Time Running Out for Payment Providers to Have Their Say on New Regulatory Regime

Financial services firms now have just one month to respond to a consultation proposing major regulatory changes to protect consumers, by bringing regulated payment firms under the CASS (Client Assets) system of managing customer funds. Leading audit, tax and consulting firm RSM UK is encouraging payment providers and other interested parties to respond to the FCA consultation which closes on December 17th.

The proposed changes follow problems and delays in providing customer refunds after the collapse of several large payment providers. The new regulatory framework is designed to ensure customer money is safe at all times while held by payment providers, and that customers will be given a swift refund in the event of a company collapse.

Vijay Ray, associate director of risk assurance, RSM UK, said: “This consultation represents the most significant change to the payments industry for decades, so we’d encourage those with an interest in improving payment services to make sure they have their say. Previous failings have highlighted an urgent need for more stringent regulation of payment services, and this presents an opportunity to help shape the future of the industry, so customers are better protected in an increasingly digital world.” 

If approved the proposals are likely to be introduced in the second half of 2025, with the FCA balancing the immediate regulatory requirements with long-term structural reforms. Interim rules are expected to come by the end of June 2025. This phase will put more onus on payment providers to implement better record keeping, reporting and monitoring processes. The second phase will completely replace the existing safeguarding requirements under the Electronic Money Regulations 2011 and Payment Services Regulations 2017 with a new chapter of CASS, (CASS 15). A key change that will follow will be the introduction of a statutory trust over funds. 

Vijay Ray concludes: “The introduction of a statutory trust over funds is the most significant change, designed to address the legal uncertainty that has plagued the payment services sector for years. By explicitly defining the treatment of relevant funds, the FCA aims to provide some much-needed clarity and improved protection for both payment services and their customers, resulting in a more transparent and trustworthy financial services sector.”

Steps payment firms should be taking now:

• Conduct a comprehensive gap analysis: Thoroughly assess current safeguarding practices against new requirements, identifying shortfalls in processes, systems, and controls. Specifically review procedures for fund identification, recording, reconciliation, and evaluate existing safeguarding methods and third-party arrangements.
• Develop robust implementation planning: Establish a structured project management framework with clear timelines, allocating sufficient resources including budget, staff time, and IT infrastructure. Create a detailed implementation roadmap that covers system upgrades, process modifications, and compliance strategy.

Engage proactively with stakeholders: Initiate discussions with key external partners including banks, auditors, insurers, agents, and distributors. Collaborate to understand implementation challenges and ensure a smooth transition across the broader ecosystem.