Dear CEO: FCA Cautions Fintechs on Clarity in Consumer Protection

Earlier this week, the UK Financial Conduct Authority issued a “Dear Chief Executive” letter to payment and e-money firms warning about adequate disclosure when it comes to affiliated risk and consumer money.

Some Fintechs provide similar services as banks while not being fully regulated as banks. The FCA is concerned that consumers are not aware that their money is not protected by the Financial Services Compensation Scheme (FSCS) – a feature that regulated banks provide.

Under FSCS, an account holder may have protection if a firm goes out of business as the government may step in and cover possible losses. As of 2017, for banks, credit unions, and building societies, an individual may be protected up to £85,000 held in an account. For a joint account, that amount rises to  £170,000. Small businesses may receive protection as well.

The FCA letter states:

“We are concerned 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.”

The letter references previously published guidance in regards to the way Fintechs should protect their clients.

The regulator states that due to the rising popularity of Fintech services that customers may not understand the differences in protection.

The letter continues:

We are still concerned that many e-money firms are not adequately disclosing the differences in protections between their services and traditional banking, in particular, that FSCS protection does not apply.

Our rules (BCOBS 2.3.1AR) require communications made to electronic money customers and each payment service or electronic money promotion to be accurate and not emphasise any potential benefits of a payment service or electronic money product (ie current account functionality) without also giving a fair and prominent indication of any risks (ie lack of the FSCS protection). Leaving out this fact could mean the information firms give customers is insufficient, or even misleading. We are concerned that firms are not meeting this requirement.

We are also concerned that firms are giving a potentially misleading impression to customers 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 we do not regulate, the firm should ensure that the communication makes clear that those matters are not regulated by the FCA (BCOBS 2.3.4G).”

The FCA said they intend to follow up and sample firms to make certain action has been taken and firms have informed customers in writing.

A week ago, the FCA launched a consultation regarding stronger protection for consumers in financial markets. The consultation outlines “consumer duty” which firms will have to follow or face regulatory action, including enforcement actions. The consultation is open to comments until July 312, 2021.




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