FCA Consultation on Safeguarding in the UK

The FCA has published a Consultation Paper (CP24/20) proposing changes to the safeguarding requirements for payments and e-money firms. The current regime aims to protect customers' funds in the event of firm failure, but poor safeguarding practices have led to significant customer losses, with an average 65% shortfall in funds owed during insolvencies between 2018 and 2023.

The FCA proposes replacing the current regime with a two-phase approach. Interim rules will enhance compliance, record-keeping, and reporting, while the final rules will introduce a statutory trust over safeguarded funds and stricter requirements for insurance policies and guarantees. The consultation is open until 17 December 2024, with interim rules expected by mid-2025.

                  Key Takeaways

1. Two-Phase Safeguarding Overhaul: The FCA proposes interim measures to improve compliance, followed by end-stage rules that impose a statutory trust over safeguarded funds and strengthen safeguarding requirements.

2. Motivation for Change: The overhaul addresses poor safeguarding practices that have caused significant customer losses in insolvency cases, highlighting the inadequacy of the current regime.

3. Increased Compliance Burden: Payments firms will face stricter compliance, monitoring, and legal obligations, with interim rules expected by mid-2025 and further changes to follow.