The FCA’s requirements for payments firms

On 3 February 2025, the FCA published a Portfolio Letter to the Chief Executives of payments firms supervised by it, setting out its priorities for those firms and actions it expects them to take.

March 2023 Portfolio Letter: the FCA’s expectations

The Portfolio Letter follows an earlier letter, published by the FCA on 16 March 2023.  That earlier letter to payments firms set out the actions the FCA expected the firms to take to achieve three outcomes the FCA had set for payments firms and three cost-cutting priorities, as follows.

Outcome 1:  To ensure their customers’ money is safe  

The FCA was concerned that customers’ money would not be safe, if a payments firm were to fail in a disorderly manner.  Therefore, firms were required to ensure that they were safeguarding customers’ funds in line with applicable legislation; regularly review their prudential risk management arrangements and ensure that they have a proper wind-down plan in place.  This wind-down plan must be reviewed regularly and kept up-to-date, in line with the FCA’s expectations and requirements.

Outcome 2: To ensure that firms were not compromising the integrity of the financial system 

The FCA said that it has seen increasing evidence of financial crime in the payments portfolio.  Therefore, firms needed to ensure that their anti-money laundering (“AML”) systems and controls are effective and commensurate with business risks.  Firms also needed to review their compliance with AML and sanctions requirements regularly and ensure that they make accurate and timely submissions of suspicious activity reports (“SARs”).  The FCA expects immediate action to be taken to protect customers against fraud risks and ensure that the firm is not being used to receive the proceeds of crime.

Outcome 3: Ensuring that the firm’s customers' needs are met through high quality products and services (that is, by Implementation of the Consumer Duty)

The FCA reminded firms that they needed to implement and comply with the Consumer Duty.  

The March 2023 Portfolio Letter also set out three cost-cutting priorities:

Priority 1:  Governance and leadership, including oversight of agents and distributors

The FCA required firms to take action to ensure their governance and leadership meets the FCA’s expectations. The arrangements should be regularly reviewed to ensure they remain robust and proportionate to the size and scale of the business.  

Priority 2: Operational resilience  

The operational resilience requirements were introduced in 2022 and the FCA is actively monitoring compliance with them.  Firms are also required to monitor their dependency on providers of critical services (including technology and banking services) and have contingency plans in place, to move providers if necessary.

Priority 3: Regulatory Reporting 

The FCA said that it would make more use of its right to charge firms that fail to meet reporting deadlines and warns that repeated failures could result in a referral to enforcement.

In the March 2023 Letter, the FCA also requires firms to familiarise themselves with the FCA’s Environment, Social and Governance (“ESD”) strategy and to ensure that they have the appropriate governance arrangements in place.

FCA Portfolio Letter for Payments Firms: February 2025

The FCA has now followed up on its Portfolio Letter in March 2023 with a further Portfolio Letter to the CEOs of Payments Portfolio firms.  The FCA says that since its Portfolio Letter of March 2023, it has seen some real improvements made by firms to deliver the outcomes stated, including in firms’ board and governance arrangements, risk management frameworks and customer outcomes.  However, the FCA believes that there is still more work to be done in order to reduce the continuing risks of harm to consumers and the integrity of the financial system.

The Portfolio Letter therefore sets out three outcomes for firms that it believes are essential to ensure good customer outcomes, what it expects from each firm and what it intends to do to support each outcome.

Outcome 1:  Effective competition and innovation to meet customers' needs, characteristics and objectives

The FCA says that it has seen how effective competition and innovation, including in areas such as Open Banking, benefits customers; and also, how better outcomes for customers are delivered where firms have implemented the Consumer Duty.  However, it continues to see instances where products and services do not deliver good customer outcomes, or where firms are not acting in the customers’ best interests.  The FCA therefore sets out some of its priorities to ensure that the needs, characteristics and objectives of customers are met.  These include the FCA’s support for innovation via the Innovation Hub Support Services and the need for firms to implement the Consumer Duty effectively, which the FCA would monitor.

Outcome 2: Firms do not compromise financial system integrity

Two focus areas for the FCA to enhance financial system integrity in the payments sector are financial crime and operational resilience.  In both cases, firms should ensure that their governance arrangements and systems and controls, including reporting mechanisms, are effective and proportionate to the nature, scale and complexity of their business and the risks to which that business is exposed.  

In relation to financial crime, the FCA asks firms to ensure that they have read the FCA’s Dear CEO Letter or October 2024, which sets our the payment Systems Regulator’s (“PSR”) requirements for APP fraud carried out through the Faster Payments System and CHAPS in order to understand the FCA’s expectations in this regard.  The FCA also asks firms to be aware of its Guidance on the recently-introduced payment delays legislation and says that the ability to delay certain payments may be an important tool in mitigating consumer harm.  This said, the FCA expects firms to minimise the impact on legitimate payments if they apply payment delays.  The FCA says that it will continue to monitor the impact of the new legislation.   In relation to operational resilience, firms should ensure that they are compliant with the FCA’s final rules and guidance by 31 March 2025.

Outcome 3: Firms keep customers’ money safe

The FCA reports that it has seen improvements in some firms’ financial resilience.  However, it remains concerned that customers’ money may not be safe if payments firms were to fail.  Therefore, firms should focus on ensuring adequate governance, oversight and systems and controls to keep customer money safe.  Areas of particular focus for the FCA are safeguarding (where it is consulting on potential changes), prudential risk management and wind-down planning.

The FCA asks the CEOs of payments firms to identify the messages in the letter that are relevant to their firm and their conditions of authorisation or registration and to take appropriate action.

How we can help

We are experts in advising payments firms on their regulatory requirements and dealing with regulatory change and priorities.  Please contact your usual contact at Charles Russell Speechlys, or a member of the Financial Services Regulation group.