The UK’s financial watchdog has set out new payment safeguarding rules which will come into force in May next year.
Safeguarding means that customer money must be kept separate from the money of a firm so that it is available to be returned if the company fails.
The Financial Conduct Authority (FCA) has said that the new rules will require annual audits by qualified auditors, monthly reporting for payment firms, daily checks to make sure the right amount of money is being safeguarded to protect customers, and better planning if firms fail so customers receive their money back sooner.
The rules come after the regulator found previous failures of payment and e-money firms, with companies that became insolvent between 2018 and the second quarter of 2023 having an average shortfall of 65 per cent of their customers' funds.
It says that it has made changes to ensure that rules are proportionate for smaller firms, such as by removing the requirement for audits if a firm holds less than £100,000 in customer funds.
"People rely on payment firms to help manage their financial lives. But too often, when those firms fail, their customers are left out of pocket," said Matthew Long, director of payments and digital assets, FCA. "Most of those who responded to our consultation agreed we need to raise standards to protect people’s money and build trust, but any changes needed to be proportionate, especially for smaller firms."
He continued: "We’ll be watching closely to see if firms seize the opportunity and make effective improvements that their customers rightly deserve – this will help us to determine whether any further tightening of rules is necessary."
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