What is the likely fall-out of the much-reported recent collapse of a money remittance business for the payments services sector more generally?
Customers of the business have reportedly questioned how a regulated firm could have failed – “we thought our money was safe.”
Many consider the payments services sector to be subject to light-touch supervision. This may be the trigger that changes the FCA’s supervisory approach going forward.
There have already been changes. There is more interrogation at the authorisation stage in relation to the governance and the internal control mechanisms of a business and its safeguarding procedures. But these measures won’t serve to reduce the incidence of failure amongst existing operators.
So what can payments services businesses expect in relation to the FCA’s future supervision of the sector?
- The financial statements of payment service providers may be required to be audited. The financial statements filed by the failed company were unaudited and gave no indication of any financial difficulty.
- Businesses may require an annual independent audit of their safeguarding procedures and systems. This works well in other sectors where client money is handled, such as insurance broking. The FCA has experience of such reporting, so it would be relatively straight forward to copy this across to the payments sector. Anti-money laundering is another area that the FCA is currently focusing its attention on.
- The capital requirements of payment service businesses may increase. The existing initial capital requirement of €20,000 is so insignificant for many operators that it might as well not be there. The capital requirements are set by EU regulations, so this will not be a quick fix (Brexit notwithstanding).
- The supervisory approach could change from reactive to proactive. I understand that this was in progress anyway, but the failure will no doubt speed up the process of change. Under the change in approach, businesses can expect random visits and inspections, instead of these being complaints led. From our experience of FCA visits, they are rigorous and, if they do not go well, are very disruptive to the business.
Although we do not know for certain exactly how the FCA will react, forward-thinking payment services providers should start planning for change now.
If you have any questions or concerns about this, please get in touch with Azhar Rana.