Vol 23 (2026) - Issue 2

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The New FCA Safeguarding Regime for UK Payment and E-Money Institutions: How Does It Impact Banks and Insolvency Practitioners?

Synopsis
In this article, we examine (1) the new regime for safeguarding of customer funds applying to UK payment and electronic money institutions, (2) the impact these reforms will have on those firms and (3) in particular, the indirect effect the reforms will have on banks holding safeguarded funds and insolvency practitioners who manage the insolvency of a failed payment or electronic money institution.
In August 2025, the UK Financial Conduct Authority ('FCA') published a policy statement1 finalising its proposed rule changes. The purpose of these reforms is: (1) to increase oversight and monitoring of safeguarded funds to minimise shortfalls (2) to return safeguarded funds to customers quickly on an insolvency; and (3) to provide the FCA with better data to identify and intervene in non-compliant firms.
Under the current regime, payment and electronic money institutions (and credit unions that issue electronic money) (together 'Payment Firms') are required to safeguard customer funds they receive (a) to make a payment or (b) in exchange for electronic money issued by them to a customer (e.g. pre-paid cards). The safeguarding requirements are set out in the existing Payment Services Regulations 2017 ('PSRs') and the Electronic Money Regulations 2011 ('EMRs'). Safeguarding is currently achieved by requiring Payment Firms to either:
– segregate relevant customer funds from their own funds and place them in a separate account with an authorised deposit taking bank or invest them
in secure, liquid financial assets held with an authorised custodian; or
– obtain an insurance policy from an authorised insurer or comparable guarantee from a bank covering the relevant funds.
These two requirements will remain; enhanced by increased oversight and monitoring obligations.