FCA strengthens safeguarding regime for payments and e-money firms

On 7 August 2025, the Financial Conduct Authority published a policy statement (PS25/12) setting out changes to the safeguarding regime for payments and e-money firms. These changes aim to minimise shortfalls in safeguarded relevant funds, ensure prompt and cost-effective return of funds if a payments firm fails, and enhance the FCA’s ability to identify deficiencies in safeguarding standards.

The FCA consulted on the proposed reforms in September 2024. Given some of the changes would require legislative change, the FCA proposed a two-stage approach to implementation. The first stage involves ‘interim rules’ (the Supplementary Regime) which support the existing legislative safeguarding provisions in the Electronic Money Regulations 2011 (EMRs) and Payment Services Regulations (PSRs) by encouraging greater compliance, support more consistent record keeping, and strengthen reporting and monitoring requirements. The second stage introduces ‘end-state rules’ (the Post-Repeal Regime) that would replace the safeguarding requirements of the EMRs and PSRs with a ‘CASS’ style regime, though this is contingent on the repeal of the existing safeguarding requirements.

PS25/12 sets out the FCA’s final rules and guidance for the Supplementary Regime. Alongside this, the FCA published a draft version of its Approach Document, which sets out amendments it intends to make when the final rules come into effect.

What has changed since the consultation?

The finalised rules and guidance remain largely consistent with the original consultation proposals. However, following a review of the feedback received, the FCA has made its rules more proportionate and addressed certain implementation pressure points. These changes include:

• amending the rules so that reconciliations are not required on weekends and bank holidays;
• introducing a threshold of £100,000 relevant funds, under which payments firms (i.e. both Payment Institutions and Electronic Money Institutions) will not be required to arrange a safeguarding audit;
• removing the requirement for a limited assurance audit for payments firms holding no relevant funds; and
• increasing the implementation period before the rules come into force from six to nine months.

What are the final rules under the Supplementary Regime?

The Supplementary Regime introduces new rules and guidance to strengthen the safeguarding of customer funds by payment and e-money institutions, and to address weaknesses in its current safeguarding approach and clarify expectations for firms.

Improved books and records

• Record keeping. The FCA has clarified that firms can use data from third parties to create and maintain their internal records where there are no other reasonable methods. It has intentionally not defined ‘materiality’ for notifications requirements, nor provided additional guidance on when failure to comply with a specific requirement is material. Instead, materiality will depend on the circumstances;  payments firms should assess this on a case-by-case basis. Firms must inform the FCA of relevant matters set out in the rules without delay.
• Reconciliations. Payments firms are now required to perform safeguarding reconciliations at least once per reconciliation day, which excludes weekends, bank holidays and days when relevant foreign markets are closed, rather than every business day. Notably, this does not prevent payments firms from performing reconciliation on business days that are not reconciliation days, with the FCA reminding firms that reconciliations are intended to check accuracy rather than simply for record keeping.
  Relevant funds received for e-money must be both safeguarded and reconciled separately from unrelated payment services. Payments firms may use non-standard reconciliation methods provided that they document how they will meet their safeguarding obligations, and the proposed method is independently audited - though they must still adhere to the required frequency of reconciliations. External reconciliations are only required on reconciliation days and firms have the flexibility to choose appropriate data sources.
• Resolution packs. Payments firms must maintain a resolution pack, the content of which should include information payments that firms are generally expected to maintain in the ordinary course of business These include where relevant funds are held, lists of its agents and distributors, and its procedures for managing, recording, and transferring relevant funds and assets. The FCA considers the most effective examples are ‘living documents’ which link directly to the latest versions of relevant records.

Enhanced monitoring and reporting

• Safeguarding audits. Certain authorised payment institutions and e-money institutions must arrange for an annual safeguarding audit report to be performed by a qualified auditor. An exemption applies for firms that have not had to safeguard more than £100,000 relevant funds over at least 53 weeks.
• Safeguarding reporting. Payments firms are required to submit a new monthly regulatory return to the FCA relating to their safeguarding arrangements. The FCA has made several minor amendments to simplify the return and improve clarity but has not reduced the reporting frequency or scope for smaller firms, nor combined the safeguarding return with other reports.

Strengthening elements of safeguarding practices

• Segregation of relevant funds. Firms must conduct due diligence when periodically reviewing and, where appropriate, diversifying their use of third parties that manage or hold relevant funds or assets. The appropriate frequency of this will be determined by the type of firm and third party. While the FCA has set out factors firms should consider when deciding whether diversification is appropriate, it has not provided prescriptive rules or more detailed guidance due to the wide variety of business models. Additionally,  payments firms must continue to segregate relevant funds for e-money and unrelated payment services.
• Investing relevant funds in secure, liquid assets. Firms can continue to invest relevant funds in the same range of secure, liquid assets as currently permitted. The FCA maintains a low risk tolerance and is therefore not exercising discretion to expand the range of approved secure, liquid assets. However, it has not ruled out future changes, which it may consider as part of the Post-Repeal Regime or in line with other related policy developments.
• Insurance and comparable guarantees. Firms must decide, at least three months before their insurance policy or guarantee expires, whether they will continue using this method and should notify the FCA. If they do not have a replacement or renewal in place, firms must submit a plan detailing how they will move to the segregation method. If they are unable to safeguard all relevant funds through segregation, firms should assess their financial position and consider entering an insolvency process to protect customer funds before cover lapses. In addition, firms must ensure there are no conditions or restrictions on safeguarding insurance policies and comparable guarantees paying out, except certification of an insolvency event. The obligation to safeguard relevant funds begins as soon as the institution receives the funds, and they will be required to safeguard unclaimed relevant funds for at least six years. Funds received for foreign exchange transactions, where these are carried out independently of payment services, do not need to be safeguarded.

These requirements do not apply to small payment institutions that have not opted-in to complying with safeguarding requirements or credit unions that do not issue e-money.

What’s next?

The Supplementary Regime, and related amendments to the Approach Document, will come into force on 7 May 2026. Firms should familiarise themselves with the new rules and guidance in the Client Assets Sourcebook (CASS), Supervision Manual (SUP) and the FCA’s updated Approach Document. They should also put in place suitable systems and controls to ensure compliance with the new Supplementary Regime rules.

Given the substantial industry feedback on the Post-Repeal Regime and the significant concerns raised about the shift to a statutory trust approach, the FCA does not intend to implement these proposals without further consideration and consultation. Once a full audit period has been completed, and after the Supplementary Regime has come into force, the FCA will review its implementation and issue a further consultation if necessary.