The UK’s Financial Conduct Authority (FCA) Has Introduced Rules for Payments Firms

The UK’s Financial Conduct Authority (FCA) has implemented new rules requiring payments firms to maintain separate accounts for company funds and customer funds. This move comes in the wake of several fintech companies that faced insolvency, leaving customers with an average shortfall of 65%.

Safeguarding Rules vs. Commingling

The failure of Synapse last year highlighted the need for stricter regulations. Following its bankruptcy, it was discovered that the company had commingled funds meant to be safeguarded for many banking clients. Speculation suggested that Synapse had tapped into customer funds to sustain operations after losing a key client. Due to lack of clear account separation records, around $85 million in customer funds were frozen.

Tightening Regulations Appropriately

Following the Synapse failure, regulators globally have been pushing for clearer guidelines on how fintech firms and banks interact. However, JPMorgan Chase proposed a different approach—charging fees to fintechs for access to consumer banking data. This would represent a shift from the U.S. paradigm where fintech companies traditionally had free access to customer data. Critics argue that such a change could undermine open banking models, which rely on third-party connections.

Meanwhile, the UK has taken a more regulatory-first approach compared to the U.S., contributing to the broader adoption of open banking in the region.

Regulatory Adjustments Based on Company Size

The FCA’s new rules offer some flexibility. Smaller fintechs holding less than £100,000 in customer funds might be exempt from certain requirements, such as annual audits and monthly reports. Additionally, the regulations will not take full effect for nine months, providing enough time for compliance.

Conclusion

The FCA’s new rules aim to protect customers better by ensuring that payments firms keep their funds separate. While there is some flexibility based on company size, these measures are designed to mitigate risks and reduce delays in reimbursement should a firm fail.