FCA Priorities for Payments Firms: Maintaining Financial System Integrity and Implementing Consumer Duty

The Financial Conduct Authority (FCA) has unveiled its strategy for 2022/2025, with a strong emphasis on reducing and preventing financial crime. With the ability to provide bank-like services and a willingness to service high-risk customers, payment institutions (PIs) and electronic money institutions (EMIs) have become targets for bad actors. The FCA has outlined priorities to maintain financial system integrity, including combating money laundering and fraud.

FCA stresses the importance of effective anti-money laundering systems and controls, as well as compliance with anti-money laundering obligations and sanctions requirements. In addition, firms must protect customers against the risk of fraud and prevent accounts from being used to receive proceeds of fraud or financial crime.

Innovation within the payment sector has brought tangible benefits for customers, such as the development of Open Banking, which now serves 6.5 million users in the UK. However, the FCA also noted that not all products and services consistently deliver good customer outcomes. Firms are expected to ensure that customer needs are met through the adequate implementation of the FCA's Consumer Duty.

Three cross-cutting priorities underpin the FCA's strategy: governance and leadership, operational resilience, and regulatory reporting. Inadequate governance and oversight have been identified as root causes of many regulatory issues in the payments portfolio. The FCA expects firms to have appropriate governance arrangements and regularly review them. Firms must also ensure proper oversight of agents and distributors.

Operational resilience is crucial for consumers, firms, and financial markets. The FCA requires all firms to identify their important business services and set impact tolerances. Firms must review their important business services annually or whenever a material change occurs in their business or market. Investments must be made to ensure consistent operation within impact tolerances.

Regulatory reporting is essential for the FCA's ability to collect accurate information from firms in a timely manner. Non-compliance with reporting requirements is unacceptable and may result in administrative charges and referrals to enforcement for cancellation.

The FCA will maintain a robust approach to assessing firms seeking authorisation, registration, or permission variations. Firms submitting poor-quality applications are likely to be rejected or refused. Additionally, the FCA reminds firms about the importance of environmental, social and governance (ESG) strategies and diversity and inclusion in driving positive change within the financial sector.