During the first week of June, the Financial Conduct Authority (FCA) issued two publications on COVID-19-related matters that will be of particular interest to FCA-authorised firms (“Firms”), including payment services firms that are particularly affected. These two publications are:
Below we discuss the key takeaways from these two publications.
In a speech delivered by the FCA’s Executive Director of Supervision, the FCA outlined its response to COVID-19 and its expectations for the Firms in 2020. Here are some of the key highlights about which Firms should be aware:
Firms should consult the Dear CEO letter from 31 March to inform themselves of actions taken by the FCA in response to the pandemic. For example, the FCA has temporarily dropped a requirement for some Firms to inform their investors if the value of the portfolio under their management drops by 10% or more until 1 October 2020.
The FCA has noticed recently that some of the Firms have not correctly implemented the relevant provisions within the E-Money Regulations 2011 or Payment Services Regulations 2017 (“Relevant Regulations”). As a result, and in the context of the global pandemic, the FCA is proposing additional, but temporary, guidance to help the Firms manage their prudential risks and protect their customers’ funds. Some key highlights from the proposed guidance are as follows:
Relevant funds for this purpose are i) sums received from, or for the benefit of, a payment service user for the execution of a payment transaction; ii) sums received from a payment service provider for the execution of a payment transaction on behalf of a payment service user; and iii) funds that are received in exchange for e-money issued by the issuer.
Unallocated Funds: If a Firm issues e-money on low-value, pre-paid gift cards (where the ultimate card holder is unknown), funds received are relevant funds. This is particularly important for our clients engaging in the sale of gift cards.
Firms that are under an obligation under the Relevant Regulations to perform audits should arrange specific annual audits to demonstrate their compliance with the Relevant Regulations.
As the pandemic continues to evolve, the FCA and other regulatory bodies in the UK will no doubt issue further guidance for firms within their regulatory scope. At MoFo, we are prepared to help our clients navigate through this turbulent time. Please contact us at any time if you have or your Firm has any questions regarding the financial regulatory landscape.
Tom Macintosh Zheng and Benjamin Beswick, solicitor trainees in our London office, contributed to the writing of this alert.