The FCA is concerned about governance and risk management in payment service firms and EMIs

📢 Heads up for all Payment Services and E-Money firms

⚠️ The Financial Conduct Authority is concerned about governance and risk management. Today's 10-page letter sets out a range of issues the FCA has observed:

🔒 Outcome 1: Ensure that your customers’ money is safe
* Safeguarding > Many PSR/EMR firms do not have robust processes for safeguarding client funds
* Prudential risk management > Firms lack adequate liquidity risk management and do not conduct appropriate stress testing / scenario analysis
* Wind-down planning > Firms’ wind-down plans are based on overly optimistic assumptions and are subject to insufficient challenge

🏴‍☠️️ Outcome 2: Firms do not compromise financial system integrity
* Money Laundering & Sanctions > Inadequate AML checks; policies that don’t reflect the business; controls that haven’t grown with the business, poorly calibrated screening systems; failure to enforce financial sanctions
* Fraud > Insufficient emphasis on mitigating fraud against customers; customer accounts being used to received the proceeds of fraud

⭐️ Outcome 3: Ensuring that your customers' needs are met through high quality products and services (Implementation of the Consumer Duty)
* Firms must be ready to comply with the Consumer Duty by 31 July 2023

🏦 Cross-cutting priorities
* Governance and Leadership, including oversight of agents and distributors >Lack of appropriately knowledgeable and experienced personnel, including amongst key functions such as MLRO and other compliance staff; inadequate Board oversight; lax oversight of Agents and Distributors
* Operational Resilience > All firms must identify their Important Business Services and set Impact Tolerance Statements
* Regulatory reporting > Poor data quality and late submissions

🌍 Other topics
* Unauthorised change of control > The FCA is concerned that controllers are acquiring or increasing control over payment services and EMIs without prior approval from the FCA
* Environmental, social and governance (ESG) & diversity and inclusion > Firms must make greater efforts to implement an ESG strategy which includes the transition to net zero, as well as increasing efforts to improve D&I

🤝 Braithwate's consultants are specialists in regulatory compliance for payment services and EMI firms.

☎️ If you are concerned about any of the issues listed in the FCA's letter, get in touch and we will help you draw up a pragmatic plan for compliance.

Read the full FCA letter here: https://www.fca.org.uk/publication/correspondence/priorities-payments-firms-portfolio-letter-2023.pdf