The latest “Dear CEO” letter by the UK Financial Conduct Authority (FCA) is addressed to e-money firms. The regulator urges such businesses to ensure their customers understand how their money is protected.

The FCA is concerned that many e-money firms compare their services to traditional bank accounts or hold themselves out as an alternative in their financial promotions, but do not adequately disclose the differences in protections between e-money accounts and bank accounts. In particular, they do not make it clear that Financial Services Compensation Scheme (FSCS) protection does not apply.

Firms must consider the information needs of customers and communicate with them in a way which is clear, fair and not misleading. This includes ensuring that the information provided to customers is accurate and does not emphasise potential benefits without also giving a fair indication of the risks.

FCA rules (BCOBS 2.3.1AR) require communications made to electronic money customers and each payment service or electronic money promotion to be accurate and not emphasise any potential benefits of a payment service or electronic money product (ie current account functionality) without also giving a fair and prominent indication of any risks (ie lack of the FSCS protection). Leaving out this fact could mean the information firms give customers is insufficient, or even misleading.

The FCA is also concerned that firms are giving a potentially misleading impression to customers about the extent to which products or services are regulated by the FCA. If a communication or a financial promotion or payment service or electronic money promotion names the FCA as the regulator of a firm or other provider, and refers to matters it does not regulate, the firm should ensure that the communication makes clear that those matters are not regulated by the FCA (BCOBS 2.3.4G).

The regulator asks e-money firms to write to their customers within six weeks of the date of this letter to remind them of how their money is protected through safeguarding and that FSCS protection does not apply.

Finally, the FCA expects the Boards of e-money firms to have considered the issues it has raised and to have approved the action taken in response.