FCA tells payments firms to improve governance standards

Weaknesses in governance, oversight and leadership are a root cause of many regulatory issues. This is the message from the Financial Conduct Authority in a letter to the payments and e-money firms it oversees. Firms should engage with the detail of the FCA’s letter and prepare to explain what are doing in response.

Dear Payments CEO…

The FCA has written to firms in its payments portfolio, including e-money institutions, payment institutions and registered account information service providers. In the letter the FCA notes the improvements that have been made since its previous portfolio letter in 2023. However, according to the FCA, “there is still more for firms to do”.

The letter sets three key outcomes which the FCA expects payments firms to deliver. These outcomes are:

1. Effective competition and innovation to meet customers’ needs, characteristics and objectives
2. Firms do not compromise financial system integrity
3. Firms keep customers’ money safe

The FCA explains its supervisory priorities under each of these headings. These priorities include:

• Embedding the Consumer Duty
• Tackling financial crime, such as authorised push payment fraud
• Meeting operational resilience requirements
• Safeguarding customers’ funds
• Ensuring prudential risk management
• Maintaining actionable wind-down plans

Spotlight on leadership

The letter tells payments firms to make sure that their governance, oversight and leadership meet the FCA’s expectations. Firms should check that their governance arrangements and systems and controls are proportionate to the nature, scale, and complexity of their business and the risks to which they are exposed.

Actions for firms include:

• ensuring reporting mechanisms are effective
• evidencing that business and operational decisions are subject to effective challenge e.g. from non-executive directors
• active monitoring of agents and distributors
• overseeing that outsourcing arrangements are working as intended

Looking ahead

The FCA also uses the letter to look forward to policy development in two key areas:

• Open Banking: creating a sustainable long-term regulatory framework and rolling out variable recurring payments
• Strong customer authentication: engaging with the industry throughout this year on its approach to replacing the SCA, including contactless limits