What is a Safeguarding Account?
A safeguarding account is a segregated bank account that an e-money institution (EMI) or payment institution uses to hold customer funds separately from its own money. UK rules require these firms to protect, or "safeguard", relevant customer funds. If the firm fails, properly safeguarded funds form part of a protected asset pool from which the claims of e-money holders or payment service users are paid in priority to the firm’s other creditors. This does not guarantee recovery in full: insolvency and distribution costs, or a shortfall in what was safeguarded, can still reduce what customers ultimately get back.
A safeguarding account with a bank is one of the ways that protection takes shape. Relevant funds are held in a dedicated account at a bank, segregated from the firm's operating money and clearly identifiable as belonging to customers. It is one of the first pieces of infrastructure a payment firm needs, and having this, insurance or a qualifying guarantee is a regulatory condition of being able to operate at all.
This guide explains what a safeguarding account with a bank does, who needs one, how safeguarding works in practice, and how the rules are changing.
Who needs a safeguarding account?
Safeguarding applies to firms authorised or registered under the UK's payments and e-money regulations, though exactly who must safeguard, and who may do so voluntarily, depends on the regulatory regime and the type of firm:
- Payment Services Regulations 2017 (PSRs 2017). Authorised Payment Institutions (APIs) that receive or hold relevant customer funds must safeguard. Small Payment Institutions (SPIs) can choose to safeguard voluntarily but are not generally required to do so. Firms that solely provide Payment Initiation Services (PIS) or Account Information Services (AIS) are not subject to the safeguarding requirements for those services, because they do not hold customer funds.
- Electronic Money Regulations 2011 (EMRs 2011). Authorised Electronic Money Institutions (AEMIs) and Small Electronic Money Institutions (SEMIs) must safeguard relevant customer funds. Credit unions that issue e-money are also subject to safeguarding requirements.
For many of these firms, safeguarding is a requirement of operating, not a matter of choice. It also matters earlier than firms sometimes expect: those going through FCA authorisation often need to demonstrate their safeguarding arrangements as part of the process. A full safeguarding acknowledgment letter can only be issued once a firm is authorised, but Bank of London can still support pre-regulated firms at this stage: through the online banking platform, a firm can generate proof of its account (typically a bank statement), or Bank of London can provide a signed statement of intent to provide safeguarding services once the firm is regulated.
How does a safeguarding account work?
Safeguarding rests on keeping customer money separate and accounted for separately from the firm's own creditors if it fails. In practice, that comes down to a few mechanics:
- Segregation. Relevant customer funds are placed in a designated safeguarding account, separate from the firm's own operating funds, so the two never mix.
- Designation and acknowledgement. The account is set up so the bank knows it holds safeguarded customer funds, and the bank acknowledges in writing that it has no claim, right of set-off or combination over that money. Bank of London provides this written acknowledgement when it sets up a safeguarding account for a client.
- Reconciliation. The firm regularly reconciles the funds it should be safeguarding against the balance actually held, and corrects any differences.
- Records. The firm keeps records that identify how much is safeguarded and on whose behalf.
The approach described here, holding funds in a safeguarding account at a credit institution or central bank, is known as the segregation method and is the route most firms take. The rules also allow certain insurance or guarantee methods, but segregation is the standard.
Safeguarding, client money and trust accounts
Safeguarding sits alongside other regimes for protecting customer money, and it helps to keep them distinct. Safeguarding accounts are specific to e-money and payment institutions, under the Electronic Money Regulations and Payment Services Regulations, and rely on segregation and a bank's written acknowledgement rather than a trust structure.
Client money accounts are a separate regime, governed by chapter 7 of the FCA's Client Assets Sourcebook (CASS), and apply to investment firms, wealth managers and other firms holding client money in the course of regulated activity. Under CASS 7, that money is held on a statutory trust from the moment the firm receives it, meaning it belongs to clients rather than the firm and does not form part of the firm's estate if it fails. See our guide on What is a CASS Account? for how that regime works in full.
A trust account describes the underlying legal structure itself, rather than a specific regulatory regime: money held by one party (the trustee) for the benefit of another (the beneficiary), a structure that many commercial and family arrangements rely on. See our guide on What is a Trust Account? for more detail on how that structure works and where it's used.
All three protect customer funds if a firm fails, but they operate under different rulebooks with different requirements. Which one applies depends on the type of firm and the kind of money it holds.
How the safeguarding rules have changed
The FCA has strengthened the safeguarding regime for payments and e-money firms. Under Policy Statement PS25/12, an enhanced set of interim rules (known as the Supplementary Regime), which took effect on 7 May 2026, introduced measures such as monthly regulatory reporting, enhanced reconciliation, annual safeguarding audits and a safeguarding resolution pack.
The Supplementary Regime came ahead of a longer-term "end-state" regime, under which the FCA had proposed moving safeguarding onto a statutory trust footing similar to the CASS model. The FCA has said this will depend on decisions by HM Treasury and it will consult again before implementing that end state. Firms should keep an eye on the current rules and timelines as the requirements develop.
Safeguarding at Bank of London
Bank of London provides safeguarding accounts and the acknowledgment letter for authorised e-money and payment institutions. For firms still going through FCA authorisation, Bank of London can provide proof of account, typically a downloadable bank statement from the online banking platform, or a signed statement of intent to provide safeguarding services once the firm is regulated. Under the segregation method, safeguarded funds are held in a designated account and kept separate from the firm’s operating funds in accordance with the applicable regulations and CASS 15.
Frequently asked questions
Is a safeguarding account a trust account?
Safeguarding today relies on segregation and acknowledgement rather than a trust, though the FCA has proposed moving to a statutory trust structure in a future end-state regime. It is distinct from the client money trust arrangements under CASS, even though both protect customer money if a firm fails.
What funds have to be safeguarded?
"Relevant funds": broadly, the money a firm receives from or for customers in exchange for e-money or for executing payment transactions. The precise definition is set by the applicable regulations.
Can a firm hold safeguarded funds at any bank?
No. Under the segregation method, relevant funds remaining held at the end of the following business day must be placed with an eligible institution, such as an authorised credit institution or the Bank of England, in an appropriately designated account. The safeguarding institution must undertake the required due diligence and remains responsible for its safeguarding arrangements, reconciliation and record-keeping.
Does safeguarding guarantee customers get all their money back?
No, not automatically. Safeguarding is designed so that, if the firm becomes insolvent, relevant customer funds form a protected asset pool from which e-money holders or payment service users are paid in priority to other creditors, subject to the costs of distributing that pool.
