PayExpo 2019: We will be taking action, says FCA on insufficient safeguarding
The Financial Conduct Authority (FCA) tells banks it “will be taking action on insufficient levels of safeguarding” which leave customers vulnerable to losing money they are unlikely to get back.
Head of the FCA’s payments department and the retail banking division, Maha El Dimachki, says: “safeguarding is a serious issue and we will be taking action against those who flout the regulator’s requirements.”
Despite the banks stopping £128 million in fraud, Dimachki points out three key flaws the regulators are seeing in financial institutions when it comes to safeguarding customer funds. Firstly, banks using segregation to do this tend not to understand which funds to separate, the regulator says. Secondly, firms often delay segregating funds, leading to an unfavourable co-mingling of funds. And thirdly, the regulator found firms weren’t checking how often they were segregating funds in the first place.
If a bank or money transfer business uses the segregation method to comply to safeguarding requirements, it must keep customer funds separate from all of its other funds. This separation must occur immediately on receiving customer funds and must continue at all times.
Dimachki says segregating funds properly “goes straight to the point of safeguarding”. “The implications of getting this wrong is quite serious,” she says. “If a firm goes bust and its safeguarding isn’t sound, customers are less likely to get their money back.”
The regulator reminds the industry it has sent letters to 500 CEOs asking them to conduct safeguarding tests, making its warning of action evermore ominous.
“Corners can’t really be cut if you want to overcome financial crime,” says Dimachki after discussing Mark Zuckerberg’s work ethic of ‘move fast and break things’.
The firms which are getting it right according to the regulator are those who are constantly documenting and monitoring without the attitude that they’ve “pulled the short straw of compliance”. Those which are clear on their product offering, have the right licences and practically integrate compliance so it isn’t a tacked on chore are likely to be the ones who pass the safeguarding test.