The Financial Conduct Authority (FCA) has announced a significant shake-up to the regulations governing payment firms, aimed at improving consumer protection and safeguarding customer funds. This change comes as part of the regulator’s ongoing efforts to strengthen the financial system and ensure that businesses in the payments industry are fully accountable for how they manage their customers’ money.
The FCA is signalling that safeguarding consumer funds is non-negotiable
The collapse of payment firms like Argentex, which left consumers exposed, highlights the need for these tighter regulations. The FCA found that failed payment firms had average shortfalls of 65% of their customers’ funds over a five-year period. When firms fail to protect customer funds properly, consumers suffer. The FCA is stepping in with these updated rules to ensure that payment firms have robust processes in place. This isn’t just about compliance; it’s about creating a system where consumer funds are always safe—no matter what.
Matthew Long, Director of Payments and Digital Assets at the FCA, explained the importance of these changes: “People rely on payment firms to help manage their financial lives. But too often, when those firms fail, their customers are left out of pocket. We’ll be watching closely to see if firms seize the opportunity and make effective improvements that their customers rightly deserve – this will help us to determine whether any further tightening of rules is necessary.”
The introduction of CASS 15 in March 2025, which required payment firms to enhance the protection of client assets, laid the groundwork for the FCA’s broader approach to safeguarding consumer funds. The FCA’s latest actions specifically address the risks in the payments industry, setting new standards for how payment firms must protect customer money.
The FCA’s message: get your house in order, or else…
The new rules set to be rolled out in May 2026 are not just another layer of regulation; they signal a decisive shift in how the FCA expects payment firms to operate. Key measures will include:
- Mandatory separation of customer funds: Payment firms will be required to hold customer funds in accounts separate from their own operational accounts. This is designed to ensure that, in the event of a business failure, customers’ funds are protected.
- Monthly reporting: Firms will need to provide monthly updates on their safeguarding measures and the status of customer funds. This will ensure ongoing transparency and make it easier for regulators to spot issues before they escalate.
- Daily checks: Payment firms will be required to conduct daily checks to confirm that customer funds are properly safeguarded, ensuring no discrepancies in their accounts.
- Annual audits: Firms will also need to undergo annual audits of their safeguarding procedures to ensure compliance and identify potential weaknesses in their processes.
The growing pressure: Compliance is no longer optional
The FCA’s ramped-up scrutiny of payment firms isn’t just theoretical. Recent enforcement actions show that the FCA is not afraid to impose hefty fines and severe penalties for non-compliance.
But the FCA’s efforts to tighten the screws are not only reactive—they’re preventive. The regulator is actively shaping a financial environment where transparency, strong internal controls, and consumer protection are paramount. By introducing measures like daily checks, monthly reporting, and segregation of customer funds, the FCA aims to create a system that leaves less room for error. These steps are designed not only to prevent future issues but to foster a culture of compliance from the ground up.
It’s clear that the FCA expects businesses to go beyond the bare minimum. Firms that fail to establish robust safeguarding measures and a proactive compliance framework are putting themselves at risk. The focus is shifting from simply meeting regulatory requirements to creating an internal culture that holds consumer protection and transparency at its core.
Now is the time to act
With the official deadline just months away, now’s the time for businesses to start making changes. Payment firms must implement the safeguards required by the FCA’s rules, and this goes beyond simply separating funds. Here’s what businesses need to start doing now:
- Review and update safeguarding procedures: Ensure that customer funds are kept in separate accounts and that proper checks are in place to maintain this separation at all times.
- Implement ongoing monitoring systems: Set up systems that allow for daily reconciliation and monthly reporting. This can help spot discrepancies early and prevent larger issues from emerging.
- Conduct regular internal audits: Perform internal audits to ensure that your safeguards are up to standard. Regular audits can also serve as an early warning system, alerting you to potential problems before they become critical.
- Stay up to date: The FCA will provide further guidance on these rules as the implementation date approaches, but businesses should not wait to take action. Start planning and preparing now to ensure that your systems are ready to comply with these more stringent rules when the time comes.
