UK’s FCA To FinTechs: You’re Not Banks

Great Britain’s chief financial watchdog has a message for FinTech startups operating in the U.K.: stop comparing yourself to banks.

The Financial Conduct Authority this week ordered more than 300 FinTechs to contact their customers to remind them of the risk of keeping money in accounts that aren’t protected by the Financial Services Compensation Scheme, which insures deposits.

The Financial Times reported Wednesday (May 19) the FCA has given the companies six weeks to take action, while also warning that some firms are “misleading” consumers about how much regulation their products receive.

The concerns set out in the letter to FinTechs demonstrate the “growing anxiety among regulators” regarding companies following the collapse of German payments firm Wirecard, the news outlet said.

The letter was signed by Paul Roe, who heads the FCA’s payments supervision office, and sent to the leaders of all companies operating under an “e-money license,” from tiny startups to major players such as Revolut and Wise.

Companies that have these licenses can provide basic banking services like money transfers, but are barred from lending out customer deposits, and must store these funds in guarded accounts at a fully-licensed bank.

The FCA strengthened its rules for e-money companies in 2020, but Roe says the organization is still worried that many of these firms aren’t properly disclosing “the differences in protections between their services and traditional banking.”

The U.K. isn’t the only country worried about the intersection between banks and FinTech. The Autorite de la Concurrence, the FCA’s French counterpart, held an investigation last month into banks, Big Tech and financial technology, saying that vigilance is needed thanks to substantial changes to the payments sector.

Wednesday’s news comes nearly two months after the FCA issued a warning to younger investors, pleading with them to use more caution when dealing with cryptocurrencies and foreign exchanges.