers, in particular those with protected characteristics. This may mean that firms would have to provide several different methods of authentication, including methods which do not rely on mobiles.

Reiterating a point that we have seen the FCA make previously, the FCA reminds firms to highlight the differences in protections that apply to customers using different products and services; highlighting that PIs and EMIs are not banks and therefore funds are not protected by the Financial Services Compensation Scheme.

Serving as a useful reminder, the FCA notes that firms providing their products and services through agents and distributors should make clear to consumers the split of responsibilities, with principal firms considering communications from their agents / distributors which relate to their regulated services to the same extent and standards as their own. As noted in the FCA’s finalised guidance, “[u]nless there are regulatory requirements or contracts require it, firms are responsible only for their own activities and do not need to oversee the actions of other firms in the distribution chain”. However, principal payments and e-money firms are responsible for the actions of their agents and distributors as set out in the EMRs and PSRs.

The FCA also warns firms that they “continue to see poor financial crime controls in some payments and e-money firms”. In particular, the FCA highlights as a point for careful consideration under the cross-cutting rules and consumer support outcome, the disproportionate freezing of individual customer accounts. They also note that they see a need for firms to consider their handling of alleged fraud, especially Authorised Push Payment fraud and complaints relating to APP fraud, to ensure that their treatment of customers is not unduly harsh or unsupportive.

Is there a what next?

Firms should expect to see and hear more from the FCA over coming months as the letter notes that they are working with an external research agency who will be sending a short survey to a sample of firms, with the result of the survey then being used to help the FCA understand the progress firms are making implementing the Duty and to shape ongoing communications.

Larger payments firms should also expect to be asked by their supervisors to provide regular updates on implementation progress and their internal governance papers and minutes.