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19 May 2021

The FCA published its Dear CEO letter to e-money firms on 18th of May. The letter follows the portfolio strategy letter and Finalised Guidance regarding safeguarding for
payment services and e-money firms in July 2020.

This latest Dear CEO letter highlights the concerns the FCA have that many e-money firms compare their services to traditional bank accounts or hold themselves out as an alternative in their financial promotions, but do not adequately disclose the differences in protections between e-money accounts and bank accounts. In particular, the FCA believe that e-money firms do not make it clear that Financial Services Compensation Scheme (FSCS) protection does not apply.

Firms are reminded that must consider the information needs of customers and communicate with consumers in a way which is clear, fair and not misleading. In their portfolio strategy letter dated 9th July 2020, the regulator set out their view of the key risks within the payments and e-money sector particularly in light of the economic impact
of the Covid-19 pandemic.

The FCA noted their continued concern that many e-money firms are not adequately disclosing the differences in protections between their services and traditional banking, most notably, that FSCS protection does not apply.

BCOBS 2.3.1AR requires communications made by e-money and payment services firms to be accurate and not emphasise any potential benefits of a payment service or electronic money product without also giving a fair and prominent indication of any risks (i.e lack of the FSCS protection). Leaving out this fact could mean the information firms give consumers is insufficient, or even misleading. The FCA also identified that some e-money and payment services firms are giving a potentially misleading impression to consumers
about the extent to which products or services are regulated by the FCA. If a communication or a financial promotion or payment service or electronic money promotion names the FCA as the regulator of a firm or other provider, and refers to matters which the FCA do not regulate, the firm should ensure that the communication makes clear that those matters are not regulated by the FCA.

Firms must write to their customers by 28th June 2021 to make clear to them of how their money is protected through safeguarding and that FSCS protection does not apply. The FCA have suggested that firms may wish to include a link to their website to help customers decide whether that level of protection is appropriate for their circumstances.
This communication separate from any other messaging or promotional activity undertaken by the firm.

Firms must also review  their financial promotions and method(s) of communication based on their business model and customer base, including any vulnerable customers and consider its appropriateness.

By Ian Beardmore

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