Safeguarding Overhaul: The FCA Confirms New Rules for Payments and E-Money Firms

Introduction

On 7 August 2025, the Financial Conduct Authority (FCA) issued Policy Statement PS25/12, accompanied by:

• Finalised Guidance: Payment Services and Electronic Money - Our Approach;
• Amendments to the FCA Handbook via its Handbook Instrument, FCA 2025/38;
• A new web page summarising the changes; and
• A press release outlining the implementation and rationale.

The FCA has confirmed significant reforms to the safeguarding regime for payments and e-money firms through its Policy Statement PS25/12, published on 7 August 2025. The new Supplementary Regime, which will be effective from 7 May 2026, introduces mandatory monthly reporting, annual safeguarding audits, enhanced fund reconciliation, and resolution pack requirements. These are interim changes ahead of a more fundamental shift to a statutory trust-based (CASS-style) end-state regime.

Firms must act now to assess their current safeguarding practices, systems, governance, and readiness for compliance.

Background and rationale

The FCA’s action is driven by persistent safeguarding failures and regulatory structural issues, leading to systemic weaknesses and consumer harm. For example, it has identified the following issues.

Persistent Safeguarding Failures

• Between Q1 2018 and Q2 2023, failed payment and e-money firms left an average of 65% in client funds.
• The FCA found inconsistent safeguarding practices, including inadequate reconciliation and poor fund segregation.
• The FCA’s Financial Lives Survey shows that e-money usage has risen from 1% in 2017 to 7% in 2022, with over 40% of users classified as vulnerable, making safeguarding failures particularly damaging.

Regulatory Structural Issues

• Existing rules under the Payment Services Regulations 2017 (“PSRs”) and Electronic Money Regulations 2011 (“EMRs”) suffer from inconsistent implementation, limited oversight, and unclear separation of client funds. So in other words, currently PSRs and EMRs lack clear legal protection in insolvency.
• The FCA was encouraged by HM Treasury and its own experience with the CASS (the FCA’s Client Assets Sourcebook) to adopt a more robust, trust-based end-state regime.

The FCA aims to deliver consumer confidence, improve firm resilience, and reduce resolution complexity in firm failures.

The Supplementary Regime (Interim Rules)

Effective from 7 May 2026, this “supplementary regime” enhances existing safeguarding obligations for:

• authorised payment institutions (excluding those only providing PIS or AIS);
• authorised e-money institutions and small e-money institutions;
• and credit unions issuing e-money.

This new regime tightens the current framework via:

• Improved record keeping & reconciliation: detailed books, the ability to distinguish client funds at any time, and inclusion of oversight documentation such as resolution packs.
• Enhanced Monitoring & Reporting:
  • Monthly safeguarding returns to the FCA on arrangements and fund levels.
  • Annual audits by qualified external auditors (with an exemption if firms have never safeguarded more than £100,000 in the previous 53 weeks)
• Reconciliation Flexibility: weekend and public holiday reconciliation exemptions; optional alternative methods if independently auditor approved.
• Governance & Resilience:
  • Firms must maintain a resolution pack with all essential documents for effective wind-down.
  • Oversight responsibilities must be assigned to a designated individual.
  • Encouragement of diversification of third-party safeguarding solutions.
• Extended Preparation Period: firms have 9 months to prepare, extended from the originally proposed 6 months.

End-State Regime (Post-repeal – CASS-Style Rules)

The FCA will not implement end-state rules immediately. Instead, it will evaluate the effectiveness of the supplementary regime before consulting further. However, the long-term vision remains: a structured CASS-style regime where customer funds are held in statutory trust, enhancing legal protection and giving priority to customers in insolvency scenarios.

Whilst the FCA has not yet finalised the longer-term reforms, it aims to implement:

• A statutory trust model akin to CASS;
• Clear legal priority for customers in insolvency;
• Mandatory safeguarding accounts and formalised reconciliation; and
• Repeal of existing safeguarding rules under PSRs/EMRs, subject to legislative changes.

A Consultation will follow after the FCA evaluates the effectiveness of the supplementary regime.

FCA Support and Communication

The FCA will support firms through implementation via webinars, events, and supervisory outreach. It emphasises proportionate regulation, particularly for smaller firms, whilst stressing the importance of robust protection for consumers.

Implementation Timetable

What this means in practice: Implications and recommendations

Immediate Actions: Now until late 2025

Immediate preparation

Firms should begin internal gap analysis against the forthcoming supplementary regime: particularly in reconciliation, reporting systems, audit readiness, and resolution pack preparation.

Systems and Governance

Firms must appoint a safeguarding compliance lead. In addition, firms must review their relationships with third-party safeguard providers and ensure diversification and oversight.

Operational readiness

Build or upgrade systems for reconciliation, fund tracking, and producing monthly returns.

Draft a resolution pack template covering client funds, safeguarding arrangements, third‑party provider documentation, financial flows, and internal audit logs.

Audit Strategy

Firms must determine whether they meet the <£100K exemption threshold; if not, plan for external audit arrangements.

Medium-Term strategy (during 2026)

Implementation Plan

Execute systems and process changes to meet the 7 May 2026 deadline.

Training and Culture

Train operations, finance, compliance teams in new requirements, especially on reconciliation cycles and use of resolution packs.

Future Planning and engagement

Firms should monitor the FCA’s evaluation of the supplementary regime to anticipate and prepare for potential end-state CASS-style reforms. Firms should participate in FCA implementation webinars and engage with upcoming consultations to influence eventual end-state rulemaking.

Longer-Term planning

Prepare for transition to a trust-based regime:

• Model how a statutory trust and safeguarding account structure would integrate with your business model.
• Monitor and engage in future legislative changes to PSRs/EMRs to support the end-state implementation.

Regulatory Context: Where this fits

The new regime is part of a number of changes to the regulatory regime.

Conclusion

PS25/12 represents a critical pivot in how the FCA expects firms to manage and safeguard client funds.  The Supplementary Regime, though not as sweeping as CASS, introduces real obligations requiring change to systems, governance, and culture.

Preparation now is not just a compliance task - it’s a reputational investment.