For payment services and e-money firms, the Financial Conduct Authority (FCA) sets clear regulations and guidelines. However, beyond these explicit requirements, there are crucial insights and practices that firms must adopt to navigate the regulatory landscape successfully. Here are some key areas that the FCA may not explicitly emphasise but are critical for your firm’s stability and compliance.
The FCA specifies a minimum capital requirement depending on the business model of payment services and e-money firms. Meeting this minimum is essential, but simply hovering around this value can place your firm on the FCA’s ‘Proximity to Failure’ list. This list signals to the regulator that your firm may be at risk, inviting increased scrutiny and oversight.
Pro Tip: To avoid unwarranted attention and demonstrate financial robustness, aim to maintain capital levels significantly above the minimum requirement. This buffer not only provides a safety net in turbulent times but also signals to the FCA that your firm is well-managed and prepared for contingencies.
Before authorisation, payment services and e-money firms must secure a safeguarding account. However, most banks are reluctant to provide this account without FCA authorisation, creating a catch-22 situation.
Solution: When the FCA indicates they are ‘minded to approve’ your application, inform your bank immediately to expedite the opening of your safeguarding account. Additionally, at the time of your application submission, include a letter from the bank stating their intent to provide a safeguarding account upon your firm’s authorisation. This proactive approach can streamline your authorisation process and satisfy FCA requirements.
The FCA closely scrutinises the knowledge and experience of individuals involved in the decision-making processes of payment services and e-money firms. Inadequate expertise or questionable decisions by key individuals can lead to concerns and potential roadblocks during the authorisation or supervision phases.
Strategy: Assemble a team with demonstrable experience and expertise in the payment services and e-money sectors. If gaps exist, consider bringing in external advisors or consultants to bolster your team’s credentials. The FCA needs to be confident that your leadership can navigate complex regulatory requirements and industry challenges.
While each application is reviewed on its own merits, the FCA expects key decision-makers to be physically present in the UK. Running a UK-based firm from another jurisdiction is typically unacceptable to the regulator.
Action Plan: Ensure that all key individuals, particularly those responsible for compliance and strategic decisions, are based in the UK. Their physical presence not only facilitates accountability but also ensures timely and effective communication with the FCA.
Outsourcing certain functions like IT and Anti-Money Laundering (AML) controls can be efficient, but the FCA mandates that key decision-making cannot be outsourced. Decision-makers must be directly accountable for the firm’s operations and strategic direction.
Best Practice: While outsourcing non-core functions can be cost-effective, retain control over critical decision-making processes. Decision-makers should be fully integrated into your firm’s operations and ready to act on information provided by outsourced functions. This ensures that strategic and compliance decisions remain under direct control, satisfying FCA expectations.
Each FCA case officer brings a unique approach to handling applications and supervisory cases. While there is a general structure they follow, individual styles and priorities can vary significantly.
Tip: Be prepared to adapt to the style and preferences of your assigned case officer. Flexibility and responsiveness can facilitate smoother interactions and expedite the approval process. Learning from the experiences of others who have dealt with different case officers can provide valuable insights and prepare you for varied approaches.
In regulatory contexts, the term "manual" often raises concerns. For instance, manual transaction monitoring in a growing business can lead to questions about sustainability and efficiency.
Recommendation: Implement robust automated monitoring tools that can scale with your business. Ensure that your team thoroughly understands these tools to respond effectively to any issues. Automation not only enhances efficiency but also demonstrates to the FCA that your firm is equipped to handle increased transaction volumes without compromising on compliance.
Successfully navigating FCA requirements involves more than just meeting explicit regulations. By maintaining robust capital reserves, strategically managing safeguarding accounts, ensuring knowledgeable leadership, maintaining local accountability, balancing outsourcing, adapting to individual case officers, and leveraging automation, payment services and e-money firms can build a solid foundation for compliance and growth.
Staying ahead of these unspoken rules and adopting proactive strategies will help your firm avoid regulatory pitfalls and establish a reputation for reliability and resilience in the financial sector.