The United Kingdom’s financial regulator has toughened rules on payment companies less than two weeks after Wirecard AG’s collapse locked millions of customers out of their accounts, the Financial Times reported.
The Financial Conduct Authority (FCA) said Thursday (July 9) it has introduced stronger measures to protect the users of payment cards and digital apps.
“Reducing the risk of harm to customers in the payments sector has been a priority area for the FCA for some time,” an FCA spokesperson said. “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.”
Late last month, the FCA froze the German payment company’s funds as regulators determined the next steps. As a result, Wirecard Card Solutions’ (WCS) customers did not have access to their accounts temporarily. WCS is located in Newcastle, England and is run and regulated separately from Wirecard AG.
Four days later, the FCA lifted the suspension.
Under the FCA’s new rules, payment providers and electronic money issuers must maintain records of all funds received and maintain a “safeguarding account” for customer money, the news outlet reported.
In addition, companies must also be more careful when selecting and appointing third-party service providers, such as WCS, and are advised to review such providers as often as needed.
Updating the regulations began months ago, but the safeguards were accelerated as more customers began to rely on pre-paid cards and other non-bank services amid the disruption caused by COVID-19.
“The sector has reached the scale where more regulation is required,” Matt Hopkins, audit director at BDO, the global financial advisory firm, told the newspaper. “This is the end of light-touch regulation of e-money and payment institutions.”
The FCA has told payments and eMoney companies improvements were needed to safeguard funds; ensure adequate financial resources; combat money laundering and financial crime; avoid misleading promotions; review processes; and maintain records, FT reported.
“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.
Late last month, Agustin Carstens, general manager of the Bank for International Settlements, the Switzerland-based institution owned by central banks which fosters international monetary and financial cooperation, predicted the Wirecard scandal could lead to a revamp of some of the rules governing the international payments sector.
Also last month, Germany’s deputy finance minister called for radical solutions to fix how accounting firms are regulated.