The City regulator has launched a consultation on additional guidance for payments firms, outlining its expectation for “robust” wind-down plans.
The Financial Conduct Authority (FCA) said that the payments sector is developing rapidly with an increasing number of market players.
“However, some payments firms are unprofitable in the early stages while they seek to grow market share and many also rely on investor funds to remain solvent in the short-term,” the FCA said in a statement.
“Firms may also be facing decreased revenues because of coronavirus and it could be impacting their ability to operate as well as their growth plans.”
As such, the regulator is providing additional direction for firms to meet their safeguarding requirements. The new guidance also outlines the FCA’s expectation of firms to put in place more robust plans for winding down, so that customer funds are returned in a timely manner in the event of a payments firm closure.
While many peer-to-peer lending platforms hold client money in a segregated high street bank account, others use e-money providers such as Mangopay, PrePay Solutions and PayPal.
“The FCA will continue to proactively supervise firms in this sector and will act swiftly where firms fail to meet safeguarding and other regulatory requirements,” it said. “It carried out an assessment on firms’ safeguarding practices last year and also sought an urgent update from firms about their financial arrangements in relation to the pandemic.”
The FCA consultation, which will apply to all payments firms, will last for two weeks and closes on 5 June 2020. If confirmed, the final guidance will be published at the end of June.
The guidance is part of a broader programme of work on the payments sector the FCA was planning to consult on later in the year, but this has been brought forward due to pressures the coronavirus pandemic is placing on firms’ finances.