Last year the Financial Conduct Authority told payments firms that their “top priority” should be ensuring that their customers’ money is safe. This year the FCA is prioritising changing the rules for how payment and e-money institutions safeguard that money.
Under its plans for a smarter regulatory framework in the UK, the government is going to hand over more responsibility to the regulators for making the rules that apply to financial services firms. An early test case for this project is the redesign of the safeguarding regime for payments and e-money.
Currently the rules that stipulate how payment and e-money institutions hold their customers’ money are set in legislation. According to the government, moving these rules off the statute books and into regulators’ rulebooks will allow for “greater regulatory agility”. It also sets up the FCA to put to bed some legal debates relating to safeguarding, most notably whether safeguarded assets are held on trust.
Payments firms are bracing themselves for the FCA more closely align the safeguarding regime to the client assets regime (CASS) which applies to a wider range of financial services. As well as allowing the FCA to implement an express statutory trust over safeguarded assets, this move would subject payments firms to a more onerous and rigorously supervised regime.
While safeguarding rules look set to become more prescriptive, payments firms may be given more flexibility when complying with other aspects of the rulebook. For example, the government has committed to getting rid of the current regime for strong customer authentication in payments.
Like with much of its smarter regulatory framework, the government wants to repeal the existing framework for SCA and hand the reins over to the FCA to reformulate the rules in its rulebook. As part of this process, the FCA is expected to move away from today’s prescriptive regime and adopt a more outcomes-based approach.
Date for the diary: H1 2024 – The FCA expects to open its consultation on safeguarding before the summer and then finalise the revised regime in the second half of the year.
This is the second in a series of five blogposts looking at the outlook for payments regulation in the EU and UK. Read the Fintech and Payments section of our Financial Regulation Legal Outlook 2024 for more.