Safeguarding CP signals move to CASS regime

26 September 2024 | UK & Europe | Articles

The FCA’s long-awaited consultation paper to strengthen the safeguarding regime has been published. The FCA is proposing changes to the safeguarding regime in two stages (Interim-State and End-State) with the ultimate aim of replacing the safeguarding requirements with a CASS-style regime.

The consultation paper (CP) 24/20 comes after years of warnings from the regulator about poor practices, alongside high-profile firm failures such as Premier FX and the controversial Ipagoo LLP judgement, which led to uncertainty about the distribution of customers’ safeguarded funds.

What are the key highlights from the consultation?

Some of the main points flagged in this CP include the following:

• Developed requirements around record keeping, reconciliations and the maintenance of a ‘resolution pack’ to address inadequate processes and reduce delays in the repatriation of funds.
• Enhanced monitoring, including submission of a monthly safeguarding return and the requirement for most Payments firms to have annual external audits of their safeguarding arrangements.
• Strengthening elements of safeguarding practices, including diversifying use of third parties and introducing conditions on when agents and distributors can hold relevant funds.
• Under the proposed end-state, funds will be held by Payments firms under a statutory trust – this is intended to address issues around legal certainty highlighted in the Ipagoo judgement.

Why is the FCA choosing to move in this direction?

These proposed measures are intended to address the potential for harm in the Payments sector. The FCA backs this up with some notable statistics – the sector has grown significantly over the last few years. According to the regulator’s findings, £1.9tn of transactions being processed annually, safeguarded funds of £22.0bn and yet, since the start of 2018, there has been a 65% average shortfall of client funds from insolvencies.

The consultation ends on 17 December 2024 and the FCA plans to publish its policy statement within the first six months of 2025.

How can Bovill Newgate help payments firms prepare for these safeguarding regulatory changes?

We regularly conduct readiness reviews and testing by doing a deep dive into your overall policy and governance arrangements, as well as ensuring your operational ability meets regulatory standards.

Reach out to our team for support on authorization, readiness reviews, policy and controls creation, health checks, or audits over your safeguarding arrangements.