Safeguarding for Payments and E-Money Firms Explained
Safeguarding is how payment institutions and e-money issuers protect their customers’ money. If a firm fails, safeguarded funds should be identifiable and returned to customers ahead of other creditors. In practice, a series of payments and e-money insolvencies showed that many firms’ safeguarding was weaker than it looked: records were incomplete, reconciliations were missed, and customers waited a long time for their money and sometimes didn’t get all of it back. The FCA has responded with a strengthened safeguarding regime, with new requirements applying from May 2026. This guide explains how safeguarding works, what the new requirements add, who in a firm owns it, and the people firms need to get it right.
The Basics: Why Safeguarding Exists
Payment institutions and e-money institutions hold money belonging to their customers, sometimes for a few seconds and sometimes for months. Unlike banks, their customers’ funds aren’t protected by the Financial Services Compensation Scheme. Safeguarding is the substitute: it requires firms to keep relevant funds separate from their own money, or otherwise protected, so that customers can be repaid if the firm becomes insolvent.
The obligations come from the Payment Services Regulations 2017 and the Electronic Money Regulations 2011, supported by FCA guidance and, from May 2026, by new FCA rules. They apply to authorised payment institutions, authorised e-money institutions and, in some cases, small payment institutions that choose to safeguard. Our guide to the people the FCA expects payments and e-money firms to have covers how safeguarding fits into authorisation.
The Two Methods of Safeguarding
| Method | How it works | Key considerations |
|---|---|---|
| Segregation | Relevant funds are kept separate from the firm’s own money and, if not paid out by the end of the following business day, placed in a designated safeguarding account with an authorised credit institution, or invested in approved secure, liquid assets | The most common method. Depends on accurate records, timely movement of funds and regular reconciliation |
| Insurance or comparable guarantee | Relevant funds are covered by an insurance policy or a guarantee from an authorised insurer or bank, payable to customers if the firm fails | Less common. The policy terms, the provider and the payout mechanics must genuinely protect customers |
Whichever method a firm uses, it must be able to identify at any time which funds are relevant funds, how much it owes each customer, and where the protected money is. That depends as much on finance systems and people as on legal structure.
What Went Wrong
The FCA’s review of safeguarding, and the experience of administrators dealing with failed payments firms, highlighted recurring weaknesses:
- records that didn’t show clearly how much each customer was owed;
- reconciliations performed infrequently, inaccurately or not at all;
- relevant funds mixed with the firm’s own money;
- safeguarding accounts that weren’t properly designated or acknowledged by the bank;
- shortfalls that weren’t identified or topped up promptly;
- weak oversight of agents and distributors handling customer funds; and
- no clear plan for returning funds to customers on insolvency.
Many of these were not legal or regulatory misunderstandings. They were finance and operations failures: the wrong people, too few people, or systems that couldn’t produce the records the rules require.
The Strengthened Regime From May 2026
The FCA has introduced new safeguarding rules for payments and e-money firms, set out in its policy statement following consultation, with the requirements applying from May 2026. The FCA describes these as an interim stage, with a further move towards a regime more closely modelled on the client money rules in CASS expected later, once the underlying legislation changes. Firms should check the current rules and the FCA’s latest publications for the detail, but the main themes are:
- Better records and reconciliations. Firms must maintain records sufficient to show the funds they owe customers, and carry out regular internal and external reconciliations, resolving discrepancies promptly.
- Monthly regulatory reporting. Firms submit a regular safeguarding return to the FCA, giving the regulator visibility of safeguarded amounts and any issues.
- Annual safeguarding audits. Firms obtain an annual audit of their safeguarding compliance from a qualified auditor, extending what was previously required of only some firms.
- Resolution packs. Firms maintain information that would help an insolvency practitioner identify and return customer funds quickly.
- Clear responsibility. Firms must allocate responsibility for safeguarding compliance to an appropriate individual and make sure the board has oversight.
- Due diligence on third parties. Firms must exercise care in selecting and reviewing the banks, custodians and insurers involved in safeguarding.
The direction is clear: safeguarding is moving from a box-ticking exercise to a discipline much closer to client money protection in investment firms, with matching expectations of the people who run it. Our guide to CASS and client money oversight explains the regime safeguarding is moving towards.
Who Owns Safeguarding
Safeguarding sits across finance, operations, compliance and the board. The responsibilities usually fall like this:
| Role | Typical safeguarding responsibilities |
|---|---|
| Board | Oversight, approval of the safeguarding approach, review of audit findings and returns |
| CFO or finance director | Records, reconciliations, shortfall management, safeguarding accounts and bank relationships; often the individual allocated responsibility |
| Safeguarding or treasury manager | Day-to-day reconciliations, fund movements, investigating breaks and preparing returns |
| Compliance officer | Monitoring compliance with the rules, policy, training and reporting breaches to the FCA |
| Operations | Payment flows, agent and distributor oversight, cut-off times |
| Internal audit or external auditor | Independent assurance, including the annual safeguarding audit |
As payments firms come within the Senior Managers and Certification Regime, responsibility for safeguarding is likely to be reflected in Senior Managers’ Statements of Responsibilities. In many firms it will sit with the chief finance function. Our page on CFO recruitment (SMF2) covers that role.
