The EMA submitted a response to the UK FCA CP24/20: Changes to the safeguarding regime for payments and e-money firms.
The response highlights:
- Fundamental Disagreement with FCA’s Approach:
- The EMA believes the proposed changes fail to address issues effectively. Most problems arise from non-compliance with existing rules, which could be resolved with enhanced supervision and enforcement, rather than a wholesale overhaul of the safeguarding regime.
- Incompatibility with Payment Industry Dynamics:
- The proposals, drawn from regimes like CASS for investment firms, are unsuitable for the real-time, dynamic nature of payment businesses. They fail to consider distinct payment flows and operational realities, potentially stifling innovation and reducing competitiveness.
- Cost and Operational Burden:
- The changes are expected to impose significant operational costs, including redesigning systems, hiring additional staff, and extending safeguarding obligations. Some firms may prioritise investments in jurisdictions outside the UK or even consider ceasing operations in the UK due to the increased burden.
- Statutory Trust Concerns:
- The introduction of a statutory trust could lead to complex legal issues, altering the fundamental nature of e-money issuance. This would create conflicts in ownership rights and complicate insolvency proceedings without providing meaningful improvements in consumer protection.
- Impact on UK Competitiveness:
- The UK’s safeguarding regime would diverge significantly from the EU, creating additional costs and operational friction for firms operating across both regions. This undermines the FCA’s goal of fostering a competitive financial sector.
- Inadequate Cost-Benefit Analysis:
- The cost-benefit analysis fails to account for numerous significant costs, including legal, operational, and compliance expenses. It also overestimates the benefits, such as reduced fund distribution timelines, which are unlikely to be realised under the proposed regime.
- Lack of Consideration for Alternatives:
- The EMA highlights that alternatives, such as applying the Financial Services Compensation Scheme (FSCS) to e-money and payments or providing safeguarding accounts at the Bank of England, have not been adequately explored.
- Call for a Phased and Measured Approach:
- The EMA suggests pausing the implementation of end-state rules to assess the impact of interim rules. It advocates for targeted, proportionate measures that reflect the operational realities of payment firms and the evolving financial landscape.