Regulators are coming under mounting pressure to tighten fintech rules after the collapse of Wirecard’s UK arm exposed fault lines in the nascent sector.
In the latest move, the Emerging Payments Association has published a review it expects to present to UK lawmakers, detailing how the Financial Conduct Authority’s actions left fintech customers vulnerable. The association, which plans to share the findings with the watchdog, says flaws in the existing payments regulation have been highlighted.
The review from the lobby group, which has more than 150 members, comes amid an inquiry into what went wrong at Wirecard by an All-Party Parliamentary Group led by Karen Bradley MP, the former secretary of state of culture, media and sport. Bradley told Financial News that her goal is to determine “whether there has been a failure in the regulation and the auditing systems in the UK”.
The accounting scandal at Wirecard, which has seen executives of the German payments firm arrested, has had far-reaching effects. In late June, UK regulators moved to freeze the group’s Newcastle-based subsidiary – temporarily forcing at least half-a-dozen fintech firms that relied on its services for payments processing and card issuing to suspend their services. Millions of UK consumers were unable to access their funds until the FCA removed the restrictions on 30 June.
Both groups are keen to ensure their efforts do not knock the prospects of the UK’s prized fintech sector – highlighting the delicacy of any regulatory overhaul.
In its review, the EPA says the Wirecard episode caused “huge reputational damage” to the UK fintech sector. But the group’s director general Tony Craddock said the sector has rallied to “help ensure that the regulator does not throw out the fintech baby with the bathwater”.
Similarly, Bradley said the APPG’s review aims to encourage the development of the fintech industry – which is worth some £7bn – and warned that regulation that is too stringent “could hamper” firms.
The APPG has also noted “glaring gaps” in the way government and regulators have dealt with challenger banks and building societies during the Covid-19 crisis in a separate July 29 report. The disparity could stymie financial innovation, it warns.
“Challenger banks and building societies play a vital role in the UK, supporting both start-up businesses and vulnerable people who often have no other access to banking services. The APPG has long called for bespoke regulation and recognition within government and the regulators and this crisis lays bare why this reform is both needed and long overdue,” Bradley said.
READ FCA warns it will take action against e-money firms that fail to protect customers
In July, the FCA brought forward stronger measures to help protect users of fintech apps, followed by the APPG’s call for a parliamentary inquiry into the FCA’s handling of Wirecard.
A spokesperson for the FCA said it has made payments a priority area.
“This reflects, in particular, our concern that safeguarding needs to improve across the sector as a whole and we have a significant programme of work underway to ensure that customers’ money is protected as far as possible,” they added.
“Whilst we don’t comment on individual firms, as we have already stated, we took a number of necessary steps over the weekend of 27/28 June to ensure that money due to Wirecard customers was secure.”
The watchdog is currently consulting on further guidance for payments firms, and said it will consider the EPA’s suggestions.
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