Financial Supervisory Authority of Norway calls on payment and e-money institutions to stop mixing own funds with safeguarded client money

The Financial Supervisory Authority of Norway published a thematic supervision report on how payment institutions and e-money institutions handle and safeguard client funds. It found that several firms keep their own funds on client money accounts for shorter or longer periods, which in the supervisor’s view creates a risk that customers’ funds would not be protected in the event of insolvency or enforcement, and it expects firms to make changes to avoid commingling. The review covered 25 firms and was based on responses from 23 firms that safeguard funds via a client account (with one firm reporting safeguarding by bank guarantee and one stating the funds on the account were not client funds). Finanstilsynet reiterates that safeguarding requires funds to be kept separated and identifiable (or covered by insurance or a bank guarantee) and focuses on three practices that can introduce the firm’s own funds onto the client account: (i) fees charged to customers, which belong to the firm and should be kept off the client account, for example by splitting payments or invoicing fees after the customer payment; (ii) buffers of the firm’s own funds used to bridge settlement delays, which five firms reported holding on the client account, where any advance payments should instead be made from the firm’s own accounts and delayed incoming payments should be routed to an operating account to avoid commingling; and (iii) interest earned on the client account, which most firms said accrues to the firm and should be transferred to an operating account without undue delay after interest is credited by the bank. Finanstilsynet notes that compliance may be followed up through ongoing supervision and inspections, and that client account reconciliation was not assessed in this thematic review but could be reviewed in later firm-specific supervision.