The UK’s payments and e-money sector have become accustomed to regulatory change. Consumer Duty, safeguarding reform, operational resilience, cryptoasset regulation and financial crime expectations have all demanded significant investment from firms over recent years. Yet arguably one of the most important developments has received comparatively little public scrutiny: the increasing use of Voluntary Requirements (VREQs) and Own-Initiative Requirements (OIREQs) by the Financial Conduct Authority (FCA).
Once viewed as exceptional supervisory tools, VREQs and OIREQs now appear to have become a central feature of the FCA’s approach to supervising Payment Institutions (PIs) and Electronic Money Institutions (EMIs). The question is not whether the FCA should intervene where risks are identified. Rather, it is whether the increasing reliance on these powers is creating unintended consequences for firms, investors and the wider payments ecosystem.
A Clear Shift Towards Early Intervention
We previously commented on the change of name from ‘Supervision’ to ‘Market Interventions’ as a clear indicator of direction of travel. The FCA has recently appeared to increasingly favour supervisory interventions that impose restrictions on firms before proceeding to formal enforcement action. These interventions frequently limit a firm’s ability to onboard new customers, accept new funds, launch products, enter new business relationships or expand into new markets. The FCA itself describes requirements as obligations that can prevent firms from taking on new customers or require them to retain assets to meet future liabilities. All intended to mitigate risk, whether perceived or crystallised.
Evidence suggests that these measures are becoming particularly prevalent within the payments sector. In a 2024 Freedom of Information response, the FCA disclosed numerous instances of OIREQs, VREQs and Section 166 reviews affecting PIs and EMIs between 2020 and 2024. The data showed a notable increase in the use of voluntary and own-initiative interventions compared with earlier years, particularly among e-money institutions.
This should not be surprising. Following several high-profile firm failures and increased political scrutiny of financial regulation, regulators globally have moved towards earlier intervention. Waiting for consumer harm to crystallise is no longer considered acceptable. From the FCA’s perspective, restricting growth while remediation takes place is preferable to dealing with the consequences of a significant safeguarding or financial crime failure.
Viewed through that lens, VREQs and OIREQs are legitimate and understandable supervisory tools. However, the practical consequences for affected firms are often profound.
The Prudential Paradox
One of the more challenging aspects of these interventions is the apparent tension between supervisory restrictions and prudential expectations.
As with all other financial services firms, (authorised) PIs and EMIs remain subject to ongoing capital adequacy, liquidity and financial resilience requirements. They are expected to maintain adequate own funds, robust governance arrangements and sufficient operational capability to protect customers.
Yet many interventions directly target the very activities through which a firm is able to generate revenue.
A firm prohibited from onboarding new customers, accepting additional funds or expanding transaction volumes may suddenly find its revenue stream and growth model effectively frozen. Existing customers may be able to continue to transact, but revenues often plateau or decline. At the same time, the costs of remediation escalate.
Specialist compliance support, legal advisers, external reviews, governance enhancement programmes, technology upgrades and additional financial crime controls all require funding. The consequence is that firms may face increasing expenditure precisely when their ability to generate income has been constrained.
This creates what might best be described as a prudential paradox. The FCA expects firms to maintain strong capital positions and liquidity resources throughout remediation. That expectation is entirely reasonable. However, where restrictions remain in place for extended periods, firms and investors may legitimately question how those prudential standards are expected to be maintained indefinitely in the absence of normal commercial growth.
A temporary restriction is one thing. An intervention lasting many months, or potentially years, becomes a fundamentally different proposition.
Is the FCA Seeking to Reduce the Number of Payments Firms?
This is a question increasingly discussed within boardrooms and among industry specialists and commentators.
The FCA would undoubtedly reject any suggestion that it has an objective of reducing the number of authorised firms. Competition, innovation and consumer choice remain important elements of the UK’s financial services framework. The FCA continues to authorise new firms and publicly supports innovation where appropriate.
Nevertheless, the question continues to arise because of the observable consequences of intervention.
When a firm is prevented from onboarding customers, investors may become hesitant to provide additional capital. Strategic partners may reconsider relationships. Customers may begin to explore alternatives. Recruitment of senior personnel becomes more difficult. In some cases, remediation costs exceed original regulatory capital requirements many times over.
Eventually, firms may conclude that continued operation is commercially unviable.
The point is not that the FCA is necessarily pursuing a deliberate policy of market reduction. Rather, an increasing use of and reliance on VREQs and OIREQs may be creating a form of regulatory selection mechanism.
Well-capitalised firms with mature governance structures are generally better positioned to absorb the financial shock of prolonged restrictions and fund remediation. Smaller firms, even where failings are remediable, may struggle to survive the process.
Over time, the inevitable outcome may be a sector comprised of fewer, larger and better-resourced institutions. Whether this is an intended policy outcome or simply a by-product of more intensive supervision remains open to debate. And is consolidation such a bad thing?
Are VREQs and OIREQs the Right Regulatory Tool?
The policy question is interesting. If the FCA concludes that a firm presents a level of risk that justifies preventing business growth for a prolonged period, is a restriction notice always the most appropriate mechanism? And does the FCA make that call?
