FCA Update

In May 2022, PPL obtained an e-money licence from the Financial Conduct Authority (FCA).  It was a much more rigorous process than we envisaged, made even more difficult by the rules and guidance being ambiguous about whether we actually needed a licence or not.   

We erred on the side of caution and pursued it.  Having convinced the FCA to grant us the licence, we publicly trumpeted the achievement and celebrated the assurance that it gave funding authorities that their money was safe.  We saw ourselves as a trailblazer for the direct payments sector, and were sure that other organisations would follow suit. 

They didn’t.  The direct payments sector in general saw it as a ‘nice to have’, and many of our peers continued to operate with no regulatory oversight whatsoever, sometimes with disastrous consequences. 

Meanwhile, PPL faced an ever-increasing burden of compliance and restrictions.  Our licence was technically the same one that many ‘challenger banks’ have, and the FCA held us to the same level of scrutiny as it does them, even though we are ‘just’ processing payroll and paying some PAs. 

We therefore reviewed the market and sought fresh professional advice.  The result is that the FCA recently formally agreed that our direct payments model falls under the ‘limited network exemption’.  Whilst we no longer need an e-money licence, we are still listed on the FCA’s Financial Services Register and are required to submit an annual return to the FCA. 

So, do we regret this whole process? 

The short answer is ‘no’.  The reason is that the process of becoming licenced forced us to establish gold-standard processes and safeguards that mean that the funding authorities that we work with have the highest possible level of assurance that their funds are in safe hands. 

PPL now processes £10m+ of direct payments every month.  The systems, processes and controls that we established to meet the FCA’s high standards have enabled us to achieve this growth safely, and we have no intention of weakening them now. 

What about the rest of the sector? 

Direct payments are complicated and often messy.  When scaled up, the deadlines and volumes can be relentless.  Without robust systems, processes and controls, even the well-intentioned can quickly come undone.   Sadly, news has emerged this week of yet another 3rd sector organisation that has struggled to keep control of the funds that they manage. 

PPL were the only direct payments support organisation that had a FCA licence, and it is now clear that the FCA doesn’t have the direct payments sector in its sights.  In the absence of any other suitable regulatory body, the task of ensuring that direct payment funds are properly safeguarded falls on commissioning and contract management staff at funding authorities.