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A review by the UK Financial Conduct Authority (FCA), found that none of the 14 e-money and payments firms included met its standards for risk management frameworks and wind-down plans (WDPs).
In particular, the study found that the firms were not accurately following the guidance in FG20/1 on the role of adequate financial resources in minimising harm, which sets out what WDPs should include.
The regulator warned firms that it expects them to review their arrangements against its findings and make any necessary improvements.
Focus
During 2024/2025, the FCA reviewed a sample of 14 firms with a variety of business models.
It focused on enterprise and liquidity risk management and wind-down planning, and asked firms for information, held on-site meetings and, after the review, gave individual feedback.
The three main areas where improvement is required are enterprise-wide risk management frameworks, liquidity risk management and consideration of group risk, the regulator said.
The FCA warned, “For many firms in scope of our review, liquidity risk has the potential to cause material harm if not managed appropriately.”
It said that the firms rarely stress-tested liquidity under adverse conditions, leaning heavily on static cash buffers, and that available liquidity was not correlated with risk triggers required to initiate orderly wind-down procedures.
“Firms have made efforts to make sure WDPs have a structure in-line with our expectations”, the regulator added.
“But the underlying content is often incomplete, high-level and not aligned with the risk management framework, with inadequate triggers and links between financial resources held and resources required for wind-down.”
Deficiencies
The key deficiencies the FCA found were that many of the reviewed firms had fragmented ownership and weak supervisory oversight.
Quantitative stress-testing was often missing, resulting in reliance on judgement rather than data-led methods.
In addition, internal interdependencies such as shared systems, staff or funding were often underestimated or overlooked in risk frameworks and WDPs.
The FCA said that the WDPs it reviewed lacked sufficient detail, testing and validation, and that plans should consider operations, treatment of residual safeguarded funds, liquidity needs, and wind-down triggers, which should be driven by the risk appetite.
After completion of its reviews, foreign exchange markets entered a turbulent period, affecting some firms' liquidity resources, the regulator noted.
“Such events reinforce the importance of adequate risk management and wind-down planning.”
Do better
The FCA urged firms to embed wind-down planning into their risk management framework, recognising that disorderly wind-down is a key driver of harm.
“We expect firms to review their arrangements against our findings and make any necessary improvements,” it said, adding, “The payment sector is an important one, and effective risk management is crucial for future growth and innovation.”
The review’s findings echo concerns previously raised by the FCA in TR22/1 and in its Dear CEO letter on liquidity management and safeguarding during wind-down.
They underline the regulator’s intention to treat non-bank payment and e-money providers with the same rigour as banks, expecting robust frameworks that will protect markets and customers alike.
Firms that do not act on its findings risk enforcement action, as well as reputational damage.
