Safeguarding Audit: The Best Way to Ensure FCA Compliance

In July 2020, the FCA crystallised the need for robust safeguarding arrangements within payment and e-money firms. They stipulated that companies required to audit their annual accounts under the Companies Act 2006 must also ensure they conduct safeguarding audits for compliance with the regulatory and FCA requirements. This mandate underscores not just a regulatory necessity but a foundational aspect of customer trust and operational integrity.

At PSP Lab, we understand that navigating the complexities of payment and e-moeny regulations can be as challenging as it is critical. Safeguarding customer funds isn’t just about meeting legal requirements; it’s about cementing the trust that clients place in your services every day. Our dedicated safeguarding audits provide more than compliance peace of mind—they enhance your operational resilience and prepare your firm to thrive in a dynamic financial landscape.

ATTENTION: Closer to the bottom of this page, you’ll find our free safeguarding guide, which details the compliance measures that payments and e-money firms need to implement. Don’t miss out—learn how to operate your business with the highest level of certainty and compliance!

Why is an annual safeguarding audit indispensable for your business?

Our Safeguarding Audit Process

Our approach combines deep regulatory knowledge with a tailored auditing process that addresses the unique challenges and opportunities within the payment and E-Money sectors. From initial assessment through detailed reporting, our experts guide you every step of the way, ensuring no detail is overlooked.

At PSP Lab, we provide a transparent FCA safeguarding audit process tailored to the specific needs of payment and e-money firms. Our goal is to ensure your operations not only meet current regulatory standards but also demonstrate best practices in safeguarding customer funds. Here’s a detailed look at each step in our safeguarding audit process:

Step 1: Initial Compliance Review

The first phase of our safeguarding audit begins with an initial compliance review. This involves a thorough assessment of your existing policies and procedures to ensure they align with the latest FCA guidelines and other relevant regulations. We review documentation and evaluate your firm’s overall adherence to statutory obligations. This step sets the foundation for identifying any gaps in your compliance framework.

Key Activities Include:

• Reviewing policy documents and control frameworks, while considering transaction flow and overall setup to establish adherence to the regulations.
• Assessing compliance with the FCA guidance and other legal requirements, such as:
  1. Electronic Money  Regulations 2011, regulation 6 (6)b (threshold conditions for authorisation),  regulations 20, 21, 22 (if applicable);
  2. Payment Services and  Electronic Money – Our Approach (The FCA’s role under the Payment Services  Regulations 2017 and the Electronic Money Regulations 2011), paragraphs  10.7-10.88;
  3. FCA letter regarding Non-Bank  Payment Service Providers – Requirements For Safeguarding Of Customer Funds  dated 4^th  of July 2019;
  4. FCA’s Coronavirus  and safeguarding customers’ funds: additional guidance for payment and e-money  firms dated 9^th of July 2020;
  5. FCA Portfolio Strategy Letter For  Payment Services Firms And E-Money Issuers dated 9^th  of July 2020, section 1 – Safeguarding;
  6. FCA letter regarding Priorities For  Payments Firms, dated 16^th  of March 2023, Outcome 1 – Ensure  that your customers’ money is safe.

Step 2: Risk Assessment Related to Customer Funds

Following the initial review, we conduct a focused risk assessment specifically targeting the management and safeguarding of customer funds. This step is crucial to understanding the vulnerabilities within your systems and processes that could potentially impact the security of clients funds.

Key Activities Include:

• Identifying and evaluating risk management processes associated with customer fund handling and storage, including review of the compliance with the requirement to exercise all due skill, care and diligence in selecting, appointing and periodically reviewing credit institutions, custodians and insurers involved in the firm’s safeguarding arrangements.

• Collection of the information on the segregated customer funds bank account with designated credit institutions, segregated customer funds accounts with designated authorised custodians, or insurance policies (if applicable).

Step 3: Operational and Financial Controls Evaluation

Our safeguarding audit team then examines the operational and financial controls you have in place. This involves scrutinising the mechanisms and processes that govern the day-to-day management of customer funds. We look at how these controls are designed, implemented, and monitored, ensuring they are effective in mitigating identified risks.

Key Activities Include:

• Review and gap analysis of the actual company’s safeguarding and reconciliation operations.
• Sample testing of the firm’s safeguarded funds reconciliation for at least 10% of the randomly selected business days of the audited year.
• Interview with the firm’s personnel responsible for the safeguarding and reconciliation of customers’ funds.

Step 4: Final Reporting and Recommendations for Compliance Enhancement

The culmination of our safeguarding audit is the delivery of a comprehensive report that details our findings and provides actionable recommendations. This report not only highlights areas of compliance and excellence but also pinpoints weaknesses where improvements are needed.

Key Deliverables Include:

• A detailed audit report summarising findings, risks identified, and areas for improvement.
• Actionable recommendations tailored to enhance your safeguarding measures and compliance posture.
• A follow-up plan for implementing recommendations and possibly scheduling subsequent audits or remediation plans to ensure ongoing compliance.

Engagement and Follow-up:

We believe in forging partnerships rather than merely providing a service. Post-audit, our team is available to assist with the implementation of recommendations, training of staff, and further consultations to ensure your safeguarding measures are always at the forefront of industry standards and regulatory expectations.

Benefits of Partnering with Us for FCA Safeguarding Audit

Partnering with PSP Lab for your safeguarding audit provides a comprehensive set of advantages that strengthen and secure your financial operations. Our deep understanding of the regulatory landscape and meticulous approach to auditing ensure that your firm maintains compliance with the latest FCA regulations, offering you peace of mind and shielding you from potential penalties and sanctions. This level of compliance assurance fosters confidence during regulatory reviews and inspections, establishing your firm as a compliant, trustworthy market participant.

Beyond meeting regulatory requirements, our audits significantly enhance risk management. Through our rigorous risk assessment processes, we identify and address potential vulnerabilities in the management and protection of customer funds. This proactive identification and mitigation of risks help in developing robust controls that safeguard customer assets, enhance the resilience of your financial systems against potential fraud and errors, and ensure operational continuity under various stress scenarios.

Moreover, the insights gained from our audits do more than ensure compliance; they drive operational improvements that can transform your business processes. This leads to more efficient operations, better resource allocation, and ultimately, cost savings. These improvements often result in smoother transactions and enhanced customer satisfaction, strengthening your firm’s competitive edge in the fast-paced financial services sector.

Explore Our Preliminary Health-Check Assessment

If you are considering whether a full safeguarding audit is the right choice for your firm at this moment, we offer an alternative that may suit your needs: a health-check assessment. This preliminary evaluation serves as an insightful first step in understanding your company’s current standing. During this assessment, we will conduct an initial review of your company, evaluating inherent risks and your high-level adherence to regulatory obligations. This bottom-up approach not only assesses your firm’s overall compliance posture but also helps in defining the scope of any necessary remediation activities. These remediation efforts are tailored to your specific needs and agreed upon separately, ensuring a customised approach to enhancing your compliance framework and operational resilience. This health-check is an excellent starting point for firms looking to understand their compliance landscape better before committing to a full audit. Contact us today to ensure that you are in full compliance with the FCA safeguarding audit requirements.