The regulator would understandably argue that VREQs and OIREQs, typically alongside a s166 Skilled Person review, are flexible, proportionate and protective. Unlike ‘nuclear’ formal enforcement proceedings, proposing the cancellation of a firm’s permission, they allow for remediation while sometimes allowing firms to continue serving existing customers. They are often quicker to implement and can be tailored to address specific risks.
Yet there is another perspective. A firm can experience significant commercial harm through restrictions despite there being no formal finding of misconduct, whether through the Skilled Person or the FCA’s own findings. Brand reputation and customer confidence is eroded. Investor confidence may be damaged. Valuations may decline. Growth opportunities may disappear. Staff retention may become problematic.
Where restrictions continue for lengthy periods, firms can find themselves in a state of regulatory limbo: authorised, but unable to operate normally; compliant enough to remain authorised but not sufficiently trusted to grow.
At that point, the distinction between supervision and sanction becomes increasingly difficult to discern.
This is not necessarily an argument against intervention. Rather, it is an argument for greater transparency around remediation expectations, clearer supervisory milestones and a more predictable path towards the lifting of restrictions.
Protecting Against Regulatory Intervention
The most effective response is not to challenge the FCA’s powers but to reduce the likelihood of intervention occurring in the first place. Prevention is better than cure, as the old adage goes.
Many firms subject to supervisory action do not fail because of deliberate misconduct. More commonly, they experience governance frameworks that fail to keep pace with commercial growth. Or they simply think they are doing a good job at being compliant: how do they know, without an external lens being applied?
Boards should therefore focus on several key areas.
Governance Must Scale with Growth
The days when payments firms could prioritise growth while building governance later have long passed.
The FCA increasingly expects risk management, compliance oversight and board challenge to be sufficiently evidenced at the point of authorisation and to mature alongside transaction volumes and customer growth.
Capital Should Exceed Regulatory Minimums
Regulatory capital requirements represent minimum standards, not strategic targets.
Firms operating close to prudential thresholds leave themselves vulnerable to unexpected remediation costs or supervisory intervention. Strong surplus capital provides resilience and credibility.
Conduct Regulatory Stress Testing
Every payments firm should ask itself a simple but uncomfortable question:
“Could we survive being unable to onboard a single new customer for the next twelve months?”
If the answer is no, the firm may have a business model vulnerability that extends beyond regulatory compliance. Wind-down Plans are key in setting out the various scenarios (plausible and implausible) that give rise to stress, and identifying the capital required to withstand it.
Management Information Must Be Board-Ready
Boards should be capable of demonstrating effective oversight through high-quality management information covering risk, safeguarding, financial crime, complaints, operational resilience and prudential resources.
Assertions of control are no substitute for evidence of control. “Show your working out”. This is where the FCA will often call for a Skilled Person (s166) to provide the ‘external assurance’ necessary to confirm or dispel its concerns.
Maintain Open Dialogue with Supervisors
Supervisory relationships matter.
Firms that engage openly, acknowledge weaknesses early and present credible remediation plans are generally better positioned than those that adopt an unnecessarily defensive approach.
Get Help
It is not saying that you are non-compliant, but getting support from a third party helps answer the FCA’s question “how do you know”.
Conclusion
The increased use of VREQs and OIREQs represents one of the most significant developments in FCA supervision of the payments and e-money sector. The trend reflects a regulator that is increasingly willing to intervene early where it identifies potential risks to consumers, safeguarding arrangements or financial crime controls.
The challenge is that restricting growth while expecting firms to maintain capital strength, liquidity and remediation capability creates unavoidable commercial tension. Many firms can withstand such pressures for a period. Fewer can do so indefinitely.
The critical question for policymakers is therefore not whether intervention should occur, but whether prolonged restrictions always represent the most effective route to achieving better outcomes. Is a reduction in the number of payments firms in the UK really an objective, or simply a consequence of the FCA asking more questions of the sector, and not liking the answers it is getting?
For firms, regulatory resilience is no longer simply a compliance objective. In an era of increasingly interventionist supervision, it has become a core determinant of long-term commercial viability.
How Complyport Can Help
Complyport can support firms in identifying regulatory weaknesses, strengthening internal controls and reducing the risk of supervisory intervention through:
- Regulatory Gap Analysis and Compliance Reviews: Conducting independent assessments of existing compliance frameworks to identify potential weaknesses and areas requiring remediation.
- Governance and Risk Management: Reviewing governance arrangements, board oversight, management information and risk management frameworks to ensure they meet regulatory expectations.
- VREQ and OIREQ Remediation Support: Assisting firms subject to regulatory restrictions in developing and implementing effective remediation plans and addressing FCA concerns.
- Safeguarding and Prudential Compliance: Assessing safeguarding arrangements, own funds requirements and financial resilience to support ongoing regulatory compliance.
- Skilled Person Review: Supporting firms in preparing for Section 166 reviews, where applicable, and addressing findings arising from independent regulatory assessments.
- Regulatory Engagement and FCA Communications: Providing practical guidance on supervisory engagement, regulatory responses and demonstrating effective compliance arrangements.
- Independent Assurance and Stress Testing: Helping firms assess their ability to withstand regulatory restrictions, financial pressures and operational challenges.
Contact Complyport today to discuss your regulatory challenges and book a meeting with one of our Subject Matter Experts.
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