In the UK, a series of new regulations are set to enhance the protection of consumers using payment services, with implementation scheduled for May 2026. This initiative is designed to ensure that customer funds are safeguarded against potential insolvencies of payment firms.
The Financial Conduct Authority (FCA) has put forward these modifications to improve practices and standards in how payment organizations handle funds. A key aspect of safeguarding involves the separation of customer assets from a firm’s own finances, which ensures that customers can retrieve their money in the event of the firm’s failure.
After consulting with industry stakeholders, the FCA has established a nine-month transition period prior to the enforcement of these new rules. This timeline allows businesses to prepare for the adjustments, while also making allowances for smaller firms. For instance, firms managing less than £100,000 in customer funds will not be subjected to annual audit requirements.
The new safeguarding framework aims to increase customer protection, enabling a higher likelihood of full refunds and expedited returns in the case of firm failures. The rules mandate:
– Annual audits conducted by certified auditors.
– Monthly financial reporting obligations for payment service providers.
– Daily verification checks to ensure that customer funds are properly safeguarded.
– Enhanced contingency planning to ensure prompt refunds to customers during insolvency proceedings.
These measures are a response to previous insolvencies within the payment services sector, which saw average deficiencies of 65% in customer funds during failures that occurred between early 2018 and mid-2023.
A representative from the FCA emphasized the importance of trust in payment service firms, noting the recurrent issue of customers facing financial losses during instances of firm failures. The response from the sector regarding the need for improved standards was predominantly positive, with a consensus on the necessity for a balanced approach that considers the scale of operations of smaller firms.
The regulator intends to closely monitor the implementation of these new requirements, assessing whether payment providers will effectively enhance their practices to better protect customer interests. This ongoing scrutiny will inform potential future regulatory adjustments if necessary.