Response to FCA Letters – Payment firms

The FCA portfolio letter on Consumer Duty (the “Duty”) implementation for payments firms sets out useful reminders in relation to applicability of the Consumer Duty and the key implementation dates.

The letter also sets out the following:

• Feedback from FCA’s recent review of firms’ implementation plans – the FCA highlights that (i) firms need to focus on effective prioritisation for the implementation work, aiming at reducing risk of poor outcomes; (ii) firms should ensure that existing policies and processes are adequate and (iii) ensure efficient information sharing with other firms.

• The FCA’s approach to supervising the Duty in payments portfolio firms and planned next steps – the FCA has stated that larger payments firms should expect to be asked regularly to provide their supervisors updates on implementation progress. The FCA will focus on the methodologies, progress, and outputs of the firm’s baselining and gap analysis against the Duty outcomes, as well as the measures taken to address any deficiencies. The FCA clarifies that firms of all sizes might be included in the implementation monitoring.

Annex 1 – How the Duty applies to payments firms

Whilst this information is a helpful summary, it does not impose new requirements. However, the FCA has stressed that good outcomes (including considerations in relation to vulnerable customers) need to be embedded in the payments firms strategy and objectives.

Annex 1 also includes a reminder that where an authorised payments firm is using an agent, they remain responsible for ensuring that the third party complies with the Duty.

Notably, the letter does not provide additional clarity on issues discussed at industry level such as whether the provision of safeguarding accounts and agency banking services to PSPs are within scope of the Duty.

Annex 2 – Key things for payments firms to consider

This Annex is split in five parts and contains a review looking at each of the four outcomes with an additional part focusing on account freezing and fraud reports.

1. Products and services – The FCA has reminded firms that it expects firms to ensure that their products and services meet the needs of the target market and do not have features which may cause harm to customers with characteristics of vulnerability.

There is also an expectation that firms will consider the potential impact of any plans to cross-sell as this caries a higher risk of selling products which may not meet the needs of the wider target market. Equally important is that payments firms ensure their distribution strategy is followed and there is an information sharing with other firms in the distribution chain. The FCA has shared a helpful example which confirms that a sale outside the original target market will not necessarily result in customer harm as long as this is considered, and the relevant assessment and risk controls are adjusted.

The FCA has also reiterated the importance of using data and management information to monitor outcomes.

• Strong Customer Authentication - The FCA expects payment service providers to develop strong customer authentication solutions that work for all groups of consumers, taking into account characteristics of vulnerability – this might result in needing to provide different authentication options to different group of customers.

2. Price and Value – The FCA has stressed the importance of portfolio firms ensuring that there is a reasonable relationship between price paid for a product or service and the overall benefit. Examples that need to be taken into account are: (i) considering regular as well as contingent fees and keeping them under regular review; (ii) considering charging structures for different groups of customers with characteristics of vulnerability; and (iii) considering the fees any distributors or third parties might levy on customers.

3. Consumer understanding – The FCA has reminded firms that they need to provide customers with the information they need, in a timely manner and in a way that it can be easily understood. The FCA has stressed the importance of each firm ensuring that it provides adequate explanation to mitigate confusion.

Examples: The FCA has highlighted this is especially important in the following circumstances: clarity over fees and charges, differences between levels of protection for different products and services (i.e., firms are encouraged to explain how money is protected.), offering regulated and unregulated products together, using distributors and third parties and ensuring that responsibilities are clearly allocated.

The FCA recommends that firms avoid technical and complex language and focus on ensuring customers are making informed decisions.

4. Consumer support – The FCA has noted the importance for payments firms of ensuring that they are providing appropriate support channels (e.g., an online only firm might need to consider a broader set of communication methods in an event that a customer cannot access support online). Firms should communicate effectively with customers to explain where support is available. In instances where a product is no longer available, the firm should communicate clearly any suitable alternatives.

5. Account freezing and fraud reports – The FCA has flagged a persistent finding of poor financial and crime controls and, in particular, issues relating to freezing individual customers accounts. The FCA has observed that whilst freezing of accounts following crime suspicions is reasonable, in practice, too many accounts are closed for prolonged periods of time. In line with the customer support outcome and the cross-cutting rules, the FCA would expect payments firms to review their account freezing procedures and ensure that they are less frequent, less protracted, better communicated and better supported. Handling of suspected cases of fraud needs to also be improved to ensure firms are not unduly harsh or unsupportive towards their customers.