The Emerging Payments Association (EPA) has said the Financial Conduct Authority (FCA) should have taken a “more granular” approach to its blanket suspension of Wirecard’s UK subsidiary.
On 26 June 2020, the FCA suspended Wirecard Card Solutions (WCS) after its parent slipped into insolvency.
Lifted just after midnight on 30 June 2020, the suspension posed problems for a number of fintechs relying on WCS for their own operations.
WCS acts as an e-money licence holder and a settlement partner. Its four-day downtime locked out millions of consumers from their current accounts.
EPA thinks FCA needs to get clued up on payments
In a report presented to the regulator and the HM Treasury, the EPA says the fall-out would have been less if the FCA had “a greater understanding” of the payments industry.
If the regulator had a better understanding of “the variety of different structures” in payments, the EPA says it would have been able “to enact a more granular approach”.
“As opposed to the blanket approach of prohibiting an electronic money institution (EMI) from carrying out any type of regulated activities,” it adds.
The EPA says the FCA should have reached out to a payments-specific association like itself. This would have allowed the regulator to assess the real risk of allowing WCS to continue operating.
Later in the report, the EPA urges regulators like the FCA “to dedicate sufficient resource to understand fintechs’ business plans”.
It also repeatedly refutes the myth often spun by the FCA that all payments service providers (PSPs) are “unprofitable, focused on consumers or operating card programmes”.
Breaking down the regulation
The FCA can act against e-money licensed firms like WCS under two different laws. This is according to the Electronic Money Regulations (EMRs).
Regulation 11 gives the FCA broader power to “vary” an EMI’s authorisation, with no time restrictions. Regulation 52 allows it to suspend or restrict an EMI’s authorisation for up to 12 months.
The EPA surmises that the FCA used Regulation 11, as no time period was put on the suspension.
“Granular approach in practice”
So, how could the regulator have taken a more “granular approach”? The EPA says that for those fintech using WCS as a ‘settlement partner’ in relation to a card programme, the FCA could have let these programmes continue.
This is because using WCS as a settlement partner meant fintech customers’ money was not held by WCS. Therefore, there was no risk to customers’ money in this instance.
For those fintechs using WCS as a direct e-money issuer or a ‘partner e-money issuer’, the FCA again need not have taken a blanket approach, according to the EPA.
It could have allowed customers to spend what they had on these cards without loading more onto them. “Ultimately the card schemes hold the liability, so merchants and consumers would always have received their funds,” the report says.
“Given that the safeguarded funds of the UK subsidiary were held in a tier 1 bank, this risk of consumer harm was perhaps lower than the harm that would naturally arise from consumers not being able to access their money at all.”
Assessing risk better going forward
The main message running throughout the report is simple. The FCA needs to work more closely with the payments industry to understand its intricacies.
“This understanding of the risk picture would have the benefit of enabling the FCA to take a more targeted approach to managing the situation,” the paper concludes.
It urges for a more open dialogue between the regulator, itself, and other payment bodies.
via FinTech Futures – https://bit.ly/2XtAmYS