Tag: financial services

  • Changes to safeguarding for payments and e-money firms and CASS 15 audits

    New CASS 15 Safeguarding Rules: A Guide for EMIs and Payment Firms

    The Financial Conduct Authority (FCA) has recently finalized its overhaul of the safeguarding regime for payments and e-money firms. Introduced under Policy Statement PS25/12, the new rules represent the most significant shift in the sector’s regulatory landscape in years, moving firms toward a rigorous framework under CASS.

    For many firms, the transition to the new CASS 15 chapter will require a major rethink of their internal controls, governance, and audit arrangements.

    Why the change?

    The FCA’s primary goal is to address long standing weaknesses in how firms safeguard client funds. By strengthening these rules, the regulator aims to ensure that if a firm fails, customer money can be returned more quickly and in full. The new regime is designed with failure in mind, meaning firms must prove they can identify and segregate client funds at any given moment.

    Key Milestones: The Roadmap to Compliance

    The transition is split into two distinct stages:

    The Supplementary Regime (Interim Rules):
    Taking effect from 7 May 2026, these rules strengthen existing requirements around record keeping, monitoring, and reporting.

    The Post-Repeal Regime (CASS 15):
    This is the end state where the current Electronic Money Regulations (EMRs) and Payment Services Regulations (PSRs) are replaced by the prescriptive CASS 15 rules in the FCA Handbook.

    What is Changing for Audit and Assurance?

    Perhaps the most critical change for senior management is the shift in how safeguarding is audited.

    Statutory Auditor Requirement:
    Under the new rules, safeguarding audits can no longer be conducted by general regulatory consultants. They must be performed by statutory auditors where EMIs and payment firms hold more than £100k. This brings safeguarding assurance in line with other regulated client asset regimes (like MiFID firms).

    Reporting Breaches:
    Auditors will likely be required to report all safeguarding breaches to the FCA, regardless of materiality. This removes management discretion over what is escalated to the regulator.

    Strict Reconciliation:
    The new rules mandate daily internal and external reconciliations. Auditors will look for robust, automated processes rather than manual, error-prone spreadsheets.

    Statutory Trust:
    CASS 15 introduces a statutory trust over relevant funds. This creates a more robust legal protection for customers but requires precise accounting and legal documentation to be in place.

    Who is affected?

    The rules apply to:

    • Authorised Payment Institutions (APIs)
    • Authorised E-Money Institutions (EMIs)
    • Small EMIs (SEMIs)
    • Credit Unions issuing e-money

    Small Payment Institutions (SPIs) are not mandated to follow the full regime but can choose to “opt-in” to bolster their credibility and consumer protection.

    How to Prepare: A Checklist for Firms

    With the May 2026 deadline approaching, firms should begin their gap analysis immediately:

    Review Governance:
    Ensure there is clear senior management accountability for safeguarding (specifically under the SM&CR framework).

    Audit Your Tech:
    Evaluate whether your current reconciliation engines and sub-ledgers can handle the requirement for daily, granular reporting.

    Document the ‘Flow of Funds’:
    Create a detailed map of how money enters and leaves your business, identifying every point where funds are “relevant” and must be protected.

    Engage Your Auditors Early:
    Because the new rules require a specialist statutory audit, you should speak with your auditors now to ensure they have the capacity and expertise to meet the new FRC CASS assurance standards.

    How MAH Can Help

    At MAH, we specialise in helping FinTech and financial services firms navigate complex regulatory audits. As the FCA increases its scrutiny of the payments sector, having a robust, compliant safeguarding framework is no longer optional, it is a prerequisite for survival.

    We can assist your firm with:

    • Pre-audit readiness reviews to identify gaps before the May 2026 deadline.
    • Statutory safeguarding audits compliant with the new CASS 15 standards.
    • Internal control advisory to help automate and secure your reconciliation processes.

    Contact us today for a consultation on how the CASS 15 changes will impact your business and to ensure you are ready for the new regime.

  • VAT and financial services

    VAT and financial services:

    Are you losing out on VAT?

    VAT and financial services is a very tricky area and this video presentation gives a brief overview:

    https://www.youtube.com/watch?v=IaYzGej4p0c

    The main points covered are:

    1) VAT and financial services exemptions under VAT Act 1994 Schedule 9 Group 5 (eg money, loans, securities, advising collective investment scheme)

    If a firm is making exempt sales, then it doesn’t have to pay any VAT on income to HMRC, however it also cannot reclaim VAT on its expenses.

    2) Standard rated items, mainly looking investment management/advisory. If  a firm is providing advice or is using its discretion to manage investments or funds and isn’t merely executing transactions according to clients’ instructions, then these services are taxable at 20%. Either the client has to pay an extra 20%, of the firm has to take a hit of 20% on its fees.

    This may be avoided by carefully structuring the services with an SPV so that the investment manager has an interest in the trading profits of the fund, as a principal. Therefore, its share of profits would be exempt.

    If the investment manager is an external entity providing services as an agent, then even if its consideration is contingent eg 20% of trading profit if hurdles met etc, then they would still be subject to VAT

    3) The place of supply rules need to be checked. If the client is located outside of the UK, then the sales may be outside the scope of VAT. In this case, no VAT is due on sales and the firm may be able to reclaim VAT on its expenses if the sales would normally have been subject to VAT if supplied in the UK.

    Contact us

    This is a brief summary. VAT and financial services is a very complex area and we can discuss your circumstances and look at your contracts, as well as the legislation and VAT cases to design a VAT strategy. Please contact us for a free, no obligation consultation to discuss your requirements. Our base at Liverpool Street is within easy reach of the City, Canary Wharf or Mayfair or we could also visit you at your offices.