Overview
The UK payments sector is experiencing significant growth and innovation, driven by technological advancements and changing consumer preferences. However, this rapid expansion has not always been accompanied by mature risk management practices.
In response, the Financial Conduct Authority (“FCA”) conducted a multi-firm review during 2024/2025, examining 14 firms with e-money and payments permissions. The review assessed the adequacy of their risk management frameworks and wind-down plans (“WDPs”) as part of the FCA’s strategic priorities for 2025–2030, which emphasise effective risk governance and consumer protection.
Key Findings on Risk Management
The FCA review found that none of the 14 firms fully met expectations, revealing a significant gap between current practices and regulatory standards. The review identified three primary areas where risk management frameworks required substantial improvement:
- Enterprise-Wide Risk Management frameworks
Many of the existing frameworks in place were not well suited to each firm’s current business models or their plans for sustainable growth. A lack of regular identification and quantification of material risks was identified, with firms often taking a narrow and siloed approach to risk management. Risk appetites were generally set only at the minimum level required by regulations, lacking reference to each firm’s specific risk profile.
Firms also displayed an inadequate understanding of the risks associated with new business activities and failed to apply meaningful stress testing. In many cases, risk appetite was determined solely based on judgement. Additionally, a failure to distinguish between capital and liquidity resources when setting risk appetite was noted.
- Liquidity Risk Management
Liquidity risk was neither clearly defined nor embedded within firms’ decision-making frameworks. Stress testing was weak or absent, and contingency plans were either missing or underdeveloped. Firms relied heavily on cash balances and overdraft facilities, without testing availability under stress and safeguarding shortfalls and market liquidity risks were not adequately considered.
- Group Risk Consideration
Firms applied group-level policies without tailoring them to individual entities, exposing themselves to vulnerabilities. Governance structures were unclear, resulting in slow decision-making processes. There was overreliance on group resources, often without a thorough assessment of operational and financial resilience. Moreover, wind-down plans lacked alignment across group entities, increasing the risk of disjointed responses in stress scenarios.
Challenges in Wind-Down Planning
Wind-down plans are essential for ensuring that firms can manage their closure or scaling down in an orderly manner, protecting customers and maintaining market stability. However, the review found significant deficiencies in the plans of these assessed firms, including:
- Inconsistent wind-down triggers that are not aligned with the firm’s risk management framework and are not quantified by risk appetite;
- Missing triggers for safeguarding asset shortages or lapsing insurance policies;
- Plans lacked operational detail, making them impractical to execute;
- Limited financial modelling through the wind-down process, with no consideration of capital impact from revenue/cost changes or liquidity availability;
- Timeline delays from safeguarding, financial crime, or customer contact weren’t assessed; and
- Overdependence on group-level plans without firm-specific adaptation.
These findings highlight the need for firms to develop more robust, detailed and tested plan that are closely linked to their risk management strategies, ensuring they can manage closures effectively.
FCA Expectations
The FCA has published guidance to support firms in addressing these gaps. It has clarified that the expectations identified through this review reinforce existing obligations rather than introduce new requirements. Firms should:
- Benchmark their current arrangements with FCA findings;
- Apply principles proportionate to their business scale and complexity; and
- Understand that these findings reinforce existing expectations, not new rules.
Following the above, key actions to be taken include:
- Strengthening risk management frameworks;
- Enhancing liquidity risk management;
- Addressing group risk; and
- Improving wind-down plans.
Firms that fail to meet these expectations may face increased regulatory scrutiny, potential fines, or operational restrictions, as outlined in the FCA’s correspondence on priorities for payments firms in 2023 and 2025.
Looking Ahead
The FCA urges firms to enhance their governance, modeling, and procedural rigor. While some progress is evident, most firms fall short of expectations. Strengthening risk and wind-down capabilities is critical to protect consumers and ensure market stability.
The UK payments and e-money sector is poised for continued growth. However, this growth must be underpinned by sound risk management practices to sustain stability and trust.
How Complyport can Help
Our experienced team closely monitor the regulatory landscape and help our clients to maintain the highest levels of regulatory compliance. Our e-money and payment services offering includes:
- Strong prudential risk management, including liquidity thresholds and wind-down planning.
- Developing AML and KYC frameworks including the mandatory annual business wide risk assessments which is required under regulations.
- KYC Compliance Managed outsourcing service to support customer onboarding processes.
- Ensuring that robust financial crime prevention is in place.
- Implementation of the Consumer Duty rules to ensure firm-wide compliance.
- Establishing solid operational resilience.
- Delivering training in person or virtually to staff and senior management to satisfy the FCA’s training requirements.
- Authorisation and assessment of senior management roles, certified to provide e-money and payment services.
- Creation of a firm-wide regulatory risk framework that aligns with the relevant client’s business model and risk appetite.
- Ongoing advisory services for ad-hoc questions or queries that may arise in the natural course of business.
Book a meeting with one of our Subject Matter Experts to ensure you remain compliant and well-positioned in the evolving UK regulatory landscape.
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