On 3 February 2025, the FCA published a Dear CEO letter outlining the FCA’s priorities for payments and e-money firms. The letter follows one of 16 March 2023 that highlighted priorities for payments firms at the time.

The letter sets out the following outcomes for firms:

1. Effective competition and innovation to meet customers’ needs, characteristics and objectives;
2. That firms do not compromise financial system integrity; and
3. That firms keep customers’ money safe.

To achieve these outcomes, the letter outlines the FCA’s priorities and good practices in each area, including making recommendations on governance, oversight and leadership.

Importantly, the letter signals consistency with the Government’s approach to payments set out in the National Payments Vision.

Effective competition and innovation

The FCA acknowledges that Open Banking and the Consumer Duty have benefitted customers, but they remain concerned where products and services are not consistently delivering good customer outcomes or where firms are not acting in customers’ best interests. To assist with this, the FCA has signalled its openness to speaking to firms looking to offer new and innovative products and services and remains committed to supporting firms through its Innovation Hub support services. 

From a Consumer Duty perspective, the FCA is broadly concerned with its implementation across regulated firms. However, a sector-specific priority is examining the clarity of foreign exchange pricing in payment services. To address this, the FCA will be assessing the extent to which firms’ approaches help ensure consumers are able to clearly understand the price they pay for such services. 

Firms do not compromise financial system integrity

The FCA considers financial crime a key focus. Firms are reminded to read the October 2024 Dear CEO letter on reimbursement requirements for authorised push payment (“APP”) fraud which has been carried out through the Faster Payments System and the Clearing House Automated Payment System (“CHAPS”). 

Similarly, the FCA guidance on the new payment delays legislation is essential for firms to digest to protect customers and minimise any impact on legitimate payments.

From an operational resilience perspective, the transitional period for new rules to strengthen operational resilience in the financial services sector ends on 31 March 2025. Firms must have performed mapping and testing to ensure that they are able to remain within impact tolerances for each important business service. For a reminder of the new operational resilience regime, see our previous blog post here. 

Firms keep customers’ money safe

Concerns remain, in spite of general improvements to firms’ financial resilience, that customer money may not always be safe if payments firms fail. To address this, the FCA has suggested that firms consider and implement the following:

1. Effective approach to safeguarding: Safeguarding is a particular focus as the FCA is proposing to introduce final interim rules in mid-2025 arising from its consultation and end state rules thereafter. Firms should be aware that these changes are coming and ensure they have sufficient time to prepare.
2. Prudential risk management: This includes meeting regulatory capital requirements at all times and planning well ahead to ensure adequate financial resources on an ongoing basis.
3. Wind-down planning: The FCA suggests that firms also maintain effective and actionable wind-down plans in accordance with the guidance in its Approach document.

Governance, oversight and leadership

The FCA regards weaknesses in governance, oversight and leadership as the root cause of many of the regulatory issues they see in the payments portfolio. The FCA outlines that firms should:

1. Ensure they have effective and proportionate governance arrangements, systems, and controls;
2. Take a robust and holistic approach to agent and distributor oversight;
3. Ensure that outsourced functions work as intended and remain compliant;
4. Ensure that any additional regulatory requirements are considered where operating a hybrid business model; and
5. have their head office in the UK, with day-to-day decision making made from the UK head office.

Looking ahead

Another policy priority area relevant to the payments industry is revocation of the payments authentication elements of Strong Customer Authentication (“SCA”) and incorporation of the technical standards into the FCA’s rules. The FCA intends to engage with industry, consumer organisations, and other stakeholders on the approach to replacing the SCA, including on the contactless limits.

The letter also makes it clear that firms are expected to discuss and deliver on each of the outcomes. The FCA plans to engage with firms to ensure that this takes place.

This article was written by Matthew Pegler