A UK payment institution can execute payment services and an electronic-money institution can issue stored monetary value, but neither permission turns the firm into a bank. Customer money is generally protected through safeguarding rather than deposit insurance. Since 7 May 2026, FCA CASS 15 has supplemented the Payment Services Regulations and Electronic Money Regulations with a more detailed control regime. It requires clear allocation of relevant funds, named safeguarding accounts, daily internal reconciliation on reconciliation days, external checks, shortfall funding, governance, monthly regulatory returns and failure-preparation records. Larger in-scope firms generally need an annual safeguarding audit; proportional relief applies in specified circumstances. Segregation or a compliant insurance or guarantee method protects the funds, but it does not promise instant or complete repayment. Safeguarded funds are not directly covered as deposits by the FSCS, and operational errors, shortfalls or insolvency costs can still affect recovery. The 2021 special administration regime gives an insolvency practitioner payment-specific objectives, including returning relevant funds as soon as reasonably practicable and coordinating with authorities and infrastructure providers. The decisive control is a ledger-to-asset chain that can identify every customer entitlement and be handed to an administrator without reconstruction.
A payment app can look like a bank account while sitting on a very different legal and balance-sheet structure. A customer may see a sterling balance, card, account number and instant transfer button, yet the provider may be an authorised payment institution or electronic-money institution rather than a deposit-taking bank. That difference determines what the firm may do with the money, how it must protect it and what happens after failure.
This guide connects the UK regulatory map to the payment rails beneath customer products. It focuses on the safeguarding perimeter, CASS 15 controls and the Payment and Electronic Money Institution special administration regime. It does not assume that every balance in a multi-product app has the same issuer, protection or insolvency treatment.
Is safeguarded e-money the same as an FSCS-protected deposit?
No. Safeguarding separates or otherwise protects relevant funds; it is not the deposit-guarantee promise that may apply to money held by an authorised bank.
What changed on 7 May 2026?
The FCA’s supplementary safeguarding regime took effect, adding CASS 15, resolution-pack, audit and monthly reporting requirements around existing statutes.
What proves that safeguarding works?
Customer-level records, daily reconciliation, third-party confirmations, funded shortfalls and a usable resolution pack must all agree—not merely a bank-account label.
Where do payment institutions and e-money firms fit?
The Payment Services Regulations 2017 cover regulated payment services such as executing transfers, acquiring card transactions and money remittance. An authorised payment institution, or API, can provide the services within its permission; a small payment institution operates under a lighter registration regime and statutory limits. A payment-initiation or account-information provider may never possess the customer’s funds, so its safeguarding analysis differs from a wallet or remittance firm that receives money.
The Electronic Money Regulations 2011 govern electronically stored monetary value represented by a claim on the issuer and issued on receipt of funds for payment transactions. An authorised or small EMI can issue that value and may also provide payment services. E-money must be redeemable at par, but it is not a deposit and the issuer cannot use the permission as a general licence to take deposits or lend safeguarded customer funds for its own account.
Which money falls inside the safeguarding perimeter?
For a payment institution, relevant funds broadly arise when money is received for executing a payment transaction and remains within the safeguarding period. For an EMI, funds received in exchange for issued e-money are protected, with separate treatment for unrelated payment services. The start and end of the obligation depend on the legal flow: who is entitled to the money, whether it has reached the payee or another payment service provider, and whether a fee is due.
A platform therefore cannot classify funds from the product label alone. Card settlement, prefunding, chargebacks, fees, unallocated receipts, merchant reserves and currency conversion can create different positions. CASS 15 requires relevant receipts to be allocated to an individual client promptly and normally by the end of the next business day, while unallocated relevant funds remain recorded as such. A documented funds-flow map should drive the ledger rules.
What does safeguarding protect—and what does it not?
Safeguarding is intended to keep customer money available for customers rather than the firm’s general creditors. Under the segregation method, the institution places the required amount in designated accounts at approved banks or, where permitted, invests it in secure liquid assets held through an appropriate custodian. The firm must maintain arrangements that protect customer rights and prevent relevant funds from being used for its own account.
The mechanism does not eliminate investment, operational, bank, fraud or insolvency risk. A customer can face delay while records are reconciled and claims are verified. A historical shortfall, invalid acknowledgement, misclassified receipt or cost of administering the estate may reduce or delay distributions. The FCA reported that failed payment firms between the first quarter of 2018 and second quarter of 2023 had average shortfalls equal to 65% of customer funds—one reason the detailed 2026 regime was introduced.
How did CASS 15 change the control standard?
