Luc Gueriane, chief commercial officer at Moorwand and former head of business development at Wirecard, explained via email that safeguarding can be a very thorny issue, partly because it applies throughout the European Economic Area.
“The point at which it applies is understood, but when it ceases is actually quite opaque,” Gueriane said. “And the obligation to segregate relevant funds, while similar, is clearly different to safeguarding and needs clarity.
“As such, the FCA-led reforms need some elucidation to truly understand if they alone will be sufficient. That being said, the industry itself must be more proactive around regulation to best safeguard client funds – this must happen sooner rather than later.”
The FCA released its finalised guidance for payment firms on July 9, shortly after Wirecard’s failings barred thousands of UK customers from 70-odd payment firms from accessing their cash.
Safeguarding of accounts, reconciliations, compliance audits, prudential risk and wind-down plans were all addressed, with the guidance pertaining to authorised payment, credit and e-money institutions, as well as custodians.
The guidance was released following a shortened consultation period ending June 12 – just six days before Wirecard’s faults were announced, and therefore not taking the full situation into account.
Nigel Verdon, chief executive and co-founder of RailsBank, says that safeguarding legislation should be put under trust law, and that the conflict between the Companies Act and its insolvency rules needs to be resolved for proper safeguarding.
“Those are all what I call ‘anti-client safeguarding issues,’ because if the regulation was clear and didn’t have those conflicts, then client money would be always protected, as it should be,” Verdon says. “So it’s actually quite often operationally hard to implement.”
Verdon criticised the FCA’s “revolving door” of executives as a deterrent to long-lasting guidance, while others have chastised the regulator for a lack of overall cohesion – such as between audit regulations and general fintech practice.
However, Nick Ogden, founder of WorldPay, ClearBank and RTGS Global, holds a different view, having seen the UK fintech ecosystem develop over the past several years.
“I think that the problem is when things go wrong – post a global financial crisis, post-Wirecard, and all the rest of it – everybody was looking for someone to blame, when the reality is, actually, it was bad actors in the firm,” Ogden says.
“I think that it’s very, very hard to actually try and get a regulator to be in a business – managing effectively what is conduct risk, as opposed to financial regulatory risk.”
Ogden says that the FCA’s advise on safeguarding funds is correct, and that the tightening of audit regulations would go a long way in verifying bank statements, forcing the FCA to act as regulators – not policemen.
He argues that if the industry came together to create an industry standard, it would be “phenomenally powerful,” but that would not eliminate the risk of bad actors.
“I think that whatever gets adopted in the UK, irrespective of Brexit, will be adopted on a pan-European or potentially a global basis,” Ogden says. “But nobody wants another Wirecard. Nobody wants an incident whereby customers are locked out of using their accounts over a weekend — that’s not why the competitive financial services market was created.
“So, I think that you will see some joined-up thinking and implementation on some of these rules, which is why I think that the auditor approach is relatively simple. It’s a practice and procedure rather than something that requires European statute, for example, but I would expect it to be common.”