FCA: firms should tell us before ‘things go wrongʼ

The Financial Conduct Authority (FCA) has urged firms to report financial stress before “things go wrong”, during a webinar it hosted on July 10. The regulator outlined its expectations for payments firms in the event of failures, focusing particularly on the safeguarding of assets and prudential risk.

While the call came after FCA-authorised Ziglu entered special administration on July 7, the UK watchdog stressed that the webinar was held in response to the “rapidly evolving” payments sector and not triggered by any single event.

“Don’t delay, don’t try to hide it and don’t try to manage it alone,” said Chris McGrath, FCA head of market interventions – payments, at the webinar. “Regulators really don’t like surprises. We get surprised more often than we’d like, but that doesn’t make it any easier.

“If you come to us early, we’ve got the time and space to work through the situation together. We can explore the available options to minimise customer harm and protect market integrity — which are central to our objectives.”

This year, the FCA revealed it had also encountered firms that — while not on the brink of insolvency — were facing issues such as an unsustainable cash burn. The regulator said it had worked with these firms to develop plans for orderly resolution and recovery, and some had been able to continue operating.

Ready-to-go plans

In the webinar, the FCA also set out expectations for payments firms, including the need for pre-emptive ‘ready-to-go’ wind-down plans.

These plans should be practical, have realistic cost assumptions and include pre- and post-financial stress measures, according to McGrath. They should be designed for both insolvent and solvent scenarios.

“People sometimes say wind-down plans are too theoretical but in reality they provide a foundation — a starting point — for what might happen in a real scenario. So having one in place is really important,” he explained.

“Yes, things might not go exactly as described in your plan. But that plan gives you the building blocks to understand how a wind-down could actually unfold.”

New safeguarding regime

A key element of wind-down plans is the safeguarding of customer funds. McGrath revealed that the FCA is using “[external] safeguarding audit opinions and wider data to identify firms that pose the highest risk of customers losing money”.

Payments firms are expected to be able to fix the issues highlighted by their safeguarding audits “without significant involvement” from the FCA. However, the regulator will also take action if they fail to meet the required standard.

The FCA is also looking to update its safeguarding regime “later this year”, following a consultation paper published in September 2024. According to the Regulatory Initiatives Grid, the update was originally scheduled to be finalised in the first half of 2025.

Case studies: Ziglu

Ziglu is the latest e-money institution (EMI) to enter special administration under FCA authorisation. The firm was authorised as an EMI while offering a “full ecosystem” of services, including crypto exchange, crypto-on-card debit cards, peer-to-peer payments and foreign exchange services.

On May 23, the FCA issued a notice on the firm, after it began freezing its customer deposit accounts on May 16. This was followed by a voluntary undertaking announcement on June 13 and a special administration announcement on July 8.

Joint special administrators David Shambrook and Damian Webb of RSM UK Restructuring Advisory were appointed on July 7.

They are still assessing Zigluʼs situation, but it is their current understanding that customer are “split between safeguarded and non-safeguarded funds”, according to RSMʼs FAQs sheet.

“It is too early for the administrators to say how much money they will be able to return to the customers and creditors and when any payments will be made to them,” they stated.

We have been closely monitoring Zigluʼs collapse in our articles: Ex-Starling founderʼs Ziglu enters special administration, Zigluʼs collapse: UK crypto ‘small fryʼ struggle to succeed and Defunct Ziglu’s finances in doubt last year.