CASS 15 is the FCA’s supplementary regime, effective from 7 May 2026. It does not repeal the safeguarding duties in the PSRs and EMRs; it adds prescriptive rules and guidance around them. The chapter covers organisation, allocation, segregation, secure liquid assets, insurance or guarantees, third parties, acknowledgement letters, books and records, reconciliations and notification. CASS 10A adds a payment-firm resolution pack designed for rapid retrieval.
The rules apply to authorised payment institutions that hold relevant funds, authorised and small EMIs and credit unions issuing e-money. Small payment institutions may elect to safeguard and then enter the regime. A firm should not infer that a small-firm label removes every obligation: an SEMI issuing e-money is within scope, while a payment-only SPI’s position turns on its election and statutory status. Permission, activity and actual possession of funds all need to be checked.
Why are daily reconciliations central?
An internal safeguarding reconciliation compares the institution’s calculated safeguarding requirement with the resources designated to meet it. Under the standard method, the requirement aggregates positive individual safeguarding balances and relevant funds not yet allocated. CASS 15 requires the exercise as often as necessary and at least once on each reconciliation day. That frequency turns a periodic finance check into an operating control over live customer money.
External reconciliations compare the firm’s books with bank, custodian or other third-party statements. Differences must be investigated and resolved, and a shortfall generally has to be paid into protection from the firm’s own resources. The hardest cases are timing breaks: weekend flows, unsettled card positions, foreign-currency conversions, rejected transfers and reversals. A dashboard that shows a zero aggregate difference can still hide customer-level misallocation or offset one asset-pool deficit against another.
Segregation, secure assets and guarantees are not interchangeable
Most firms use segregation in an approved bank account, but CASS 15 also governs relevant assets and an insurance or guarantee method. Bank diversification, credit quality, concentration and operational access matter because the firm is placing customer protection with a third party. Account titles should include safeguarding where possible, and the bank must provide the prescribed acknowledgement so its rights of set-off or security do not defeat the arrangement.
A compliant insurance policy or guarantee must respond on the institution’s insolvency, pay promptly into a relevant-funds account and avoid restrictive conditions beyond necessary certification. The FCA requires advance notice of first use and material changes. Firms must decide on continuation at least three months before expiry and prepare a segregation fallback if replacement cover is not in place. An expiring guarantee is therefore a liquidity and resolution event, not simply a procurement renewal.
Safeguarding-method comparison
The selected method changes the evidence, counterparties and failure path, but not the need for accurate customer balances. A firm may protect different pools through different permitted methods only if its books can distinguish them and each method meets the applicable amount and control requirements.
Who owns safeguarding governance, audit and reporting?
CASS 15 requires responsibility for operational compliance and governing-body reporting to sit with one director or senior manager who has sufficient skill and authority. That owner needs independent information from finance, treasury, payments operations, product, compliance and engineering. The board should see shortfalls, aged breaks, bank concentrations, acknowledgement status, unallocated funds, agent exposures and changes in product flows—not a single green status.
The supplementary regime includes safeguarding audits under SUP 3A and monthly REP027 reporting under SUP 16, with specified proportionality for firms below the relevant threshold. An audit opinion does not outsource management’s duty: it tests the control environment and can expose qualification or data limitations. Regulatory returns should reconcile to the same governed ledger and evidence used for daily controls; a separate spreadsheet reporting process creates a second, uncontrolled version of customer money.
How do agents, distributors and outsourcing affect the perimeter?
Payment institutions can provide services through registered agents, and EMIs may distribute or redeem e-money through distributors. The principal institution remains responsible for the regulated activity and for safeguarding relevant funds across the model. A delay or data gap at an agent does not postpone the customer’s economic exposure. Contracts should define receipt, settlement, record delivery, reconciliation, complaints, fraud controls and termination or migration.
Technology and banking providers can also be material outsourcers without becoming the regulated issuer. The firm should know which legal entity operates the ledger, holds each account, submits payment instructions and can freeze or restore service. Concentration in one sponsor bank or cloud platform may link safeguarding, payment execution and business continuity. Outsourcing oversight should therefore test recoverability of records and alternative access, not only uptime against a service level.
What happens in payment-firm special administration?
The Payment and Electronic Money Institution Insolvency Regulations 2021 created a special administration regime for eligible firms. A court-appointed special administrator has payment-specific statutory objectives: return relevant funds as soon as reasonably practicable, engage appropriately with payment systems, the Bank, FCA and Treasury, and either rescue the institution as a going concern or wind it up in the best interests of creditors. The objectives recognise that a payment firm’s failure can disrupt money in transit as well as create creditor claims.
