FCA Safeguarding Audits
What are the FCA's Safeguarding Requirements?
Starting this year, the Financial Conduct Authority (FCA) has introduced strengthened FCA safeguarding requirements for payment service providers and e-money firms, which raises the regulatory expectations on how customer funds are protected in practice.
The FCA expects these firms to demonstrate that their safeguarding arrangements are effective, well-governed, and consistently applied on a day-to-day basis.
Firms must provide evidence of accurate safeguarding of relevant funds, including appropriate segregation or trust arrangements and robust reconciliation processes. Daily safeguarding reconciliations are now mandated, requiring timely identification, investigation, and resolution of any discrepancies.
Additionally, firms are required to arrange for an annual safeguarding audit conducted by a qualified independent auditor. These safeguarding audit reports must assure that the firm has adhered to the safeguarding requirements throughout the audit period and must be submitted to the FCA within the specified timeframe.
The FCA will also expect firms to maintain resolution packs to facilitate the return of customer funds in an insolvency scenario. Ongoing safeguarding reporting and effective oversight of third-party banks, custodians, and liquidity providers are essential.
A primary focus for the FCA is to verify that firms are executing in practice what they assert in their safeguarding policies and procedures.
How can the Payment Practice help?
We conduct structured safeguarding gap analysis to evaluate existing arrangements against the new FCA safeguarding requirements.
Our support extends to remediation and audit preparation, which includes reconciliation processes, governance, documentation, and reporting tailored for payment service providers.
We assist firms in identifying and engaging suitably qualified safeguarding auditors who possess relevant payments and e-money experience.
Our services prepare firms for the safeguarding audit process, encompassing evidence collation and audit readiness reviews.
We supervise and support the safeguarding audit until completion, which involves reviewing draft findings and the final audit report.
Additionally, we help with regulatory submissions and responses where outcomes from the safeguarding audit are shared with the FCA.
We collaborate with senior management to ensure that safeguarding arrangements are robust, auditable, and ready for regulatory scrutiny.