FCA and Modulr agree customer onboarding restrictions

Tuesday 17 October 2023 10:35 CET | News

The UK Financial Conduct Authority (FCA) and Modulr have agreed on imposing customer onboarding restrictions for the payments fintech.

Modulr, which provides the payments infrastructure for businesses, including fintechs like Sage and Liberis, confirmed that it’s currently working with the regulator on its systems and processes. At the beginning of October 2023, FCA issued a restriction for the company, preventing it from bringing new partner clients, such as agents and distributors who use its payments infrastructure for cards or accounts. 

The UK Financial Conduct Authority (FCA) has imposed customer onboarding restrictions on payments fintech Modulr.

The restriction’s premises

According to Modulr’s statement for Sifted, the company agreed to temporarily pause onboarding certain new customer segments in the UK, due to the many new and revised UK regulations coming into force in 2023 and 2024. These include regulatory changes such as the new UK consumer duty, adjustments to push payment fraud reimbursement, and a ban on incentive marketing for high-risk assets like crypto.

Modulr began to notify its new partners that they may not be able to onboard until the first quarter of 2024, however, the firm declined to comment on the deadline. According to officials, Modulr agreed with the FCA to pause the onboarding of new Agent & Distributor (A&D) partners, as they bring particular risks to oversee and manage, to ensure its governance, systems, and controls support the business’ scale and regulatory requirements. The company also confirmed that it aims to future proof in terms of regulation changes, including the Consumer Duty, APP Fraud Reimbursement, and Financial Promotions Requirements. Modulr also confirmed that this move has no impact on existing partners, the onboarding of new direct customers, or the expansion of its European business. 

Fintech companies like Modulr provide Embedded Finance services to companies, their solutions focusing on payments, current accounts, and cards. Several firms operating in this subsector attracted recent regulatory scrutiny in the UK and EU over concerns about financial crime.

The restrictions placed on Modulr follow actions from BaFin, the German financial regulator, which
stopped new partnership onboarding for BaaS provider Solarisbank in January 2023. The Bank of Lithuania also revoked Railsr’s European e-money licence in June 2023 after an investigation that revealed systematic and multiple violations of laws. While it investigated Railsr, the Lithuanian regulator restricted the company from onboarding new clients in February 2023. 

Modulr’s past developments

Since the start of its trading operations in 2016, Modulr has grown to be a material part of the UK and European payments ecosystem. As per the company’s audited 2022 financial statements, Modulr expanded its revenue by 80% year-on-year to GBP 31 million. To support its growth, the company raised USD 108 million in series C funding in May 2022, in addition to a previous 2020 fund raise. 

At the beginning of September 2023, Wamo, a UK-based digital business account provider for SMEs, selected Modulr as its Banking-as-a-Service provider. Through this integration, Wamo prepared for its expansion in the European Union and the UK while improving its business account services for SMEs. The company planned to grant Wamo business account holders access to credit, credit cards, and a USD account in addition to the existing features.

Moreover, in June 2023, Modulr expanded its operations in France and Spain as part of its European growth strategy. This allows the company to deepen its presence in the regions and support the development of product functionalities developed for the French and Spanish markets. By receiving its regulatory and branch registration approvals from the Banque de France and Banco de España, Modulr can develop localised functionalities and increase the competitiveness of regional firms both in-country and across the UK and EEA. 

FCA’s recent input

Revolut attracted scrutiny from the UK’s FCA in October 2023 due to red-flag accounts that were restricted by the National Crime Agency. At that time, the company was in talks with the financial regulator on alleged failures that allowed money to be released from accounts that were flagged as suspicious. The failures occurred between July and August 2023, with the FCA overseeing Revolut’s payments business and engaging the fintech with the support of the NCA. 

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Keywords: regulation, digital onboarding, fraud management, fraud prevention, fraud detection, embedded finance, BaaS
Categories: Fraud & Financial Crime
Companies: Financial Conduct Authority, Modulr
Countries: United Kingdom
This article is part of category

Fraud & Financial Crime

Financial Conduct Authority



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