The administrator must identify the asset pool and customer entitlements, deal with shortfalls and costs, communicate claims procedures and decide whether services can continue safely. Customers may need to submit evidence even where the app showed a balance. The regime improves the tools and priorities available; it does not create missing assets. A clean resolution pack, reconciled ledgers, bank acknowledgements, agent records and contact data determine whether return is an orderly distribution or a prolonged forensic exercise.
How is this different from bank failure and FSCS protection?
Eligible deposits at an authorised UK bank, building society or credit union can be protected by the FSCS within the applicable limit and may be transferred or paid out through the bank-resolution framework. Funds held by a payment or e-money institution are not directly protected as deposits by that scheme. Instead, the customer relies on the safeguarded asset pool and the statutory recovery process. The two mechanisms have different triggers, timing and evidence.
A fintech may place safeguarded money with an FSCS member bank, but that does not automatically transform every end-customer balance into a direct protected deposit in the customer’s name. Conversely, an app may distribute a genuine bank savings account alongside e-money. Users and business customers should read the contracting-entity and protection disclosures for each product. The companion bank resolution guide explains the deposit side of that boundary.
What should customers and business buyers verify?
First identify the exact legal entity on the Financial Services Register and confirm whether it is a bank, API, EMI, SPI, SEMI, agent or unregulated technology supplier. Match the service and geography to its permissions. Then ask how funds are safeguarded, where they are held, whether balances are pooled, how often reconciliations run and what the firm says about FSCS coverage. Marketing names and group logos are not legal analysis.
A business relying on the provider for payroll, supplier settlement or marketplace payouts should go further. It needs balance and throughput limits, service continuity, data exports, dual controls, incident communication and a route to another provider. Keep evidence of balances and transactions outside the app. Diversification can reduce operational concentration, but splitting cash between two brands that use the same issuer, safeguarding bank or processor may not create the expected independence.
How should a payment firm engineer for recoverability?
The core design is a traceable event ledger. Every receipt, fee, transfer, reversal, chargeback and redemption should carry a customer, asset-pool and safeguarding status. The calculation engine should reproduce the requirement for any reconciliation date, retain source evidence and prevent unauthorised manual netting. Treasury data and bank statements should enter independently enough to detect, rather than mirror, ledger errors.
Failure testing should assume loss of a banking API, corrupt balances, an agent’s missing file and departure of key staff. The firm should be able to produce its CASS 10A resolution pack, customer claim file, account mandates, acknowledgements, contact tree and recent reconciliations within the required retrieval period. That capability is a product feature: it supports credible customer protection, regulator confidence and an orderly exit even when growth, acquisition or a new payment rail changes the funds flow.
Frequently Asked Questions
Is money with an e-money firm protected by the FSCS?
Not as a direct eligible bank deposit merely because it is denominated in pounds or held through a familiar app. E-money firms safeguard relevant funds; product-specific disclosures should identify any separate bank-deposit product.
Did CASS 15 replace the Payment Services and Electronic Money Regulations?
No. The rules effective from 7 May 2026 form the FCA’s supplementary regime around the statutory safeguarding requirements. A later post-repeal end state depends on future legislative reform.
Must every small payment institution safeguard?
A payment-only SPI can elect to safeguard and enter the relevant regime; the analysis differs for small EMIs that issue e-money. Check the entity, activity and current rules rather than applying one small-firm answer to both.
Can a payment firm invest safeguarded customer money?
Only within the permitted safeguarding framework, such as qualifying secure liquid assets with the required custody, valuation and control arrangements. It cannot use relevant funds as ordinary working capital or proprietary lending capacity.
Does special administration guarantee full and immediate repayment?
No. It provides payment-specific objectives and procedures, but repayment still depends on available assets, accurate records, verified entitlements, expenses and the facts of the failure.
Primary Sources and Further Reading
This guide prioritises regulators, payment-system operators and company filings. Figures are the latest available at the August 2026 review date.
- FCA — PS25/12 changes to the safeguarding regime
- FCA Handbook — CASS 15 relevant funds
- FCA — Safeguarding requirements for payment and e-money institutions
- FCA — Payment safeguarding rules announcement
- FCA Handbook — CASS 10A resolution packs
- UK legislation — Payment Services Regulations 2017
- UK legislation — Electronic Money Regulations 2011
- UK legislation — Payment and Electronic Money Institution Insolvency Regulations 2021
- HM Treasury — Modernising Payment Services Regulation
- HM Treasury — Payments Forward Plan
Discover more from Kurums | Business Intelligence
Subscribe to get the latest posts sent to your email.
