The FCA has published detailed guidance as to how safeguarding is to work but many institutions find difficulties in complying with this guidance and particularly requirements that:
- Relevant funds received into a safeguarding account must not be mixed with other funds so that at all times one needs to be capable of identifying and quantifying relevant funds; and that
- ‘Payment and e-money institutions are expected to match the value of payments they make on behalf of their clients from their own funds because they will have to both keep the value in a safeguarding account and remit it to the payee’.
This paper sets out arguments that these interpretations are not entirely well-grounded in theory, that they go beyond the policy intentions of the Second Payment Services Directive and that, in certain circumstances, they lead to some perverse outcomes in practice, causing in many cases, an effective need for duplication of safeguarding that adds disproportionately to costs for the additional customer benefit.
We identify some areas where we consider that the FCA has scope to change or to add to its existing guidance in ways that would be of benefit to the industry without compromising customer protection and other areas where legislative change would be of value.