E-Money and Client Money Safeguarding: How the Rules Work
- Aug 3
- 5 min read
Buckingham Capital Consulting has advised payment and e-money firms on FCA authorisation, safeguarding and regulator engagement since 2013.
Safeguarding is the set of obligations requiring firms that hold money belonging to customers to keep it separate from their own funds, so that it can be returned if the firm fails. For payment institutions and electronic money institutions in the UK, those obligations sit in the Payment Services Regulations 2017, the Electronic Money Regulations 2011 and, since 7 May 2026, in CASS 15 of the FCA Handbook.
This article explains how safeguarding works, how it differs from the client money regime applying to investment firms, and what the practical obligations are.
What is safeguarding?
Safeguarding requires a firm to protect relevant funds by holding them separately from its own money, either by segregating them in a designated account with an authorised credit institution, by holding them as secure liquid assets, or by covering them with an insurance policy or comparable guarantee.
The purpose is insolvency protection. Funds properly safeguarded are not available to the firm's general creditors and can be returned to the customers who provided them.
Which firms must safeguard?
Authorised payment institutions and authorised electronic money institutions must safeguard, as must small electronic money institutions and credit unions issuing electronic money.
Small payment institutions are not required to safeguard but may opt in voluntarily. Firms may also opt in for unrelated payment services.
Investment firms are subject to a separate regime, the client money and custody asset rules in CASS 6 and CASS 7, which has applied for considerably longer and which CASS 15 broadly resembles in structure.
What must be safeguarded
Relevant funds are sums received in exchange for electronic money that has been issued, sums received from or for a payment service user for the execution of a payment transaction, and sums received from another payment service provider for the execution of a payment transaction.
The practical questions concern the boundary.
When the obligation begins. Safeguarding applies from the point the firm receives the funds, which is when it becomes entitled to them rather than when they are allocated internally.
When it ends. For payment transactions, when the funds are paid out to the payee or their provider. For electronic money, when the e-money is redeemed.
Fees. Amounts that have become due and payable to the firm as its own charges are not relevant funds, but the timing of when a fee becomes due needs to be defined and applied consistently.
Foreign exchange. Where an FX transaction is linked to a payment service, the funds are relevant funds. Where FX is provided independently of any payment service, it is not a regulated payment service and different considerations apply.
Agents and distributors. Funds held by or flowing through agents and distributors require specific treatment, and the firm remains responsible for them.
Unclaimed funds. Electronic money institutions must continue to safeguard unclaimed relevant funds for a defined period after issuance, and cannot treat them as their own simply because they have not been redeemed.
Each of these should be addressed in the firm's safeguarding policy, and the reconciliation must apply the same treatment the policy describes.
Methods of safeguarding
Segregation. Relevant funds are held in a designated safeguarding account with an authorised credit institution, or invested in secure liquid assets held in a designated account with an authorised custodian. This is the method most firms use.
Insurance or comparable guarantee. Cover from an authorised insurer or credit institution, payable to customers if the firm fails. The policy must not contain conditions or restrictions beyond certification of an insolvency event, and specific notification requirements apply: at least two months before first use, on any change of cover or provider, and a decision at least three months before expiry as to whether to continue.
A firm may use a combination, but must be able to demonstrate that all relevant funds are covered by one method or the other at all times.
The obligations under CASS 15
Since 7 May 2026, firms have been subject to detailed operating requirements alongside the underlying obligation to safeguard.
Internal and external safeguarding reconciliations on each reconciliation day. Comparison of the D+1 segregation requirement against the D+1 segregation resource, with shortfalls remedied and excess withdrawn. Separate treatment of e-money and unrelated payment services as distinct asset pools. A monthly safeguarding return under SUP 16.14A. A resolution pack under CASS 10A, retrievable within 48 hours. An annual safeguarding audit for firms above the £100,000 threshold. Documented due diligence on banks, custodians, insurers and guarantors. Acknowledgement letters from each institution holding safeguarding accounts. Responsibility allocated to a director or senior manager of sufficient skill and authority.
How safeguarding differs from the client money rules
The regimes are structurally similar and increasingly converging, but three differences are worth noting.
Legal mechanism. Client money under CASS 7 is held on statutory trust. Relevant funds under the current safeguarding regime are not, though the FCA's intended Post-Repeal Regime would introduce a statutory trust for payment and e-money firms as well.
Maturity of practice. CASS 6 and CASS 7 have applied to investment firms for many years, with established audit practice, well-developed guidance and a body of supervisory experience. CASS 15 is new, and both firms and auditors are working through its application.
Scope of assets. The client money regime addresses both money and custody assets held for clients. Safeguarding concerns relevant funds and, where used, the secure liquid assets in which they are invested.
The direction of travel is toward parity. Firms designing safeguarding arrangements now benefit from looking at how the investment sector has approached the equivalent obligations.
Frequently asked questions
What is safeguarding?
The requirement for payment and e-money firms to keep customers' funds separate from their own, so that those funds can be returned if the firm fails. It is achieved through segregation, secure liquid assets, or insurance or a comparable guarantee.
What is the difference between safeguarding and client money?
Safeguarding applies to payment institutions and electronic money institutions under the PSRs, EMRs and CASS 15. Client money rules apply to investment firms under CASS 7. The regimes are similar in structure, but client money is held on statutory trust, whereas relevant funds currently are not.
Do small payment institutions have to safeguard?
No, but they may opt in voluntarily. An SPI that opts in becomes subject to the safeguarding regime.
How long must unclaimed e-money be safeguarded?
Electronic money institutions must continue to safeguard unclaimed relevant funds for a defined period after issuance. Firms should confirm the applicable period against the current rules and their own product terms.
Can a firm use more than one safeguarding method?
Yes. A firm may combine segregation with insurance or a comparable guarantee, provided it can demonstrate that all relevant funds are covered at all times.
Operating safeguarding as a daily control
Safeheld runs the daily internal and external reconciliations, calculates the D+1 segregation position across separate asset pools, manages breaks through to approved resolution, assembles the monthly SUP 16.14A return, maintains the CASS 10A resolution pack and produces audit-ready evidence - all from a single record.
About Safeheld
Safeheld is the safeguarding platform for FCA-regulated payment and e-money firms, covering daily reconciliation, breach management, regulatory reporting, resolution pack maintenance and audit evidence. Safeheld is a Buckingham Capital Consulting company. safeheld.com
About Buckingham Capital Consulting
Buckingham Capital Consulting is a leading UK and European financial services regulatory consultancy. Since 2013 we have advised payment institutions, electronic money institutions, investment firms and cryptoasset businesses on authorisation, prudential and conduct requirements, safeguarding, governance and regulator engagement across the UK and EU. Contact our safeguarding team
