Preparing for the FCA’s Strengthened Safeguarding Rules for Payments & E-Money Firms

Why is it relevant?

In August 2025, the FCA published Policy Statement PS25/12, finalising significant changes to the safeguarding regime for payments and e-money institutions. These changes respond to weaknesses in existing practices, the collapse of several firms, and increasing consumer reliance on e-money and payment services.

Who does it affect?

The new rules come into force on 7 May 2026 and will affect authorised payment institutions, e-money institutions, and credit unions issuing e-money.

What do you need to know?

There are 5 key highlights from PS25/12 to consider:

Improved Books & Records:

• Daily safeguarding reconciliations on ’reconciliation days’ (excludes weekends and bank holidays)
• Clearer rules for distinguishing relevant funds from firm funds
• Mandatory resolution packs to enable quicker return of client money in insolvency

Enhanced Monitoring & Reporting:

• Annual safeguarding audits by qualified auditors (with exemptions for firms holding under £100,000)
• New monthly safeguarding returns to the FCA to improve supervisory oversight

Strengthening Safeguarding Practices:

• Stricter due diligence and diversification requirements for banks, custodians, and insurers
• Continued permission to invest safeguarded funds only in secure, liquid assets (short-term government debt, deposits, MMFs)
• Safeguarding insurance and comparable guarantees remain permitted, but firms must plan 3 months in advance of expiry

Consumer Duty Alignment:

• Firms must act to deliver good outcomes for retail customers
• Firms must clearly communicate that funds are safeguarded but not covered by the FSCS

Implementation Timeline:

• 9-month lead-in period; rules apply from 7 May 2026
• Transitional provisions allow firms to continue using some pre-existing third-party arrangements and acknowledgement letters until updated

What About a Future “CASS-like” Regime?

The FCA has signalled that in the longer term, a Post-Repeal Regime may replace current rules with a statutory-trust and CASS-style framework. For now though, PS25/12 delivers the Supplementary Regime but further consultation is expected once implementation has bedded in.

What should you do next?

The new safeguarding rules demand immediate preparation:

• Review and enhance recordkeeping and reconciliation processes
• Assess whether you need to implement annual safeguarding audits
• Prepare to submit monthly safeguarding returns from May 2026
• Revisit your third-party banking, custody, and insurance arrangements
• Ensure compliance with Consumer Duty obligations in safeguarding communications

Contact us

We can help you prepare for the new safeguarding regime and any future FCA developments. If you would like to discuss the implications of PS25/12 and how these changes may affect your payments or e-money business, please get in touch with your usual Blick Rothenberg contact, or Richard Hinton, using form below.