The FCA Policy Team has been busy preparing the (now delayed) Policy Statement to outline how the changes introduced in CP24/20 will be implemented and what CASS 15 will look like in reality. Meanwhile, the Enforcement and Market Oversight Division has also been busy taking action against Small Electronic Money Institution (SEMI), PARAM@ UK LTD, for failing to adhere to existing safeguarding guidance.
For many years, some small firms have struggled to open or maintain CASS or safeguarding accounts with banks. Capital and liquidity requirements on banks have meant that there’s little incentive (often quite the opposite) to offer accounts unless a firm also maintains balances in corporate accounts with the bank. Those challenges have been more acute for payments and e-money firms that have often found themselves subject to additional requirements from their banks with respect to financial crime controls and reporting.
Safeguarding account challenges
This is the challenge that it appears PARAM@ faced with its bank notifying the firm in November 2023 that it would be withdrawing its safeguarding account in April 2024. The firm initially assured the FCA that it would migrate to a new safeguarding account by March or April 2024. It later notified the regulator that it planned to change its business model to cease its e-money business, meaning that it would no longer be safeguarding customer funds. Over the next 12 months, discussion between the firm and the FCA continued with the firm repeatedly assuring the FCA that it planned to change its business model and the FCA in turn reiterating concerns around the lack of adequate safeguarding measures in place within the firm. Representations from the firm over that period indicated that the firm had stopped issuing electronic money, didn’t have any electronic money outstanding during the period and therefore didn’t have any customer funds to safeguard in the UK. However, regardless of whether funds needed safeguarding, FCA concern focused on the need for the firm to maintain adequate safeguarding arrangements to meet the firm’s conditions of registration in the UK. In view of the firm’s changing business model, the FCA invited the firm to cancel its registration and apply for permission to carry out payments business. However, the firm wanted to keep its e-money permission in case it decided to undertake this type of business again in the future. In February 2025, the FCA sent the firm a letter before action to inform the firm that a recommendation to cancel its registration would be made because the firm did not meet its conditions for registration. None of the firm’s responses to this letter addressed the FCA’s concerns, and the FCA informed the firm that enforcement action would continue, leading to the Final Notice published on 7th July 2025.
How could the firm have managed this better?
From reading the Final Notice, it seems that the firm didn’t recognise that although it wasn’t actually safeguarding customer funds, it was required to maintain appropriate arrangements to enable it to do so in case it needed to. We can’t know the reasons why the firm didn’t replace the safeguarding account to resolve this issue – it may have struggled to secure another account from possible banking providers, or simply may not have acted quickly enough to do so. However, it’s clear from the Final Notice that the firm’s communications with the FCA gave cause for concern. This is a really important lesson from this Final Notice – things can and do go wrong, and on occasion, a firm will end up with the supervisory attention of the FCA. How a firm responds to that attention can have a significant impact on the outcome.
Our top 5 tips for dealing with FCA Supervision:
- Be open and honest, as you always should be in interactions with the FCA.
- If you commit to a timescale or deadline, make sure that you can meet it. If you fail to meet it, you will need to be able to explain to the FCA why it’s been missed and reassure them that you are making all possible efforts to meet any new deadlines.
- Demonstrate that you understand the FCA’s concerns, are taking them seriously and working hard to alleviate them.
- Focus on the questions being asked – whilst you may believe that additional information could offer useful insight to the FCA, without the right context, this information could lead to confusion or unnecessary concern.
- If in doubt, take advice! At Square 4, we regularly support firms through supervisory engagement and breach remediation. We can help you better understand the reason for FCA attention or concerns and support you with your communications with the regulator to ensure the right messages come across. We can also advise on and support breach remediation, helping you to plan and execute any required change in a way that will alleviate FCA concerns and reassure them of your approach to compliance.
