New safeguarding rules for payments and e-money firms

In August 2025, the FCA published Policy Statement PS25/12, setting out the final rules, and feedback on its earlier consultation, relating to the safeguarding regime for payments and e-money firms.

The changes will be made in two stages, with stage one being the ‘Interim rules’, now called the 'Supplementary Regime’, for which the rules were published alongside the Policy Statement , and stage two being the ‘end state rules’, now called the ‘Post-Repeal Regime’.

The FCA separately published draft changes to its Approach Document, in order to reflect the changes it intends to make as a result of PS25/12.

The Supplementary Regime rules are set out in the Payments and Electronic Money (Safeguarding) Instrument 2025 (the Instrument) which comes into force on 7 May 2026. The Client Assets Sourcebook will be amended to include the rules set out in the Instrument and some amendments will also be made to the Supervision Manual. 

Although the industry acknowledges that the rules to strengthen the safeguarding regime for payments and e-money firms are long overdue, there is also considerable concern in the industry as to how payments and e-money firms will comply with the increased costs and burden of compliance with the Supplementary Regime.  

Background

Under the current regime, which is governed by the Payment Services Regulations 2017 (PSRs) and Electronic Money Regulations 2011 (EMRs), payments and e-money firms are required to safeguard funds they receive to make a payment or in exchange for e-money they issue (relevant funds) by either segregating them from the firm’s own money in designated safeguarding accounts, or insuring them through a guarantee from a third party.

However, the FCA found that some payments and e-money firms still do not have sufficiently robust safeguarding procedures, and present an unacceptable risk of harm to consumers and market integrity. This is especially concerning in the wider context of the increased use of payment accounts and e-money accounts by UK consumers. UK payment institutions safeguarded an estimated £6bn in relevant funds on any given day in 2024, meaning that a significant percentage of the UK population would be exposed to harm if a firm were to fail. This harm could be particularly widespread if a large payments or e-money firm with poor safeguarding practices fails; not only would consumers be exposed to harm but so would the wider market.

In 2023, the previous Government published a Payment Services Regulations Review and Call for Evidence, as part of its statutory duty to review the PSRs periodically. This sets out the Treasury’s views on areas in which the payments landscape could evolve, and sought views from stakeholders on areas of concern, including the safeguarding regime.

In response to the Treasury’s findings, in September 2024, the FCA published CP24/20 'Changes to the safeguarding regime for payments and e-money firms'.  This proposed a new set of rules and guidance to improve the safeguarding regime and make consumer funds safer.

The Supplementary Regime

The Supplementary Regime supports the existing legislative safeguarding provisions in the EMRs and PSRs with the goal of improving consumer protection. There are three categories of changes that will be introduced under the Supplementary Regime:

• improved books and records;
• enhanced monitoring and reporting; and
• strengthening elements of safeguarding practices.

These changes will come into force on 7 May 2026.

Improved books and records

Payments and e-money firms must perform internal and external reconciliations in line with the method set out in the rules no less than once each “reconciliation day” (this excludes weekends, bank holidays and days on which relevant foreign markets are closed). External data may be used as a basis for internal records.

Insurance policies and guarantees are not subject to the external safeguarding reconciliation, but payments and e-money firms using this method must comply with the obligations set out in the rules regarding the use of the insurance or guarantee method and must ensure that any insurance policy or guarantee provides appropriate cover at all times. Our experience is that in practice, very few payments and e-money firms rely on the insurance or guarantee method over using designated safeguarding accounts to safeguard relevant funds.

If there is a discrepancy between the relevant funds or assets that should be held in relevant funds bank accounts or assets accounts and the balances of those accounts, payments and e-money firms will be required to remedy the shortfall – using their own funds if necessary.

Payments and e-money firms will be required to notify the FCA in writing without delay if they will be unable to, or materially fail to, identify and resolve discrepancies after conducting an external safeguarding reconciliation. The FCA has not defined materiality or provided additional guidance on when a firm's failure to comply with a specific requirement is material. The FCA has also not provided additional guidance on the timing of the notifications.

Further, payments and e-money firms must maintain a resolution pack, including requirements for the types of documents and records to be included that would help achieve a timely return of relevant funds to customers should the firm enter an insolvency procedure. This will ensure payments and e-money firms maintain and can easily retrieve information that would help achieve a timely return of relevant funds to consumers.

Enhanced monitoring and reporting

Authorised payment institutions and e-money institutions will be required to arrange annual audits of their safeguarding compliance, carried out by a qualified auditor. However, payment and e-money firms which have not been required to safeguard more than £100,000 of relevant funds at any time over a period of at least 53 weeks will be exempt from this requirement.

All payments and e-money firms will also be required to submit a new monthly safeguarding return to the FCA relating to their safeguarding arrangements, and each firm must have a designated individual who will be responsible for safeguarding oversight.

Strengthening elements of safeguarding

The proposed rules will require payments and e-money firms to exercise due skill, care and diligence when appointing third parties that manage or hold relevant funds or assets. In addition, payments and e-money firms must periodically review their use of these third parties and consider whether diversification of third-party relationships is appropriate, in order to spread the risk in the event of a failure by any individual third party.

The FCA has confirmed that under the Supplementary Regime, payments and e-money firms may continue to invest relevant funds in the same range of secure, liquid assets as they can now.

Safeguarding elements relevant to insurance policies and comparable guarantees

The Supplementary Regime also introduces new requirements regarding the use of insurance policies and guarantees where a payments or e-money firm is using this method to safeguard its funds. For example, the terms of the insurance policy or guarantee must provide for the proceeds of the insurance policy or guarantee to be promptly paid into a relevant funds bank account for the payments or e-money firm. Payments and e-money firms must ensure there are no conditions or restrictions on safeguarding insurance policies and comparable guarantees paying out, other than certification of the occurrence of an insolvency event.

Finally, payments and e-money firms must implement a contingency plan no later than 3 months prior to the expiry of any safeguarding insurance policy or comparable guarantee. If they do not have a replacement or renewal in place, they must be ready to safeguard relevant funds through the segregation method and must keep the FCA informed at all stages to allow appropriate action to be taken.

The Post-Repeal Regime

The second stage of reform as proposed would replace the safeguarding requirements of the EMRs and PSRs with a CASS style regime, where relevant funds and assets would be held in a statutory trust for consumers. The Post-Repeal Regime would replace the existing regime if, and when, the existing safeguarding requirements of the EMRs and PSRs are repealed under the Financial Services and Markets Act 2023.

The FCA received considerable feedback on the Post-Repeal Regime, in particular regarding the impact of imposing a statutory trust and receiving relevant funds directly into a designated safeguarding bank account.  The FCA has stated that it has carefully considered the concerns raised and will not implement the proposals without further consideration and consultation. The FCA also intends to review the effectiveness of the Supplementary Regime before making any decision on a transition to the Post-Repeal Regime.

Many thanks to trainee Kezia Battley for their help in writing this article.

This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.

© Farrer & Co LLP, October 2025