In plain words
Imagine a letting agent who collects tenants’ deposits. A good one does not put that money in the company current account to pay salaries. It goes into a separate client account, so if the agency closes, the tenants still get their deposits back. Safeguarding is the same idea for payment and e-money firms.
When a customer pays money into an EMI or a payment institution, the firm must protect it. Usually it does this by keeping the money in a separate safeguarding account at a bank, apart from its own funds. The firm cannot use that money to run the business, lend it or gamble it on risky investments. 1
This matters because these firms are not banks. Their customers are not covered by deposit insurance, the Financial Services Compensation Scheme (FSCS) in the UK. If the firm fails, safeguarding is what gets customers their money back. It only works if the firm has kept the money separate and its records correct every single day.
How it works
How safeguarding works
Two records that must always agree: what customers are owed, and what is protected for them.
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1
Money comes in
A customer tops up or sends a payment. From the moment the firm is entitled to those funds, the safeguarding duty starts.
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2
It is protected
The money moves into a designated safeguarding account, or is covered by an insurance policy or guarantee.
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3
The books are checked every working day
The firm compares what its ledger says customers are owed with what is actually in the safeguarding account, and fixes any gap.
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4
If the firm fails
An insolvency practitioner returns the protected money to customers before other creditors are paid.
The two methods
UK rules give firms two ways to safeguard. Most use the first. 1
| Segregation | Insurance or guarantee | |
|---|---|---|
| How it works | Customer money is kept apart from the firm’s own, in a designated account at a bank or, within strict limits, in secure low-risk assets | An insurer or bank promises to pay an amount equal to customer funds if the firm fails |
| Main cost | Running the accounts and reconciling every day | Policy or guarantee fees |
| Main risk | Mistakes in records or mixing funds | The policy lapsing, or not paying out in time |
| Common for | Most EMIs and payment firms | Firms whose funds move fast or are hard to segregate |
Under either method, the protection is only as good as the records behind it. A safeguarding account with the wrong amount in it does not protect anyone.
What changed in the UK in 2026
In August 2025 the FCA published policy statement PS25/12, with new safeguarding rules for payment and e-money firms. The first stage applies from 7 May 2026. It turns much of what used to be guidance into firm rules. 2
Monthly reporting
A monthly safeguarding return to the FCA.
Annual audit
A yearly safeguarding audit by a qualified auditor, for firms above a minimum level of customer funds.
Resolution pack
Up-to-date records that would let an administrator return customer money quickly if the firm failed.
The FCA has also set out a later, second stage that would replace the current safeguarding provisions in the regulations with a fuller client-money style regime. Its timing depends on further legislation, so treat it as a direction of travel for now.
Authorised PIs, authorised EMIs and small EMIs must safeguard. Small payment institutions can choose to, and then must meet the same standard. If you launch as an EMI agent, your principal safeguards, but it will expect your data to support its reconciliation.
Safeguarding also shapes partner choice. Not every bank offers safeguarding accounts to fintechs, and those that do will review your business before opening one. Line up a safeguarding bank early, ideally with a backup, because losing your only safeguarding account can stop the business.
UK, EU and Gulf
- United Kingdom. Safeguarding rules come from the Electronic Money Regulations 2011 and the Payment Services Regulations 2017, with the FCA’s rules on top. 3 4
- European Union. The same two methods come from the E-Money Directive and PSD2. Each country’s regulator sets the detail, and the planned PSD3 and Payment Services Regulation are set to tighten them.
- UAE. For mainland wallet licences, the CBUAE requires customer funds to be held apart from the firm’s own, in arrangements with a licensed bank. Free zones set their own rules.
- Saudi Arabia. SAMA also requires payment and e-money firms to protect customer funds separately from their own.
Example: one day of safeguarding
Nadia is head of finance at a small UK wallet company.
- Morning. Her system pulls yesterday’s closing balances from the ledger: customers are owed £842,310 in total.
- The check. The safeguarding bank statement shows £839,900. There is a gap of £2,410.
- The cause. Card settlements from yesterday evening have not been moved yet. The firm tops up the safeguarding account from its own funds the same day, and logs the reason.
- The record. The reconciliation, the gap, the fix and who approved it are all saved. At month end they feed the FCA return, and at year end the auditor reviews them.
Common misconceptions
“Safeguarding is the same as FSCS protection.”
No. There is no compensation scheme behind it. Customers get back what was properly protected, minus distribution costs.
“Opening a safeguarding account is enough.”
The account is the easy part. Daily reconciliation, clear records and fixing gaps fast are what the FCA checks.
“It is a job for finance, not for product.”
Reconciliation depends on what your systems record. If the product cannot show who is owed what at any moment, finance cannot safeguard it.
FAQ
What is safeguarding in payments?
Safeguarding is the legal duty of e-money and payment firms to protect customer money by keeping it separate from their own funds, or covering it with an insurance policy or guarantee, so it can be paid back to customers if the firm fails.
Is safeguarded money protected by the FSCS?
No. Money held with an EMI or payment institution is not covered by the Financial Services Compensation Scheme. Safeguarding is the protection instead, and it works only if the firm keeps the money properly separated and reconciled.
What happens to safeguarded money if an EMI goes bust?
An insolvency practitioner returns the safeguarded funds to customers ahead of the firm's other creditors. The costs of distributing the money can be deducted, and returns can take time, especially if the records are poor.
How often must safeguarding be reconciled?
Under the FCA rules that apply from May 2026, firms must reconcile safeguarded funds at least once on each working day, excluding weekends, bank holidays and days when the relevant foreign markets are closed.
What changed in UK safeguarding rules in 2026?
The FCA's policy statement PS25/12 brought in new rules from 7 May 2026. They require daily reconciliations, monthly safeguarding reports to the FCA, annual safeguarding audits for most firms, and an up-to-date resolution pack.
Do small payment institutions have to safeguard?
No. In the UK, small payment institutions can choose to safeguard, and if they do, they must meet the same standard as authorised firms. Authorised PIs, authorised EMIs and small EMIs must safeguard.
Sources
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1
FC
Financial Conduct Authority Safeguarding requirements for payment institutions and e-money institutions
https://www.fca.org.uk/firms/emi-payment-institutions-safeguarding-requirements -
2
FC
Financial Conduct Authority PS25/12: Changes to the safeguarding regime for payments and e-money firms
https://www.fca.org.uk/publications/policy-statements/ps25-12-changes-safeguarding-regime-payments-and-e-money-firms -
3
LG
legislation.gov.uk The Electronic Money Regulations 2011
https://www.legislation.gov.uk/uksi/2011/99/contents -
4
LG
legislation.gov.uk The Payment Services Regulations 2017
https://www.legislation.gov.uk/uksi/2017/752/contents
