In August 2025, the UK’s Financial Conduct Authority (FCA) announced updates to the payment safeguarding rules in Policy Statement PS25/12. 

Following a consultation period, the FCA has confirmed that the new rules will take effect after nine months, providing the industry with sufficient time to prepare for the 7 May 2026 deadline. It has also made changes to ensure that rules are proportionate for smaller firms, such as removing the requirement for audits if a firm holds less than £100,000 in customer funds. 

In this article, we’ll explore the development of safeguarding rules, how they’re evolving and what firms should do in preparation for the deadline. 

The FCA’s safeguarding requirements ensure the protection of customer funds held by payment and e-money firms in the event of the firm's failure. The FCA first introduced these rules in response to the growth of non-bank authorised payment institutions (PIs) and e-money institutions (EMIs), whose clients are not directly protected by the Financial Services Compensation Scheme (FSCS). 

FSCS provides limited protection if the bank holding safeguarded funds rather than if the PI or EMI itself fails. As a result, safeguarding remains the main protection for customers of PIs and EMIs, as it requires firms to segregate client funds from their own operational funds in a safeguarding account. 

The impetus behind updating these rules stems from persistent failures in safeguarding among firms, resulting in consumers losing access to their money when companies become insolvent. For example, FCA analysis found that between Q1 2018 and Q2 2023, failed firms returned only about 65% of client funds on average, with gaps often due to poor reconciliation and segregation practices. 

There has also been an increase in the number of consumers using PI and EMI-based services to hold and transfer funds.  

The existing rules required FCA-authorised firms to ensure several aspects regarding the safeguarding of customer funds: 

• Segregation: Customer funds must be kept in separate, safeguarded accounts, distinct from the firm’s own funds, to ensure their return in the event of bankruptcy.
• Reconciliation: Firms must regularly verify that the amounts held match liabilities to customers, maintaining proper records and controls.
• Due diligence: Firms must exercise skill, care, and diligence in selecting safeguarding account providers and periodically review these arrangements.
• Audit and oversight: Historically, safeguarding audits were required; however, standards and thresholds have evolved.  

The FCA’s latest overhaul (Policy Statement PS25/12, August 2025) is designed to improve consumer protection. If a payment or e-money firm fails, consumers are more likely to get a full refund with fewer delays. 

The changes to safeguarding rules demand some significant changes: 

• Submission of monthly safeguarding returns: a monthly report capturing key data on safeguarded funds, reconciliations, and breaches.
• Performing annual safeguarding audits: Required for firms holding more than £100,000 in relevant funds in any 53-week period, and must be performed by a qualified accountancy firm. Firms with a turnover below the £100,000 safeguarding threshold are exempt from annual audit requirements.
• Resolution packs and thorough documentation: Firms must produce a pack that demonstrates how they would support orderly wind-downs and swift return of funds. This includes the production of reconciliation statements, safeguarding account details, and governance records within 48 hours in the event of insolvency.
• Stricter insurance-based safeguarding requirements: Policies must pay out directly into safeguarding accounts, and contingency plans are required if a policy can’t be renewed.
• Enhanced third-party due diligence requirements: Firms must scrutinise and document the banks, custodians and insurers used for safeguarding and regularly assess operational and concentration risks with these partners.
• Creation of reconciliation protocols: Reconciliations conducted on designated “reconciliation days” (any non-bank holiday/non-weekend day), not just on business days.
• Diversification of safeguarding partners: Firms must periodically review and diversify safeguarding accounts/providers to reduce the risk of concentration.
• Enhanced management oversight: Each EMI and PI must have an individual, designated by its Board, who is responsible for safeguarding compliance.  

Finally, banks providing safeguarding accounts must acknowledge their fiduciary duties in FCA-mandated letters before opening the accounts.  

The new safeguarding rules will require firms to seek additional safeguarding partners. That, in turn, creates several challenges that firms must be prepared for by the 7 May 2026 deadline. 

EMIs and PIs must conduct a gap analysis from the current state to the new requirements. 

• Operational complexity and cost: Enhanced reporting, regular audits, and stricter due diligence will require system upgrades, improved internal controls, and likely increased compliance/legal costs. Firms will need to review internal systems to ensure they can meet the daily reconciliation and monthly reporting requirements.
• Third-party selection criteria: Firms must perform formal due diligence, document suitability, and factor in banks' signing FCA-required acknowledgement letters. Firms must actively manage operational and concentration risk.
• Risk management for insurance-based safeguarding: More detailed oversight of insurance as a safeguarding tool means evaluating policies for compliance with new payout and contingency planning rules.
• Governance and increased management accountability: Senior management, including boards, will face increased responsibility for sustaining compliant safeguarding practices and ongoing governance. That includes creating resolution packs, which will need coordination across risk, technology and compliance teams. They must ensure their firm has secured qualified auditing partners in advance. 

For firms, this means partnering with a bank that not only understands these obligations but also delivers robust infrastructure and compliance support. 

When examining a safeguarding partner, firms should use a structured due diligence checklist that focuses on operational resilience, track record, and the ability to meet the new requirements. 

ClearBank offers: 

• Regulatory strength: ClearBank is fully authorised by the Prudential Regulation Authority (PRA) and regulated by the Financial Conduct Authority (FCA). This means that every safeguarding account meets stringent UK standards, and you receive an FCA-compliant safeguarding letter from ClearBank proving your regulatory compliance in relation to the account.
• Security of safeguarded funds: You and your customers can be confident that funds held in your safeguarding accounts are held securely at the Bank of England.
• Robust and reliable services: ClearBank operates a zero-trust security model with encryption in transit and at rest. The bank holds ISO certifications for Information Security (ISO 27001) and Business Continuity (ISO 22301), ensuring your data and operations remain secure and available.
• Real-time payments and transparency: ClearBank offers real-time clearing and settlement across UK payment schemes (Faster Payments, Bacs, CHAPS). Our API-first approach provides real-time notifications, detailed reporting, and complete visibility, so you can reconcile safeguarding accounts with confidence every day.
• Operational excellence and risk management: With continuous monitoring and advanced vendor security oversight, ClearBank mitigates third-party risks and ensures operational resilience. This proactive approach reduces vulnerabilities and keeps your safeguarding framework watertight.
• Flexibility for every business: ClearBank’s API-driven platform ensures seamless integration. Whether you’re a rapidly scaling fintech or an established EMI or PI, ClearBank offers flexibility without compromising on quality of service.
• Multi-currency capabilities: Your safeguarding account can hold funds in multiple currencies, with up to 12 different global currencies accepted.
• Stability and resilience: ClearBank is purpose-built to support firms through highly resilient infrastructure and has provided safeguarding accounts for close to a decade. The UK bank is robust, well-funded and stable with consecutive years of profitability.
• Protection and peace of mind: Eligible funds are protected through the Financial Services Compensation Scheme (FSCS) up to £120,000 across all accounts held at ClearBank.  

These reforms aim to enhance consumer protection, reduce systemic vulnerabilities in firm failures, and provide clearer, enforceable standards for EMIs and PIs. The new rules will require increased oversight and governance, including daily checks on safeguarded balances, monthly reporting and annual audits by qualified auditors. 

With the 7 May deadline looming, FCA-authorised firms should review their current safeguarding practices to ensure compliance with the new rules. 

Safeguarding is about trust, transparency, and resilience. ClearBank delivers all three, backed by regulatory strength, central bank security, and cutting-edge technology. For firms seeking to safeguard client funds and stay ahead of compliance requirements, ClearBank is the ideal choice. 

Ready to explore safeguarding with ClearBank?