In an effort to improve customer protection and guard against a possible systemic risk, the U.K.’s Financial Conduct Authority (FCA) is adopting new rules designed to improve the asset safeguarding practices of payment firms.
According to the regulator, when payment firms fail, a large portion of customers’ funds is often at risk — between 2018 and 2023, the average shortfall in customer funds for insolvent firms was 65%. These assets are not protected by the U.K.’s contingency fund, the Financial Services Compensation Scheme, which doesn’t cover payment and e-money firms.
This represents a risk to both vulnerable consumers — who make up a large portion of e-money firms’ clientele — and a potential systemic risk, the FCA noted, as the failure of a payment firm could result in asset losses for other regulated firms that, in turn, causes those firms to collapse.
In response, the FCA is adopting new rules that aim to improve asset safeguarding by enhancing record-keeping and oversight at payment firms. These include monthly reporting requirements, daily checks on reserves and annual audit obligations.
“These rules mean that consumers are better protected, and if a payment or e-money firm fails they are more likely to get a full refund and with fewer delays,” the FCA said.
Following a public consultation, the regulator revised its initial proposals — including changes to scale the requirements to smaller firms and allowing for a nine-month transition period.
The new rules will take effect in May 2026.
“People rely on payment firms to help manage their financial lives. But too often, when those firms fail, their customers are left out of pocket,” said Matthew Long, director of payments and digital assets at the FCA, in a release.
“Most of those who responded to our consultation agreed we need to raise standards to protect people’s money and build trust, but any changes needed to be proportionate, especially for smaller firms,” he noted.
“We’ll be watching closely to see if firms seize the opportunity and make effective improvements that their customers rightly deserve — this will help us to determine whether any further tightening of rules is necessary,” he added.