Monneo’s the slip… lessons for payments and E-money Firms from the failure of Monneo Limited

Posted on: 10 June 2023

Written by: John Burns

Avid watchers of the FCA’s Twitter feed such as myself (and yes, I know how sad that makes me) may have spotted the regulator’s announcement on 31 May that Monneo Limited has entered special administration. As Monneo is an authorised payment institution, this piqued my interest and I started looking to see what the background to this failure was. 

What I discovered was that on 5 April the FCA published a “First Supervisory Notice” to the firm, which made quite some reading! Firstly, the FCA was barring Monneo from carrying out any payment services without the written consent of the Regulator. They were also required to remove any authority to make decisions from a specific Director, and to conduct thorough due diligence on all directors and Payment Services Directive (PSD) individuals and provide written confirmation to the FCA that it had done so.

Why had Monneo failed?

So, what went so badly wrong that this drastic action was required? The “Reasons for Action” cast light on this.

One of the Directors had been found to be in contempt of court and subject to an arrest warrant in September 2020, the judge saying that he “had been a wholly unsatisfactory and unreliable witness” and that “the contempt in this case is so serious that nothing less than a custodial sentence will do.”  The director was sentenced to 9 months in prison.

Yet, Monneo did not think that they needed to notify the FCA of this, placing them in breach of regulation 37 in the PSRs and Principle 11 of the Principles for Businesses.

Readers may remember that Nicholas Webb, from the FCA’s Payment Markets Intervention Department said at our event on 1 November, that if a payment institution or E-money institution appeared on the FCA’s radar for anything at all, the firm could be subject to a “holistic review” by the regulator. They appear to have been true to their word.

Monneo had applied in January 2023 for a Variation of Permission (VoP) to add payment account activities to its previous Money Remittance permission. On looking more closely at what the firm was already doing, the FCA discovered that its website was advertising the firm as a provider of International Bank Account Numbers (IBANs) and that it “was excited to announce the launch of its new merchant account/card acquiring service”. 

Analysis of transactional activity showed that the firm was operating payment accounts, and was allowing rolling balances to be held on them, in one case over £100,000 for over 8 months, in breach of the FCA’s interpretation of the requirements of regulation 33 of the PSRs.

The restriction on doing any business imposed by the FCA appears to have led the remaining directors to conclude that the firm could no longer operate in a solvent manner, hence the application to the court to enter administration.

Lessons learned

The lessons to be learned from this sorry tale for other payment services and E-money firms are clear:

  • If something bad happens, notify the FCA. Attempting to keep it quiet will make it worse for you when the FCA finds out (and given the size of the Payments Markets Intervention Department, they will);
  • Nicholas Webb’s “holistic review” advice was clearly accurate – firms need to work on the basis that the FCA could come to them at any time and ask for evidence that they operating in a compliant manner. How certain are you that your firm could meet that test?
  • The FCA are deadly serious about payment institutions not holding rolling balances on payment accounts. If you are offering payment accounts, check that you are not allowing this to happen.

An external review to check that your firm is operating properly could not only provide management and the Board with some peace of mind, but it shows the FCA that you are taking all reasonable steps to ensure that you are compliant.

If you’d like to have a chat about how Cosegic could help with this, please contact one of the team.

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John B

John Burns

John is one of the UK’s foremost compliance experts in payment services, and he is Senior Advisor in our Payment Services Practice.

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