Deadline For SCA On E-commerce Transactions Slips Again

Once upon a time, the second Payment Services Directive required mandated the introduction of 'strong customer authentication' (SCA) - also known as 'two factor authentication' or 'multi-factor authentication' - for remote and electronic payment transactions from 14 September 2019. But fear that consumers will abandon online transactions, lack of industry preparation and then the pandemic have seen this rather battered can being kicked steadily further down the road. The UK's Financial Conduct Authority has now declared the latest 'deadline' to be 14 March 2022.

This time it might be serious.

E-money Institutions To Remind Customers About Safeguarding vs The Financial Services Compensation Scheme

The UK Financial Conduct Authority is still concerned that customers of electronic money institutions (EMIs) do not understand that any funds they hold in their e-money accounts are safeguarded, but not covered by the "Financial Services Compensation Scheme" (basically, the UK depositor protection scheme for banks, building societies and credit unions). Of course, if the bank where the EMI holds its safeguarding account were to fold then the bank account would be covered by the FSCS but that is a different matter. 

The FCA has written to EMIs asking them to write to their customers before 29 June 2021 to "remind them of how their money is protected through safeguarding and that FSCS protection does not apply." Firms may include a link to the FCA's explanation to help customers decide whether that level of protection is appropriate for their circumstances (e.g. EMIs cannot pay interest, so any balance you aren't likely to use in the near future may as well be moved to a bank savings account that does). The communication must be separate from any other messaging or promotional activity, and the method(s) of communication may vary based on the EMI's business model and customer base, including any vulnerable customers. 

EMIs must also review their financial promotions in this regard to ensure customers get enough information on the topic. Where the FCA is named in promotions that refer to matters the FCA does not regulate, it must be made clear that those matters are not regulated by the FCA (a wider issue for the FCA).

The FCA wants its letter brought to the attention of the EMI's board of directors, which is expected to have considered the issues and to have approved the action taken in response. 

The FCA has promised to assess the action taken by a sample of EMIs.

Please let me know if I can help.

 

The FCA's New 'Consumer Duty'

The UK's Financial Conduct Authority is consulting on the introduction of a new "consumer duty" that will apply to regulated firms in relation to their regulated activities by 31 July 2022. This follows the report on a previous consultation in April 2019. The FCA is holding a webinar on the proposals on 10 June 2021; and comments will be open until 31 July 2021. The rules would be consulted on by 31 December 2021. Please let me know if I can help.

Broadly, this would require firms to act in ways that enable retail customers to obtain the outcomes they should be able to expect from the firm's products and services, rather than to hinder customers obtaining those outcomes. This effectively puts firms (and, significantly, the FCA) in the customers' shoes. 

This may require some firms to radically alter their culture and behaviour to focus on consumer outcomes, and putting customers in a position to act and make decisions in their own interests. 

There will be three elements to the new duty:

• A new consumer principle: "a firm must act in the best interests of retail clients" or "a firm must act to deliver good outcomes for retail clients". 
• Broad rules that would require firms to take all reasonable steps to avoid foreseeable harm to customers and enable customers to pursue their financial objectives; to act in good faith. 
• More detailed rules and guidance on firms' conduct relating to four specific outcomes: communications; products and services; customer service; and price and value. 

The FCA is also consulting on the potential benefits of attaching a private right of action to the new duty, and what any unintended consequences of this might be. 

Critics of the FCA's approach to consumer outcomes in the wake of various 'scandals' over the years will be hopeful that this new duty will see the FCA aligned with consumers, rather than tending to protect its own reputation, the 'financial services industry' and the firms its regulates.