The UK’s Financial Conduct Authority (FCA) has announced sweeping new rules aimed at tightening consumer protection across e-money and payment institutions, following damning figures that show customers lost an average of 65% of their funds when firms collapsed between Q1 2018 and Q2 2023.
According to Finextra, the new rules, which will take effect in May 2026 after a nine-month grace period, are designed to ensure that customer funds are properly safeguarded in the event of insolvency.
They require e-money and payment institutions holding more than £100,000 in client money to conduct annual audits. Additionally, all firms must implement monthly reporting on customer holdings and perform daily checks to confirm sufficient safeguarding of funds.
FCA director of payments and digital assets Matthew Long said, “People rely on payment firms to help manage their financial lives. But too often, when those firms fail, their customers are left out of pocket. We’ll be watching closely to see if firms seize the opportunity and make effective improvements that their customers rightly deserve – this will help us to determine whether any further tightening of rules is necessary.”
However, the announcement has been met with fierce criticism from consumer rights advocates, who argue the measures come far too late. The Transparency Taskforce, a consumer advocacy group, has lambasted the regulator for years of inaction.
Taskforce founder Andy Agathangelou said, “The FCA is essentially admitting they’ve presided over a consumer protection disaster for the past seven years. These aren’t technical failures – these are real people losing their life savings, house purchase deposits, and emergency funds because the regulator failed to act. It’s simply scandalous that it’s taken this long for the FCA to acknowledge what consumer groups have been warning about. It’s a lax and woefully tardy response from a regulator that has been promising to be more responsive, more proactive and more effective for years.
“It seems the FCA has the capacity to watch detriment from the sidelines for far too long before eventually taking action. But even then the action taken simply doesn’t go far enough. Consumers, and consumer groups just aren’t being listened to; there’s an asymmetry of influence over the regulator.”
The group is calling for faster enforcement of the new rules and wants the annual audit requirement extended to all payment firms, regardless of the size of client holdings. They are also demanding that the Financial Services Compensation Scheme (FSCS) provide equivalent protection for payment firm customers, and are pressing for an independent review of the FCA’s oversight between 2018 and 2023.
As the watchdog pushes for better outcomes for consumers in the digital payments sector, the gap between regulatory ambition and consumer trust remains wide. Whether the new regime is enough to restore faith in the system will be closely watched in the months ahead.
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