A large, authorised payments institution (API) approached Thistle Initiatives for help with its safeguarding and wind-down arrangements.
In the light of additional guidance issued by the FCA during 2020, reflecting the impact of Covid-19, the firm was aware that a safeguarding audit was overdue. Indeed, the FCA had already been in touch requesting information on its safeguarding arrangements.
The firm was also conscious of an increased level of regulatory scrutiny around the related issue of wind-down planning, and wanted professional help reviewing its provisions in this area.
Thistle Initiatives was already familiar to the firm as a business with extensive knowledge and experience of the payment services sector and one capable of adding significant value beyond simply identifying compliance issues and potential solutions. The firm’s senior management recognised Thistle Initiatives as a provider capable both of proposing solutions and helping implement them.
Following Thistle’s appointment, our expert team first engaged with the firm’s senior stakeholders and carried out interviews with staff to assess exactly how well the firm’s existing policies and procedures matched the FCA’s requirements.
The next step was conducting a thorough review of all documentation supporting how these arrangements were being implemented in practice.
We also undertook a full review of the firm’s process for reconciling its customer transaction ledger against the account statements provided by the safeguarding credit institution - and its record keeping around this process.
Along the way, we shared the benefit of our knowledge and experience, highlighting areas of concern and potential improvements. Then, at the end of the review phase, we produced a detailed report and an action plan of recommendations including detailed advice on how to implement it.
Among the areas of concern we identified were shortcomings in the firm’s reconciliation record keeping. Although reconciliations were being carried out on a daily basis, this work wasn’t being properly captured and documented. Rather than employing a joined-up system that made it easy to pull up a report at any time showing exactly what funds were in what account on what date, the firm relied on a manual approach that massively complicated any review.
Another concern was the firm’s processes for undertaking initial and ongoing due diligence on the credit institutions providing it with the safeguarded accounts. Again, we were able to identify and help implement appropriate solutions.
While this work was progressing on safeguarding, we were also reviewing the firm’s wind-down plans. Here too, we uncovered a number of areas in which its current arrangements required work to bring them fully into line with FCA requirements.
For example, we found that the plans did encompass a sufficient range of scenarios that could lead to the firm no longer being viable. We helped remedy this by including financial scenarios such as:
- an investment seed round on which the firm was relying not coming to fruition,
- the firm having insufficient income to maintain solvency due to slower-then-anticipated customer sign-ups, and
- a sudden increase in overheads due to factors beyond the firm’s control.
We thoroughly stress-tested the firm’s financial forecasting assumptions to help it identify the full range of scenarios that could trigger a wind-down - and at precisely what point trigger thresholds should be set. We helped build regular reviewing and testing of these scenarios into the firm’s compliance monitoring plan, making this an intrinsic part of the firm’s day-to-day approach to risk management and business continuity planning.
In summary, Thistle Initiatives helped the firm update and optimise its safeguarding and wind-down planning provisions and implement these changes in practice. Bringing the benefits of an outsider’s perspective, our expert team was able to identify issues an insider would likely have missed.
Despite having to work remotely, due to restrictions then in place around the Covid-19 pandemic, all of this was achieved quickly and efficiently. Our involvement relieved significant regulatory pressure and provided peace of mind for the firm’s senior managers, put in place a robust framework fully in line with the FCA’s expectations, laid firm foundations for future regulatory compliance, and helped protect the firm’s customers from harm.
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