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The UK's FinTech sector is on the brink of several regulatory shifts that will impact everything from safeguarding protocols to sustainability disclosures. With each regulatory update aimed at enhancing consumer protection and ensuring market integrity, staying prepared is essential for firms to remain compliant and competitive. Here’s a rundown of the key recent and upcoming regulations and what they mean for your business:
1. Strengthened Safeguarding Rules for Payment and E-Money Firms
Expected Implementation: End of 2025
The Financial Conduct Authority (FCA) is intensifying its approach to safeguarding funds held by payment and e-money firms. To bolster customer fund security in cases of insolvency, new requirements will include:
- Appointing a senior manager to oversee safeguarding compliance.
- Maintaining detailed records.
- Conducting regular financial reconciliations.
These standards, expected to finalise by mid-2025, place significant responsibility on senior management, making it crucial for firms to review and update safeguarding processes now. Proactive adjustments will help ensure a seamless transition to full compliance by the end of 2025.
2. Mandatory Reimbursement for Authorised Push Payment (APP) Fraud
Effective Date: October 7, 2024
From October 2024, payment service providers will be required to reimburse customers who fall victim to authorised push payment (APP) fraud, with compensation capped at £85,000 per claim. APP fraud—where victims are deceived into authorising payments to fraudulent accounts—has been a growing issue. This regulation aims to curb financial losses for consumers, signalling a shift toward more robust consumer protection standards.
For banks and payment firms, this means implementing clear processes to handle and verify claims, alongside educating customers on APP fraud risks. Firms should consider reassessing fraud detection capabilities to minimise the impact on customers and manage claims efficiently.
3. Cryptoasset Financial Promotion Rules
Effective Date: October 8, 2024
With cryptocurrency becoming more mainstream, the FCA has rolled out updated standards for cryptoasset promotions. Firms promoting qualifying cryptoassets will now need to:
- Include personalised risk warnings in their promotions.
- Impose a 24-hour cooling-off period for first-time investors.
- Ensure all promotional materials are clear, fair, and not misleading.
Additionally, firms must assess the appropriateness of crypto investments for each client. Given the volatility of crypto markets, these rules are a step toward ensuring that consumers have a comprehensive understanding of the risks involved before making an investment. Crypto-focused firms should review their marketing practices, ensuring they comply with the new requirements by next October.
4. Sustainability Disclosure Requirements (SDR)
Compliance Deadline: April 2025
In response to rising concerns over ‘greenwashing,’ the FCA has extended the deadline for firms to comply with its Sustainability Disclosure Requirements (SDR). These requirements aim to ensure firms accurately represent the environmental, social, and governance (ESG) attributes of their products, creating transparency for investors.
The SDR’s ‘naming and marketing’ rules require firms to substantiate any ESG claims, minimising the risk of misleading consumers. With the April 2025 deadline approaching, FinTech firms offering sustainable products should begin evaluating their marketing strategies to ensure all ESG claims are documented and backed by evidence.
5. Regulation of Cryptoassets and Stablecoins
Legislation Expected: Late 2024
The UK government is advancing its regulatory framework for a broader range of cryptoassets, starting with fiat-backed stablecoins used for payments. This will be the first stage of a wider crypto regulatory strategy aimed at improving financial stability and consumer protection in digital asset markets. The planned legislation will require stablecoin providers to meet stringent regulatory standards, ensuring the reliability and security of these assets for everyday transactions.
Firms operating with stablecoins or broader crypto offerings should monitor these developments closely, as this regulatory expansion may soon necessitate changes in compliance practices and operational procedures.
Preparing for Compliance: Key Steps for UK FinTech Firms
Remaining compliant and competitive in this shifting regulatory landscape will require strategic planning. Here’s how FinTech firms can stay ahead:
- Engage with Regulatory Updates: Regularly review FCA guidelines and engage with legal experts to fully understand the impact of each regulation.
- Review Compliance Frameworks: Assess existing policies to ensure they align with the new standards, particularly in areas like safeguarding and consumer protection.
- Hire or progress your people: With new standards emerges the need for new roles or responsibilities. Ensure you have the right people in the right seats to support this move.
- Invest in Training and Technology: Equip staff with training on fraud prevention and compliance, and consider adopting advanced fraud detection technologies.
For much, much more detail on how you can achieve this, download the full white paper.
- Communicate Transparently with Customers: Clear communication around new protections, such as APP reimbursement and ESG disclosures, will build trust with customers.
Each of these changes is a significant step toward fostering a more transparent, secure, and consumer-friendly FinTech ecosystem in the UK. By proactively preparing for compliance, FinTech firms can better navigate regulatory demands while upholding the trust and loyalty of their customers.
