FCA and FOS expectations: EMIs vs. Banks

The Drive to increase competition and create a nimbler more consumer-friendly market after the Global Financial Crisis of 2008-2010 probably lead to a softer touch with new e-money firms by the Regulators. E-Payment companies thrived with a lower cost base and new innovations against the risk aversion of the often bloated and wounded traditional Banks. The fact that there were no Legacy Credit or Bad Debt Issues with the new institutions also helped the rapid development of the e-payment sector.

More recently moves by the Regulator especially on Consumer Duty have set higher expectations for the standard of care and involve a shift in regulatory expectation by the FCA. This has been especially noticeable where there is a Duty to enhance consumer protection with retail customers.

Some firms argued that applying the same consumer duty to payment and e-money firms was disproportionate. However, the FCA has indicated quite firmly that there had been a failure by some in the sector with regards to communications and customer support and that it was important to raise standards throughout the industry. This has involved some shake out but has strengthened UK payments and e-money firms that are now firmly in scope of the Duty.? ?

While it is right to have higher standards for Payments and e-money firms they still have certain disadvantages versus Banks and are expected to clearly inform customers that they are not banks and that their funds are protected by safeguarding rather than under the Financial Services Compensation Scheme. Furthermore E-money Firms do not have direct overnight access to the Bank of England and are not deemed to be Credit Institutions.

The general number of complaints to the FOS has increased greatly in the last few years: whilst most still revolve around Banks, the rise in fraud and scam claims has frequently involved e-payment firms but better compliance, communication, safeguarding and bigger capital and wind down buffers will make for a healthier more dynamic e-payment sector going forward.

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