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Recent guidance from the UK Financial Conduct Authority (FCA) that identified issues with international payments may be a sign that the regulator is ramping up its use of supervisory tools for the Consumer Duty regime.
In early May, the FCA published its observations on good and poor practices in how payments and e-money firms communicate the cost of international payments to retail customers.
The regulator criticised firms for failing to clearly display transaction fees and/or disclose intermediary bank charges upfront.
In some cases, firms presented markups on exchange rates without making it clear they were additional costs retained by the firm.
Others misrepresented transactions as “zero cost” by omitting fixed fees while still applying markups.
Although the report also highlighted good practices, such as clearly stating the amount being sent in GBP, the exchange rate (including markups), total fees and the amount that the recipient would receive, it is clear that the FCA expects more from firms — and sooner rather than later.
An area of growing focus
“This review is essentially the Consumer Duty in action,” said Sara Cody, counsel at Linklaters. “The FCA has applied the new standard to a specific area of financial services and, in some places, found it wanting. “
Cody continued that the FCA is signalling the standard it expects firms to reach.
“This has wider relevance beyond payments. All firms that offer paid-for financial services in which various fees may be charged across the distribution chain should also take note. The cross-sector implications make these reviews particularly interesting.”
Ulku Dogan Kaya, senior consultant at Pathlight Associates, suggested that overall this could be a sign that the FCA “will increasingly turn its attention to this area”.
“It’s a global issue, as when it comes to remittances, there’s an ongoing international discussion about how firms and regulators can make pricing more transparent and foster greater competition,” she said.
For example, regulators such as the US Consumer Financial Protection Bureau (CFPB) have acted on remittances in recent years, although it is likely a low priority under the Trump administration, and the EU is addressing cross-border payment transparency through the Payment Services Regulation (PSR).
Dogan Kaya added that the FCA’s perspective is also distinct — whereas global standard-setters tend to approach the issue from a price competition standpoint, the FCA looks at it from a conduct perspective, with a focus on consumer understanding.
“The FCA emphasises how firms communicate, especially around pricing. It's about ensuring that costs are communicated clearly and transparently," she said.
Transparency and communication
“The main issue here is transparency, both in how firms do business and in how they communicate with customers. That’s exactly what the Consumer Duty is trying to embed with clear, fair communication,” said Lorraine Mouat, a partner in payment services at Thistle Initiatives.
Mouat told Vixio that “it’s no surprise the FCA is focusing on international payment costs, particularly for retail customers. It all ties into the concept of price and value, which is something firms really need to think about."
She pointed out that the FCA most of all wants to see good practice, adding “a big part of that is timing and prominence”.
“If you look at the financial promotions rules, the message must be fair and not misleading, and key information shouldn’t be buried in a tiny font — it has to be presented clearly,” she said. “The implication is that firms need to review their current disclosures.
“Many already meet the minimum requirements, but that may not be enough. It’s about going beyond box-ticking compliance and taking a practical approach."
Compliance overwhelm? Or no compliance at all?
So far, no one has quite known what the FCA’s intentions are with the Consumer Duty and how to enforce it.
The duty is very much a flagship policy, but the regulator has also been accepting of firms taking time to adjust. It has so far chosen not to enforce heavily, instead focusing on its supervisory engagement with firms and communication of issues.
This, however, has had its setbacks.
“Firms have found managing the volume of communications from the FCA post-implementation providing examples of good and poor practice challenging,” Cody pointed out.
“The FCA expects all in-scope firms to consider whether each review might provide relevant insight, regardless of whether it is directed to their area of the sector or not.”
She warned that for smaller firms with limited resources, this creates a significant compliance burden. “There’s a real desire to streamline this process. The FCA indicated in its feedback statement following the call for input on simplifying FCA rules after the introduction of the Consumer Duty that it is looking at ways of doing this.”
Mouat, meanwhile, compared the Consumer Duty with the Senior Managers and Certification Regime. “This has been criticised for lacking teeth, and there’s a risk that Consumer Duty enforcement could go down a similar path.
“But what we might be seeing now is a shift toward more targeted, thematic enforcement, looking closely at where firms are meeting only the minimum disclosure standards, or where value is hard to justify,” she said.
“If a firm can’t clearly articulate the value it’s delivering, and it feels like a finger-in-the-air exercise, that’s going to come under scrutiny, especially given the potential customer impact.”
She added that there is also “a growing disparity between what firms think they’re delivering and what customers actually understand”.
“This could mark the beginning of a potential enforcement test case, and once the FCA starts publishing findings, international payments and customer outcomes may emerge as a clear area of regulatory focus,” she said.
Cody agreed, pointing out that there has been “greater use of faster, sharper supervisory tools, from data requests and feedback through to variations of permission or restrictions on businesses”.
“There has been a shift away from reactive enforcement towards proactive intervention. This can be very punchy, as we saw with the FCA’s action on savings rates, which led to real change.”
