Robust Regulation is Here To Stay: A New Era for Payment Firms

Robust Regulation is Here To Stay: A New Era For Payment Firms

Today marks the launch of our new series called ‘The FCA’s new agenda for safeguarding: 10 key takeaways for Payment and E-Money firms’. In the coming weeks, our COO Paul Wood will continue to outline the main areas firms need to address to meet the safeguarding requirements in the CP24/20 regime. At every step, he will show how Grath can make that process more efficient and effective for firms. In the first blog, we explain why CP24/20 represents a seismic shift in how the sector will be regulated.

It is easy to get lost in the detail of the FCA’s proposal for a new safeguarding regime for Payment Service Providers and E-Money institutions.

A raft of regulations and requirements are being introduced over the 259 pages of the consultation paper. We have started to unpick the implications for firms in some of our recent blogs, and this series will expand upon these.

But if we take a step back, the combined effect of all this detail is to send a clear message to the Payment sector:

The era of robust regulation has arrived.

From a patchwork to a framework: the evolution of safeguarding regulations

CP24/20 compliance should be at the top of every Payment firm’s agenda because, until now, providers had to interpret their regulatory requirements around safeguarding from guidance documents. These included:

• The Payment Services Regulations 2017 and Electronic Money Regulations 2011 – and an “Approach Document” with further reference under the related legislation.
• “Dear CEO” letters giving guidance on regulatory priorities and expectations.
• Other regulations for traditional banks and other financial institutions, which may or may not be relevant to the emerging Payment sector.

The FCA has made clear that CP24/20 will change that by introducing a codified regulatory framework, adapting the approach of the client assets regime (CASS). Existing guidance will be superseded by a new Chapter within the Client Assets Sourcebook ­– and all firms will need to adhere to it or face the consequences.

In contrast to the patchwork of regulations above, the CASS rules are long-held and unambiguous. As the regulator puts it, the CASS regime is “well established” and has been “strengthened over the last 20 years”.

A heightened compliance burden under the new regime 

In many ways, the new framework should be seen as good news for the sector:

• It is a recognition of the sector’s success and growing maturity as an alternative to traditional banking services.
• Clearer expectations codified in one place will help firms to better understand the rules and put in place a plan for compliance.
• An improved safeguarding approach should strengthen a firm’s overall compliance – and reduce the risk of entering a wind-down situation where safeguarded funds need to be returned to the end customer.

But the new regime also imposes a significant additional compliance burden on Payment firms and E-Money institutions. Where once the sector had some leeway for being new and growing, it is now clear that the FCA has heightened expectations of their compliance with both the letter and the spirit of CP24/20. The publication sets out regulations, aims and success metrics which mandate firms to demonstrate effective safeguarding and reconciliation of customer funds.

Relatively young firms may view compliance as a necessary add-on but not something that should get in the way of their ambitions to expand rapidly. Now, that approach risks breaching the CP24/20 regulations, which in turn prompts regulatory investigation, legal and financial penalties, and reputational damage.

In short, firms will no longer have any excuse for ineffective safeguarding.

How Grath’s technology can help change your mindset and upgrade your safeguarding strategy

The big question for firms is: how to comply with CP24/20? The sheer scope and implications of the FCA’s document may appear daunting, but we will pull out and demystify the key requirements in the following blogs in this series.

The new regime also requires firms to change their thinking about safeguarding and regulatory compliance more generally. Only a thorough and strategic focus on their safeguarding approach will help firms to survive and thrive in the new era of regulation.

The move to a CASS-style regime requires experience in those regulations, and this is an area where Grath is ideally placed to support firms. In fact, we have specifically built a reconciliation platform with CASS and safeguarding requirements in mind.

Our reconciliation solution helps firms to move to an automated, best-in-class solution which automates repetitive tasks, saves staff time, improves accuracy and directly contributes to better audit outcomes, while our integrated GRC platform will alert you to any further regulatory changes that could impact your business in the future.

In other words, we will set you up for success in the new era of safeguarding regulation.

Contact us today to discuss how Grath can help you automate your safeguarding and CASS reconciliations