The FCA has confirmed in PS19/3  that it will  go ahead with plans to apply its Principles for Businesses (the “FCA Principles”) and rules in BCOBS 2 to payment institutions (“PIs”), e-money issuers (“EMIs”) and registered account information service providers (“RAISPs”).  There will also be new rules and guidance on the communication and marketing of currency transfer services applicable to payment services and the issuance of e-money involving a currency conversion.

FCA Principles

What are the FCA Principles?

The FCA Principles set out at a high-level how firms should treat their customers, how they should run their business and how they should interact with the regulator.

They apply currently to the vast majority of firms regulated under FSMA, but not to payment institutions PIs, EMIs or RAISPs.

What does this mean for payments and e-money firms?

The extension of the FCA Principles to payments firms may make life more straightforward.  For instance, firms will need to understand the concept of making a “Principle 11 notification” to the FCA where an issue occurs that the FCA would expect notice of (types of issue that may require a notification are set out in SUP 15.3).  Currently firms have to notify the FCA under the fairly vague notification regime in the Payment Services Regulations 2017 (“PSRs”) (see regulation 37).

However, firms will in future need to decide whether to make a Principle 11 notification and/or a regulation 37 notification.

Also, firms should be aware that, while the FCA Principles are high level, they are rules and a failure to comply may lead to FCA enforcement action.

Connected activities

The FCA Principles will apply to “connected activities” of PIs, EMIs and RAISPs, meaning firms will need to consider which activities are connected to the provision of payment services and/or issuing electronic money.

Extension of BCOBS 2

What does BCOBS 2 cover?

BCOBS 2 covers the way firms communicate with their customers and includes the requirement to take reasonable steps to ensure that communications and financial promotions are fair, clear and not misleading.

What does this mean for firms?

PIs, EMIs and RAISPs will still need to comply with requirements under the PSRs on communication of information, including that the information they provide or make available is in “easily understandable language and in a clear and comprehensible form”.

Therefore, whilst the FCA will be bringing payments firms into line with the marketing rules for retail banking more generally,  it will at the same time increase the regulatory burden on firms.

Misleading communication of currency transfer services

What’s new?

The FCA has made new rules and guidance on communications and marketing of currency transfer services issued by credit institutions, PIs and EMIs when providing payment services or issuing e-money involving a currency conversion.

The new rules will ban the promotion of unachievable exchange rates to consumers and making unfounded claims about the cost of a service provided by competitors.

What about firms providing regulated and unregulated currency transfer services?

“Hybrid” firms providing both regulated currency transfer services under the PSRs/EMRs and unregulated foreign exchange services (e.g. simple spot FX services) will need to consider whether their services are brought within the scope of the Principles on the basis that they are connected activities.

The FCA acknowledges that some firms could decide to provide unregulated foreign exchange services completely separately from their regulated businesses to avoid the application of the FCA’s new rules and guidance.

Timing

Firms will have to comply with the new rules and guidance in PS19/3 from 1 August 2019.

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