THE FINANCIAL Conduct Authority (FCA) is looking to tighten up regulation of the e-money sector.
Many peer-to-peer lending platforms use e-money providers to manage their client accounts and now the City watchdog wants to ensure these types of firms, as well as payment service providers, comply with its rules for principles of business.
These rules cover aspects such as ensuring client assets are adequately protected, managing conflicts of interest and acting with integrity, skill, care and diligence.
The regulator said the measures should help customers to better understand the standards that it expects of firms in the market, and will make it easier for it to intervene when it sees harm.
E-money providers can be directly regulated by the FCA or come into its oversight through the Payment Services Directive.
The FCA’s disciplinary powers would apply to breaches of the proposed new rules, including those relating to marketing and communications,
“This is a measured intervention – for many it will simply reflect current good practice and ensure that they are subject to the fundamental obligations that we expect of regulated firms,” Christopher Woolard (pictured), executive director of strategy and competition at the FCA, said:
“For some, however, it should be a clear signal that through our rules, supervisory and enforcement action, we will not tolerate customers being misled or being treated unfairly.”
P2P platforms can handle lender funds either by setting up separate client money accounts with a traditional bank or by outsourcing it to an e-money provider.
But some industry commentators have expressed concerns that using an e-money provider may be less safe as there is no Financial Services Compensation Scheme (FSCS) protection on the cash element, while the firms can be based anywhere in the world, meaning that they may comply to a different regulatory framework entirely.