The Finance Skills Safeguarding Needs
Strong safeguarding depends on finance people with specific experience. General accounting skills aren’t enough. Look for:
- experience of daily or intraday reconciliations of customer funds, ideally in payments, e-money or client money
- an understanding of how relevant funds are calculated, including timing differences and funds in transit
- experience of designated safeguarding or client money accounts and acknowledgement letters
- confidence investigating and resolving reconciliation breaks quickly
- experience of regulatory returns and working with safeguarding or CASS auditors
- the systems and data skills to automate reconciliations as volumes grow
- enough seniority to escalate shortfalls to the board without delay
People with this profile are in short supply, particularly at senior level. Many of the best come from investment firms’ CASS teams or from larger payments firms. Our article on why client money experience has to be specific explains why general finance candidates often struggle in these roles.
Scenario: An e-money institution with a growing card programme runs its safeguarding reconciliation weekly, using spreadsheets maintained by a financial controller who also runs month-end and payroll. Ahead of the new requirements, its board asks whether it could produce a resolution pack and an accurate daily view of customer balances. The answer is no. The firm recruits a dedicated safeguarding manager from an investment firm’s CASS team, moves to daily automated reconciliations, allocates formal responsibility for safeguarding to its CFO, and asks its compliance officer to build safeguarding into the monitoring plan. Its first annual safeguarding audit identifies only minor findings.
Banking Partners and Safeguarding
Payments firms depend on banks for their safeguarding accounts and often for payment access. Banks carry out their own due diligence, and weak safeguarding is one of the quickest ways to lose a banking relationship. Banks typically want to see accurate reconciliations, clear account designations, timely funding of shortfalls and competent people running the process. The same strengths that satisfy the FCA tend to satisfy banking partners, and the reverse is just as true.
Safeguarding and the Wider Team
Safeguarding doesn’t sit in isolation. The finance team that runs it often supports regulatory reporting, capital adequacy and the information the compliance officer and MLRO need. Our guide to the finance team behind your SMF16 and SMF17 holder covers those links, and our guide to sizing the financial crime team at a payments firm covers the parallel challenge on the financial crime side. Our page on SMF recruitment for payments and fintech sets out the senior roles we recruit across the sector.
Payments and Finance Recruitment
The people who protect customer money. Every SMF search is led personally by Adrian Lawrence FCA
Finance Leadership
CFOs who own safeguarding.
→ CFO recruitment (SMF2) → Fractional and interim coverSMF2 explained →
Payments Sector
Authorisation to scale.
→ Payments and fintech → Authorisation supportPI and EMI people guide →
Client Money
CASS and safeguarding specialists.
→ CASS explained → CASS accountantsRegulated financial controllers →
Compliance
Monitoring and oversight.
→ Compliance officer (SMF16) → Joint SMF16 and SMF17Regulatory reporting explained →
Every SMF search is led personally by Adrian Lawrence FCA
Frequently Asked Questions
Which firms must safeguard?
Authorised payment institutions and authorised e-money institutions must safeguard relevant funds. Small payment institutions may choose to. Credit unions and banks have different arrangements.
Is safeguarding the same as CASS?
No. CASS applies mainly to investment firms holding client money and assets. Safeguarding applies to payments and e-money firms. But the FCA’s reforms bring the two regimes closer together, and the skills overlap heavily.
Who should be responsible for safeguarding?
Usually the CFO or finance director, with day-to-day work led by a safeguarding or treasury manager and independent monitoring by compliance. The firm should record the allocation clearly.
What happens if there’s a safeguarding shortfall?
The firm should top it up promptly from its own funds, investigate the cause and consider whether it needs to notify the FCA.
Do you recruit safeguarding specialists?
Yes, from safeguarding and CASS managers to CFOs who own the function, on a permanent, interim or fractional basis.
About the Author
Adrian Lawrence FCA is the founder of SMF Capital. He is a Chartered Accountant and Fellow of the ICAEW, holds a practising certificate in his own name, and is a former listed-company Finance Director with a BSc from Queen Mary College, University of London. He founded FD Capital in 2018 and has since built a network of five specialist recruitment practices. He leads every SMF Capital search personally. View Adrian’s ICAEW profile.
Strengthening Your Safeguarding?
Tell us about your firm, your volumes and your current finance team. We’ll find the CFO, safeguarding manager or interim specialist you need. We’ll come back to you the same working day.