The UK’s Financial Conduct Authority (FCA) has implemented new rules mandating that payment firms maintain separate accounts for company funds and customer funds.

Safeguarding vs. Commingling

In the wake of several fintech insolvencies, where customers faced an average shortfall of 65%, the FCA introduced these safeguarding rules to ensure more robust customer protection.

These new regulations require annual audits and monthly reports from payment companies. Additionally, firms are mandated to conduct daily checks on their resources to safeguard customer funds. They must also develop plans to prevent delays in compensation.

Tightening Regulations Appropriately

The stringent scrutiny of financial technology providers intensified following the Synapse collapse, where it was revealed that the company had commingled customer funds meant for numerous banking clients. There were concerns Synapse might have used these funds to sustain its operations after losing a major client.

This led to approximately $85 million in frozen customer funds when the business folded, making it impossible to trace individual accounts clearly.

Following this incident, worldwide regulators pushed for clearer guidelines on how fintechs and banks interact. However, JPMorgan Chase proposed charging fintechs fees for accessing consumer data—an approach seen as a step backward from the open banking model built on third-party connections.

The UK has traditionally taken a more regulatory-first stance on open banking compared to the U.S., which may be why this model has gained more traction in that region. Despite tightening regulations, the FCA allows some flexibility, such as removing audit requirements for smaller firms holding less than £100,000 in customer funds.

The new rules will not take effect immediately; fintechs have nine months to comply, giving them ample time to adjust their operations accordingly.