The UK’s payments sector is undergoing rapid change, driven by technological innovation and evolving customer expectations. Amid this transformation, the Financial Conduct Authority (FCA) has outlined a set of clear priorities for firms in its Portfolio Letter, published on 3 February 2025.
While innovation remains a key driver, the Portfolio Letter places a strong emphasis on financial crime prevention and consumer protection, reflecting the need for firms to balance new opportunities with robust safeguards. These priorities come in the context of the UK government’s broader National Payments Vision which sets out a strategy for a more secure, competitive, and innovative payments ecosystem.
The 2023 Portfolio Letter and Evolving Regulatory Priorities
The FCA’s 2023 Portfolio Letter to payments firms highlighted key areas of concern, including safeguarding customer funds, financial crime controls, and prudential risk management. However, whilst the FCA has seen improvements by firms to deliver the outcomes it set in 2023, the latest Portfolio Letter signals a shift in regulatory intensity, particularly regarding financial crime and APP fraud reimbursement.
Previous FCA communications urged firms to strengthen their systems, but the latest Portfolio Letter reflects a firmer stance, following significant regulatory developments such as the Payment Systems Regulator’s (PSR) APP fraud reimbursement rules. This escalation suggests that the FCA is moving from guidance to enforcement, making it clear that firms will be held accountable for failures in fraud prevention and customer protection.
The National Payments Vision
The UK government’s National Payments Vision, published in November 2024, sets an ambitious goal for the UK to become a global leader in payments, focusing on innovation, security, and consumer inclusion. The vision is centred around fostering competition, improving financial access, and driving the adoption of emerging technologies like open banking and real-time payments.
However, as highlighted in the Portfolio Letter, these advancements come with challenges. As innovation accelerates, so do the risks, particularly in the areas of fraud, money laundering, and other financial crimes. Therefore, while the National Payments Vision aims to promote a dynamic payments system, the Portfolio Letter emphasises the importance of ensuring that these innovations do not compromise consumer trust or safety.
Financial Crime Prevention: A Central Priority
Financial crime prevention remains one of the most pressing concerns for the payments sector. It is therefore unsurprising that the Portfolio Letter stresses that payment firms must actively integrate systems and controls to protect against fraud, money laundering, and other illicit activities.
One the FCA's key focal points in this context is Authorised Push Payment (APP) fraud, where consumers are tricked into authorising payments to fraudsters. The Portfolio Letter has highlighted the importance of tackling this issue head-on, urging firms to adopt proactive measures to prevent such fraud and ensure that customers are compensated when they fall victim to scams.
In line with this, the Payment Systems Regulator’s (PSR) reimbursement guidelines for APP fraud, which were reinforced in a "Dear CEO" letter from the FCA in October 2024, place the responsibility on payment firms to reimburse customers who lose money due to APP fraud through the Faster Payments System and CHAPS. This shift in responsibility - which is by no means uncontroversial - highlights the growing regulatory expectation that firms not only protect against fraud but also take accountability for any harm caused to consumers. Firms must have effective fraud detection systems in place, ensuring that these preventive systems can work in real-time and enable swift responses when incidents occur.
The Portfolio Letter also underscores the need for payment firms to adopt a comprehensive risk management approach to tackle fraud. This includes utilising advanced technologies such as machine learning and AI to identify fraudulent activities before they can impact consumers. By leveraging these tools, the FCA considers that firms can enhance their ability to detect and prevent fraud in real-time, safeguarding both their customers and the integrity of the broader payments ecosystem.
Consumer Protection: Upholding the Duty of Care
These financial crime issues cannot of course be considered in isolation. They are, after all, part and parcel of the FCA's broader Consumer Duty framework. In this regard, the Portfolio Letter makes it clear that firms must design products and services that are not only competitive but also serve the needs of customers without exposing them to unnecessary risks.
As digital payment systems become more prevalent, consumers are more vulnerable to issues such as fraud, identity theft, and misuse of funds. The FCA's expectation is that firms will not only adhere to existing consumer protection regulations but will also take proactive steps to prevent customer harm. This includes offering clear, transparent information about services, implementing strong safeguards to prevent fraud, and ensuring that customers can easily access redress if something goes wrong.
The focus on consumer protection is particularly relevant in an environment where new payment technologies, such as instant payments, open banking, and digital wallets, are rapidly changing how people make transactions. These innovations, while beneficial in many ways, also present new risks. As firms explore new technologies, they must ensure that these advancements are implemented with consumers' best interests in mind, particularly when it comes to protecting their funds and personal information.
Looking Ahead: The Role of Payment Firms in a Changing Landscape
The FCA's Portfolio Letter sets the stage for a payments ecosystem that balances innovation with responsibility. As payment firms look to take advantage of new technologies and opportunities, they must do so while addressing the growing challenges of financial crime and consumer protection.
The UK’s National Payments Vision also provides a road map for a future-focused, competitive payments market, but the FCA is clear that these advancements must be underpinned by strong safeguards. For firms in the sector, the path ahead will require careful navigation of regulatory expectations, with a particular focus on tackling fraud, ensuring consumer protection, and maintaining trust in the evolving payments landscape.
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