The UK’s financial watchdog has said that some payments firms with insufficient controls pose an “unacceptable risk of harm” to their customers.
In a letter to almost 300 company chief executives, the Financial Conduct Authority’s (FCA) director of payments and digital assets warned payment services providers that it could shut down businesses that don’t resolve issues negatively impacting consumers.
The regulator welcomes competition and innovation in the sector but expressed concerns that the risk of customer harm by some firms is being exacerbated by tighter economic conditions and the cost-of-living crisis.
Despite the FCA publishing guidance in 2020 which requires firms that undertake a statutory audit to also conduct an annual audit of their safeguarding arrangement, the organisation said that some firms have not yet appointed auditors.
These companies are not consistently informing the FCA of adverse findings or actions being taken to address them, said the authority's payments director, adding that it expects payments firms to make keeping customer money safe a "top priority".
“We have seen good examples of positive innovation by payments firms which has created tangible benefits for customers and the payments ecosystem including the development of Open Banking, which is now used by 6.5 million users in the UK,” wrote Matthew Long, payments director at the FCA. “However, we also continue to see examples of products and services which do not consistently deliver good customer outcomes and payment firms not acting in customers’ best interests.”
He also warned that the FCA's work with firms over the past two years has identified "material issues" with financial crime systems and controls at payment institutions and e-money companies.
Long explained that the ability for these kinds of businesses to provide "bank-like" services, alongside their willingness to service high-risk customers, make them a target for bad actors.
Long's comments follow a similarly scathing letter sent to UK payments firms last month, in which the FCA said that the upcoming Consumer Duty would require a significant “shift in culture and behaviour” across the e-money market.
In the letter, the FCA said that it expects "significantly more" from payments firms, including a more “outcomes-focused” approach to consumer protection.
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