20200701 Wirecard : the FCA’s freezing of assets.

On 29th June, the full scale of the conditions imposed on 26th became completely clear.

1. The company must not issue any electronic money (so cards were dead) and must not accept any funds (the FCA studiously avoids using the term “deposit”) in consideration for the issue of electronic money (so deposits could not be made to cards). That restriction was removed on 29 June.

2. If deposits are made moneys received in breach of condition 1 must be returned “to the customer.”

That, as we know, could not work. It makes a false assumption that only the card holder credits the card account. In fact, many card holders use it as a current account – a fact that became painfully obvious as soon as the action was taken.

In the absence of a bank account to which the card is linked, there is nowhere for moneys to be returned to, if they are to go to the customer.

Returning the moneys to the source, which would include benefits offices and employers, would breach the condition.

This condition was not modified on 29th June but it had become otiose. Sadly, it takes a lawyer to work that out. Way to go, FCA.

3. The company must not carry out any payment services. That condition was removed on 29 June.

Then, at last, the FCA got around to the thing it should have done for years.

The company must preserve and secure all information and systems relating to the regulated services and retain them in the UK available for inspection at the FCA’s request.

*The FCA has power to do this because the action is against the UK regulated company, not the German parent.
*The company “must take all necessary steps to ensure that all relevant funds are protected in designated accounts held at credit institutions authorised by the Prudential Regulation Authority in the UK” (précise). Before midnight (or is it midday? It says 12 PM which is a nonsense expression albeit one in common use) on 26 June, the company must provide the FCA with details of all those designated accounts and evidence of the steps taken to comply with the requirement to so hold moneys.
*The company must not “without the written consent of the Authority and save as is necessary to comply with these requirements, in any way dispose of, withdraw, transfer, deal with or diminish the value of any of its own assets, and any funds it holds for, or to the order of its clients (whether in the United Kingdom or elsewhere). ”

They are customers. FFS, FCA.

As of 29 June the FCA says it “has provided Wirecard with written consent to make payments in the ordinary course of business. Payments to other companies in the Wirecard group are not permitted unless made in consideration for services provided or as reimbursement for sums paid on Wirecard’s behalf.”

Lawyers will recognise the terms as being, effectively, those that would be found in a civil injunction to prevent waste in relation to assets.

From the outside, if one reads the tabloids, the FCA’s action was tantamount to an attack on the poor.

In fact, it acted swiftly and decisively to protect their money and to ascertain the facts and to put in place protective measures and then to release the restrictions affecting customers all within a little over 72 hours. It was a superbly executed strategy.

But it was a strategy that should not have been necessary.

The case highlights the problems across the FinTech sector.