In an open letter to the UK’s Financial Conduct Authority (FCA), the UK’s Emerging Payments Association has warned of lasting damage to the UK’s financial technology sector as a result of the fallout from the Wirecard insolvency.
On Friday, the FCA froze the accounts of Newcastle-based Wirecard Card Solutions Limited, the payment processing subsidiary of the German firm, which has been caught up in a major accounting scandal.
Wirecard CSL is authorised and supervised by the FCA to issue electronic money (e-money) and provide payment services, including the issuance of e-money onto prepaid cards.
Holders of prepaid cards from a range of companies, including Curve, Pockit, U Account, McLear Ring, Crypto.com, Anna Money, CardOneMoney, Payoneer, Morses Club, Boon and Holvi have found access to their funds frozen as a result of the FCA order.
Many of those affected are freelancers, contractors and low-paid workers around the world.
One of those companies appears to have found a way to unfreeze its clients’ assets: Crypto.com repaid its clients directly in cryptocurrency, avoiding the traditional financial system.
Anna Money, one of the affected prepaid card issuers, said earlier today it was trying to migrate to a new card processing provider as fast as possible, and that this could take 10-14 days.
However, Sunday Times journalist Sabah Meddings then reported that Wirecard CSL was on the verge of appointing administrators, a step that could extend the waiting time for affected cardholders.
Anna Money then said it may use its own resources to cover customer balances.
Payoneer, another of the affected firms, made a similar promise.
“Even if there’s a shortfall, our intent is for Payoneer to fill the gap so that you get 100% of your money back,” the firm said.
Although Wirecard CSL is a relatively small entity, the resolution of financial bankruptcies is typically time-consuming. For example, in a relatively complex case, administrators for Lehman Brothers, whose insolvency triggered the 2008 financial crisis, were still assessing creditors’ claims over a decade later.
“We predict dozens of corporate failures”
According to the Emerging Payments Association, a trade body, the freezing of Wirecard CSL’s activity by the regulator is having a heavy human cost, as well as putting payments companies and the entire UK fintech sector under pressure.
“Those receiving payments onto their prepaid accounts, such as Pockit and The Change Account, which includes vulnerable people, those without access to mainline banking, those with low incomes on benefits programmes, and young people, will not receive them,” the Association’s chairman, Tony Craddock, said in the open letter.
“They will be unable to pay other bills, including food, utilities and direct debits. A few will be merely inconvenienced, but many will suffer and some will become emotionally distressed and traumatised, with unknown consequences to their wellbeing and health,” Craddock went on.
“We believe that the suspension will impact more than 150 companies and thousands of their employees. We predict dozens of corporate failures, hundreds of job losses and significant reductions in tax payments, unless it is removed right away,” Craddock said.
“Unless the suspension is reversed soon, we predict significant and irreparable damage to the UK’s reputation for having a thriving, balanced fintech industry supported by an understanding and enabling regulator,” he said.
In a statement earlier today, the FCA said it had been working with Wirecard CSL and other international and UK authorities over the weekend to resolve the issue.
“We are maintaining pressure on the firm to resolve these issues which would allow it to operate under certain conditions. However, we cannot lift the restrictions without reassuring ourselves that the firm has been able to satisfy all our concerns for example that all clients’ money is safe. We hope to be able to issue an update soon,” the FCA said.
“The Wirecard debacle makes urgent action essential”
According to Huw van Steenis, a former adviser to the governor of the Bank of England, the whole regulatory framework for payments may need to be rewritten.
Writing in the Financial Times today, van Steenis said that Wirecard’s bankruptcy underscores an immediate need for a review of oversight in this area.
“Modern payment chains consist of an increasing number of companies that are interdependent but do not always have shared interests. They may be under the supervision of various authorities or even under no supervision at all,” van Steenis said.
“That’s why last year my review of financial services for the Bank of England argued for a cross-authority review of payments regulation to reflect the shifting risks and gaps. The Wirecard debacle makes urgent action essential,” he said.
Post-publication update:
Late on Monday, the FCA reversed its decision to suspend Wirecard CSL’s UK activities, saying that the payment processing firm could resume its work from 00.01 UK time on Tuesday 30 June. The regulator said this step should unfreeze the affected debit card services.
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