For Electronic Money Institutions, few obligations carry more weight, or risk, than the responsibility to safeguard client funds. It’s not just a regulatory requirement. It’s a defining aspect of trust in the e-money business model, shaping how customers perceive your brand, how counterparties measure your resilience, and how regulators evaluate your conduct. Yet while the principle is simple, protect the money, its execution demands precision, planning, and a firm grasp of what the rules require.
Safeguarding begins the moment you receive funds in exchange for e-money. This is not a soft trigger, nor one that allows for delay or interpretation. From that instant, the funds must be separated, protected, and removed from any risk of being used for the firm’s own purposes. The FCA’s position is unequivocal: safeguarding is a live obligation, not a retrospective process. Wait until the end of the day to move the money and you risk being in breach.
There are, in theory, two routes to compliance. Most EMIs opt for the segregation method, placing funds into a dedicated safeguarding account with a UK or appropriately authorised credit institution. This approach is familiar, operationally straightforward, and accepted by auditors and counterparties alike. The alternative, using an insurance policy or guarantee to cover client liabilities, is technically permissible but practically rare, given the challenges of cost, coverage and regulatory scrutiny. In practice, the choice is clear.
But compliance is about more than where the money sits. It’s also about what it’s exposed to. Safeguarded funds must be preserved in full, which means no lending, no investing, and no chasing yield. There is no room for ambiguity here. Even short-dated instruments that appear safe may fall foul if they are not immediately liquid or if their nominal value could fluctuate. The only acceptable assets are those that preserve value at par. Risk and safeguarding do not belong in the same sentence.
Under the FCA’s safeguarding framework, Electronic Money Institutions (EMIs) are permitted to hold client funds in specific types of secure, liquid assets. The primary options include:
1. Cash deposits: Funds can be held in segregated accounts with authorised credit institutions. Arlingclose can provide options that not only meet but exceed regulatory safeguarding standards, delivering enhanced security while also offering the potential for improved yield.
2. Government securities & Government money market funds: Investments in low-risk, short-term instruments that offer liquidity and capital preservation. Some methods are more productive, more efficient, and can deliver higher yields, without introducing additional credit risk, relative to option 1. Arlingclose can help you unlock these opportunities while keeping compliance and simplicity firmly in view.
3. Insurance or comparable guarantee: Securing client funds through an insurance policy or guarantee from an authorised insurer or credit institution.
These methods are designed to ensure that client funds are protected and readily accessible, aligning with the FCA’s emphasis on safeguarding and liquidity. Firms must choose the method that best fits their operational model while maintaining compliance with regulatory requirements.
And then there is the question of governance. The FCA doesn’t just expect the right result, it expects the right process. EMIs must maintain clear, timely reconciliation records, backed by sound internal oversight and, where thresholds are exceeded, an external audit opinion. Senior management must not only understand how safeguarding is implemented but must be able to demonstrate that it is subject to effective challenge and review. It’s not enough to get it right once. Safeguarding must work every day, in every condition, and under every test.
For those in the EMI space, this is more than a compliance topic. It is an operational cornerstone and a commercial differentiator. Firms that get safeguarding right can point to it as a mark of maturity, of institutional reliability, and of readiness for scale. Those that don’t face more than regulatory risk, they face reputational damage and, potentially, structural failure.
In a sector where trust is currency and resilience is strategy, safeguarding is where credibility begins. Arlingclose can provide options that not only meet but exceed regulatory safeguarding standards, delivering enhanced security while also offering the potential for improved yield. To find out more, contact Nick Keeling at nkeeling@arlingclose.com or Stuart Jones at sjones@arlingclose.com.
Related Insights