Millions of UK consumers and small business owners suddenly had their accounts frozen after Wirecard filed for insolvency as the regulator looked to protect customer deposits
Millions of UK consumers and small business owners suddenly had their accounts frozen after Wirecard filed for insolvency as the regulator looked to protect customer deposits © Bloomberg

Britain’s financial regulator has issued its latest guidance to payment providers and “e-money” companies on safeguarding customers’ funds — just 13 days after the collapse of German group Wirecard left millions locked out of their accounts.

The Financial Conduct Authority said on Thursday it had brought forward stronger measures to protect the users of payment cards and digital apps, but said the timing had been driven by the impact of coronavirus on consumers, not Wirecard’s insolvency in late June.

When the payment services company failed, the FCA had to order its UK subsidiary — Wirecard Card Solutions — to suspend operations, to ensure customer funds were kept safe and no money was transferred back to Germany. That meant millions of users of pre-paid cards and digital banking apps with WCS as their “e-money issuer”, or provider of third-party services, had their money frozen. Among those affected were users of digital payment services such as Pockit and Curve. Newcastle-based WCS is run and regulated separately from Wirecard AG.

Under the FCA’s new guidance, payment providers and e-money issuers must keep up-to-date records of all funds received and maintain a clearly separate “safeguarding account” for customer money, although these measures come too late for those locked out of accounts for days after the Wirecard debacle.

Companies must also be more careful when selecting and appointing third-party service providers — such as WCS — and have been told to review these providers “as often as appropriate”.

Work on toughening the rules for payment services had begun some months ago and was highlighted in the regulator’s business plan in April. A consultation was then announced in May. However, the safeguarding measures have been accelerated to protect consumers reliant on pre-paid cards and other non-bank services amid the disruption caused by the pandemic.

An FCA spokesperson said: “‘Reducing the risk of harm to customers in the payments sector has been a priority area for the FCA for some time. Today’s . . . final guidance concludes the consultation launched in May and makes very clear our expectations in light of coronavirus of what payments firms must do to protect customers’ money robustly.”

Regulation experts had been expecting greater scrutiny of the sector even before the Wirecard collapse or the pandemic, due to its rapid growth and use of multiple third-party service providers.

“The sector has reached the scale where more regulation is required,” said Matt Hopkins, of the global bank team at advisory firm BDO. “This is the end of light-touch regulation of e-money and payment institutions.”

Alongside the strengthened guidance, the FCA has also written to payments and e-money companies to clarify the key areas for potential consumer harm in the sector. It identified six: safeguarding funds; ensuring adequate financial resources; combating money laundering and financial crime; avoiding misleading promotions; reviewing processes; and maintaining records.

“We will expect you to explain the actions you and your board have taken in response to this letter to ensure that your customers are adequately protected,” the regulator said in its letter.

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