The Letter to payments firms was published on March 16 by UK’s Financial Conduct Authority (FCA), highlighting concerns of insufficient robust controls, presenting “unacceptable risk” to financial system integrity. Payment firms include Payment Institutions, Electronic Money Institutions and Registered Account Information Service Providers.
The FCA sets three outcomes and associated priorities to be attained by payment firms:
Ensuring customers’ money is safe by
a. Establishing safeguards including
i) documented processes for identifying “Relevant Funds”
ii) adequate reconciliation procedures
iii) performing due diligence
iv) conducting annual audits of safeguarding arrangements
b. Improving prudential risk management through
i) appropriate liquidity risk management
ii) meeting capital requirements, taking into account considerations of the firm’s particular financial risks
iii) reviews of risk appetite and risk indicators
iv) scenario planning and stress-testing
v) financial resource planning on an ongoing basis
c. Creating and maintaining wind-down planning that is practical, usable and up to date
2. Ensuring the firm does not compromise financial system integrity by
a. Putting in place systems and controls to “identify, assess, monitor and manage money laundering risk”, including
i) KYC and risk-based due diligence
ii) robust and effective methodology for business-wide risk assessments
iii) regular review of risk assessments and control frameworks as threats evolve
iv) detailed and tailored policies and procedures
v) effective systems and controls to identify and manage sanctions exposure and risk
b. Addressing weaknesses in systems and controls to prevent fraud, including
i) customer education
ii) industry information sharing
iii) regular review of fraud prevention systems and controls
iv) appropriate customer due diligence during onboarding and ongoing basis
3. Meeting customers’ needs, ranging from the provision of high quality products and services, competition and innovation and implementing the principle of “Consumer Duty”
In addition, the letter underscores three priorities that are important to achieve the above outcomes:
Governance and leadership
Operational resilience
Regulatory reporting