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Wirecard Frozen Bank Accounts: When Will Customers Get Their Money Back?

Wirecard Money
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EDITOR NOTE: The problem with storing your funds and making financial transactions via electronic medium is that you’re willingly subjecting your wealth to potential manipulation, fraud, theft, or gross human error. With your money no longer tangible, you’re not in full control of your money. Banks, on the other hand, don’t care, as it gives them greater and more liquid capacity to profit. That capacity to profit is at the expense of your financial well-being, whether a bank’s intentions are honest or corrupt. Either way, you’re putting yourself in a position to get screwed, like those in the UK who used Wirecard (which recently went insolvent).

As the list of banking services that have been frozen because of the collapse of Wirecard grows longer, millions of customers are beginning to wonder: is the money in my account safe? The worrying news is that not even the financial authorities seem certain that it is.

To recap:

  • On Thursday, Wirecard filed for insolvency after it emerged that almost €2bn of cash on the company’s books didn’t actually exist
  • On Friday, the U.K.’s Financial Conduct Authority suddenly ordered the suspension of Wirecard Card Solutions Limited (WCS), a U.K. subsidiary of Wirecard which handled payment processing and issued cards for a number of banking services in the U.K. and across Europe
  • Millions of customers of those banking and payment services have seen their accounts and bank cards suspended, leaving them unable to withdraw money or access salaries paid into those accounts in some instances
  • Banking apps and payment services affected include Pockit, Curve, CardOneMoney, Payoneer and many others - click here for details of affected banking services

The immediate suspension of WCS on Friday has already caused immense difficulties for some customers who have contacted me.

A Pockit customer wrote to me on Friday, telling me he has autism and relies on Pockit as his only bank card. When he went to pay for petrol using his card on Friday afternoon, the card was declined and the police were called as the customer had no alternative means to pay. “The police still think I didn't intend to pay as [the card] kept saying not authorized and in their book that means I don't have it,” the Pockit customer wrote. “I had no idea until I read your story.”

Meanwhile, a customer of CardOneMoney reported that his “card was refused several times yesterday” before he later received an email from the company telling him his card had been suspended. “I don’t have another bank account so have had to transfer money to a friend.”

With financial anxiety already heightened because of the coronavirus crisis, customers are growing increasingly concerned that they will never see the money trapped in their frozen accounts again.

What’s happened to the money?

The Financial Conduct Authority’s suspension of WCS on Friday seemed to catch many of the banking services by surprise, with some privately claiming they had been given reassurances that WCS would be allowed to continue to trade.

Since then, many of the banking apps and payment services affected have been at pains to stress that customer funds are held safely in a separate bank account.

In a statement sent to the press, Pockit said that its customers’ money was “safeguarded in a ring-fenced designated client account with Barclays”. U Account made a similar statement, telling customers that: “We would like to reiterate to all customers that your money is safe, and remains ring-fenced in a secure Barclays Bank account.”

However, a Q&A issued by Anna Money - which also insisted money held in customer accounts was safely stored in a separate account - raised some doubt over whether the banking services still have visibility of those funds.

“It is a requirement from the FCA that funds are stored in a ring-fenced account and the FCA complete regular audits to ensure the funds are stored correctly,” the Anna Money Q&A states. “All funds in the Barclays account belongs to Anna customers and cannot be used for any other purposes. Although the account was officially attributed to Wirecard Card Solutions, Anna had visibility of the Barclays account prior to the FCA suspension, and we saw no unusual activity.” Note the use of the past tense.

The Anna co-founders this afternoon held a live Q&A on YouTube, in which they admitted they now had only partial visibility of the ring-fenced funds, but Boris Dyakonov said that “we sincerely believe the money is in place and ring-fenced”.

Virraj Jatania, CEO of Pockit, told me his company no longer has visibility over those safeguarded accounts, which are now being administered by the FCA. However, he said customers shouldn’t be concerned about reports of money being moved out of those accounts. “I think there is a lot of hearsay at the moment,” he said. “In some instances money does need to move out of those accounts, e.g. for settlement to MasterCard for transactions that took place or to the clearing schemes for faster payments and BACS.” He added these were the only reasons funds should be extracted from safeguarded accounts.

Funds “aren’t protected”

More concerning for customers is that funds held in their accounts are not protected by the Financial Services Compensation Scheme, which is designed to reimburse customers when financial institutions fail.

In a Q&A released by the Financial Conduct Authority on Friday, the FCA specifically stated that “the Financial Services Compensation Scheme (FSCS) only applies to certain types of activity which does not include issuing electronic money or payment services”.

The FCA Q&A does go on to reference the safeguarded accounts that Pockit, Anna and others mentioned earlier.  “Effective safeguarding arrangements are critical to help ensure that customers’ money is protected and returned if a firm fails,” the FCA states. “Adequate safeguarding arrangements which are compliant with the regulatory requirements are a condition of Wirecard’s ongoing FCA authorisation.”

Given that Wirecard collapsed in the first place because money claimed to be in accounts simply didn’t exist, I asked the FCA whether it can guarantee that customers’ money is still in those safeguarded accounts, but a spokesperson said the FCA was offering no comment beyond what was issued in Friday’s statement. It did add that: “Customers who are in financial distress as a result of the payment freeze may be eligible for a hardship payment from their local authority [in the U.K.]. Details can be found on our website.”

Pockit’s CEO says it's within the FCA’s power to end the financial uncertainty for his customers. “The quickest way for customers to get access to their funds is if the FCA support Wirecard now to process the transactions and then an orderly transition can be made to new suppliers," he told me.

Anna’s co-founders said this afternoon that if the money in the Wirecard accounts had gone missing they would attempt to refund customers from the company’s own funds. They said that process could take up to two weeks, but that it also depended on approval from the FCA.

Wirecard Card Solutions Limited has not returned a request for comment.

Originally posted on Forbes

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All articles are provided as a third party analysis and do not necessarily reflect the explicit views of GSI Exchange and should not be construed as financial advice.

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