Chris Middleton reports on how the UK’s financial regulator wants start-ups to warn customers of the risks of doing business with them.
The rush to mobile or online financial technology (FinTech) solutions could be putting customers and their finances at risk. That’s the conclusion of moves this week by UK industry regulator the Financial Conduct Authority (FCA).
The FCA has written to business leaders in the FinTech sector and ordered them to be more transparent with their customers about the risks of doing business with them.
The pandemic has accelerated a trend – especially among new banking customers – to favour mobile and digital services, including low-friction alternatives to traditional banks provided by FinTech start-ups.
Meanwhile, Open Banking has encouraged customers to explore new options and the government is keen to portray FinTech as one of the crown jewels of the post-Brexit economy.
However, some start-ups have been wrongly describing or comparing themselves to banks, even though they are more accurately described as e-money providers. As a result, their customer accounts are not covered by the Financial Service Compensation Scheme.
The FT reports that the FCA has written to 300 FinTech companies this week, instructing them to remind customers of the regulatory and trust risks associated with entrusting their cash to start-ups.
The letter has been sent to the chief executives of every company that operates under the UK’s e-money licence, which allows them to provide some banking functions, but their deposits cannot be lent out and must be stored at a fully licensed bank.
According to the FCA, some players have been actively misleading their customers about the extent to which products are regulated – concerns amplified by the collapse of payments provider Wirecard last year.
The FCA says it is “still concerned that many e-money firms are not adequately disclosing the differences in protections between their services and traditional banking”.
The regulator wants customers to be made aware that if new providers collapse, they may lose money, or it may take much longer to recover their funds.