E-money groups need ‘significant shift in culture’, UK regulator says

The UK’s financial regulator has criticised e-money businesses for “poor” financial crime and fraud controls that can leave customers unable to access their accounts, saying there needs to be a “significant shift in culture and behaviour” in the industry ahead of new consumer protection rules this year.

The UK hosts more than 250 non-bank e-money businesses, including well-known names such as Revolut and Wise, which offer payments services, and smaller companies that serve more niche markets, such as New York’s Payoneer, which was granted an operating licence last week. They are not covered by the UK’s Financial Services Compensation Scheme — which offers some protection to customers if they lose their money — and are not as tightly regulated as banks.

But from June, e-money groups will have to comply with a new “consumer duty”, which puts the onus on them — and about 60,000 other financial services companies — to prove that good customer outcomes are central to their business.

“For many [e-money] firms, meeting the Duty will require a significant shift in culture and behaviour,” Matthew Long, the Financial Conduct Authority’s director of payment and digital assets, wrote in a letter to chief executives of e-money companies on Tuesday.

The sector has experienced breakneck growth in recent years, winning millions of customers and challenging the dominance of high street banks, particularly in foreign exchange. But it has also faced criticism for treating customers badly and for weak controls.

“We continue to see poor financial crime controls in some payments and e-money firms,” Long said in the letter, adding that some “freeze a disproportionate number of accounts, for too long, and without adequate explanation” in response to potential fraud.

He urged companies to take better care of their customers by freezing accounts less frequently, investigating possible frauds faster, communicating better with affected customers and supporting those “put in acute financial difficulty” after having their accounts frozen.

Long singled out one type of fraud — authorised push payment, where criminals deceive victims into authorising a payment by impersonating someone at a bank, for example, or a business — as a particular area for attention.

“Whilst we appreciate that the facts of these can be hard to establish, firms should ensure that their treatment of customers who feel themselves to be victims and are distressed is not unduly harsh or unsupportive,” he said.

UK Finance data showed that authorised fraud losses increased by more than £150mn to £583mn in 2021. Most high street banks have signed up to a voluntary reimbursement code for authorised push payment fraud that was set up in May 2019. E-money companies have not done so.

The FCA also warned those e-businesses that rely solely on online chat platforms to resolve customer problems. “In some instances, this approach may not always be sufficient, and we expect firms to ensure their contact channels meet their customers’ needs,” Long said.

Additional reporting by Siddharth Venkataramakrishnan in London