The Financial Conduct Authority (FCA) is increasing its protection for customers of payment and e-money firms that go out of business.

The regulator said that although the use of payment firms has grown in recent years, it continues to see "poor safeguarding practices" from these companies.

Funds held by payments and e-money firms are not directly protected by the Financial Services Compensation Scheme (FSCS).

Instead, firms must safeguard funds, which can mean that customers lose money or experience delays to money being returned if the firm fails.

The FCA wrote to payments and e-money chief executive officers in March 2023 about their safeguarding and wind-down arrangements and has since opened supervisory cases, relating to around 15% of firms that safeguard, to address these concerns.

Under the FCA’s proposals, the existing e-money safeguarding regime will be replaced with a client assets style regime designed to work with payments firms’ business models.

It will also publish strengthened interim safeguarding rules for firms by the middle of next year.

The FCA’s cost benefit analysis (CBA) of its proposals has also been subject to review by the new independent CBA panel.

Firms are able to respond to the regulator’s consultation by 17 December 2024.

Director of payments and digital assets, Matthew Long, said: "We’re consulting on proposals to make safeguarding rules stronger and clearer for payments and e-money firms so customers get as much of their money back as quickly as possible if the firm goes out of business."

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