E-money - Is the FCA Going to 'wield the Whip'?

The FCA in London are making changes and will be starting to undertake more audits, checks and stronger enforcement upon their e-money licence-holders, passporting and passported organisations and will be looking for proper due diligence...

The FCA in London are making changes and will be starting to undertake more audits, checks and stronger enforcement upon their e-money licence-holders, passporting and passported organisations and will be looking for proper due diligence and clarity of compliance with regulations as they are now aware that there are issues in the market. How far will they go? It is unlikely that they will do a full job to ensure that everyone does as they should, and it is clear that they do not have the resource to enforce the regulations in the way that many markets - and in particular as the card-schemes do - but they must move forward as the lack of compliance is becoming somewhat dangerous.

E-money Licence Changes

Recent new financial services legislation in the UK has led to the Financial Conduct Authority (FCA) introducing a Payments Systems Regulator from April 2014. The ECB, and the European Commission are also proposing ways to regulate and police the whole e-money arena, as are the international card schemes. The FCA is now also starting to review and audit the e-money licences they have granted previously and for observance with ALL regulations and also best-practices.

We believe that the FCA have seen that the governance of payment systems, including e-money issuers, is a difficult and continuous task and needs several layers of supervision and oversight in the way that other payment methods have already established (e.g. through the regulations of the international card schemes).

Requirements

As an e-money licence holder, there is a legal obligation to ensure that your organisation and all of its agents, including passport holders are fully conversant with and engaged in all due diligence in customer selection and identification, transaction/event screening, suspicion reporting, record-keeping, corporate assessment of exposures and risk, and the Base II (and III) capital assignment to the exposures. Having reporting to the FCA, a clear payment strategy and ABOVE ALL understanding and observance of laws relating to payments in all areas of operation are all also essential. All brands operating under FCA licences need to be properly covered together with all white label arrangements and all agents; but with licences being granted from London (say) and 'passported' around the European Union, and in some cases further afield, it makes it increasingly harder to observe wider tranches of legislation across multiple jurisdictions, and ergo harder for the FCA to monitor, manages, oversee and audit. It also makes it harder for e-moneu licence holder not to be exposed to big, big problems and potential losses and prosecution from all the jurisdictions in which they operate. Wherever it is going, it is clear that this is a time-bomb for many companies operating in this area and something for which the FCA, and possibly the Cabinet Office FED committee to worry about until the 'muck starts flying'.

One of the main legislative hurdles is in meeting the requirements of the Money Laundering regulations for all countries in which an e-money licence holder, and its agents and Passport Holders, operate. Not doing 'what is right' by the European Money Laundering directives is the quickest way of losing money, being fined, suffering crippling bad media attention, or losing a market - or a full e-money licence (which will happen when firms are properly reviewed). Our experiences are that regulators are unforgiving and do not 'give time to correct' matters, but equally that regulators are slow to act, and slow to catch on until things are far too late.

ACTIONS

In advance of the FCA performing its own validation on individual license holders (and making high profile examples of those who are not fully compliant), all e-money licence holders need to:

A. Make sure that all their processes, operations and compliance teams are all fully observant of all applicable regulatory requirements, laws and best practices.

B. Make sure that they are confident that their third party agents are ALL also fully compliant?

The first steps are to ensure that e-money licence holders:

1. Determining their current state of preparedness and identify areas for attention and action before the FCA (or other e-money licence granter) requests an onsite review of its business.

2. Review the state of compliance and preparedness of all third party agents or passport-licencees and that they report to you on their level of compliance as it is the principal e-money licence holder that is liable in every way.

3. Co-ordinate its efforts with any international card scheme processing involvement that it has.

Will the FCA 'yield the big whip'? YES - absolutely, but the big question is whether they start doing so now, or whether they will wait until they have 'egg all over their faces'.

RISKSILL - compliance risks

At Riskskill.com the team there, helps businesses avoid Š‚multi-million fines and embarrassing brand damaging mistakes from regulatory non-compliance and process and regulatory mistakes. We also help clear up the mess when we are called in later in the process. But we prefer to help business make sure that none of this ever happens because of strong 'bullet-proof' processes, procedures and management. For more information visit http://www.riskskill.com/