Is your payment services or e-money firm prepared for an FCA information request?

I recently wrote a piece on the failure of a regulated payment services firm, and the likely impact of this collapse on the regulation of the sector, as well as the regulation of e-money firms. The Financial Conduct Authority (FCA) is responding, and the nature of the FCA’s relationship with firms is changing, as more proactive supervision comes into force.

Point of Entry

Until now, the FCA’s review of an application to start trading as a payment institution or e-money institution has been relatively light. This is changing, with many more questions being asked and the robustness of a business being considered in much more detail before approval is granted. It is my belief that the days when a firm could set up with limited human resources, perhaps with only two people involved in the management of the firm, are coming to an end. The responsibilities of regulated firms are vast, a small management team may not be considered sufficient to deal with these going forward.

FCA Information Requests for trading firms

More significantly, all payment services firms and e-money firms are now being contacted by the FCA as part of a review of firms’ risk management practices and prudential awareness. Prudential awareness relates the financial resources of a business.

The information is required to be submitted to the FCA  22 days after receiving the request – this quick turnaround could cause a lot of issues for poorly prepared firms. The information provided will be reviewed and may result in a follow-up visit if considered inadequate.

The FCA request letter gives firms the option of not providing information if they do not have it. However, I think in the FCA’s assessment of firms’ responses, non-supply of information will be considered to enhance the supervisory risk of your firm and is likely to increase the chances of a FCA visit. I will be strongly advising my clients to make thorough and complete submissions of information to the FCA.

FCA visits are not much fun. They are rigorous, carried out at the FCA’s pace and can last a long time.  The absorption of senior management time can be considerable and disruptive to the firm. A negative conclusion to a visit could mean restrictions are imposed on the firm, until the identified short comings are resolved. The rectification process could involve the appointment of an external consultant, at considerable cost to the firm, to report on the progress of the business is making in the identified problem area. In the worst- case scenario, a firm could have its approval to carry out a regulated business removed.

The FCA have indicated that some firms may receive an additional request for information in relation to safeguarding.  This request will have a longer deadline to reply.

We are already having conversations, and helping firms to deal with the FCA information requests. Please feel free to contact us for further information to best mitigate from the potential risks of the request.

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