What the FCA’s New Safeguarding Rules Mean for Payments and E-Money Firms

The Financial Conduct Authority (FCA) has introduced Policy Statement PS25/12, a significant update to the safeguarding regime for payment and e-money institutions. These reforms aim to strengthen the protection of relevant funds, particularly in insolvency scenarios, by enhancing operational standards, oversight, and accountability. These rules apply to authorised PIs, EMIs, small EMIs, and credit unions issuing e-money.

Key Changes in PS25/12 

• Monthly Safeguarding Return: Firms subject to safeguarding must submit a dedicated monthly return to the FCA. This new form will capture key data on safeguarded funds, reconciliation outcomes, and breaches, enabling more effective supervision.
  
  
• Safeguarding Audits: Firms are still required to safeguard relevant funds. However, such audits must be conducted by a qualified statutory auditor. Following consultation, the FCA has introduced an exemption for firms that hold no more than £100,000 in safeguarded funds for 53 consecutive weeks. Firms below this threshold are exempt from the statutory audit obligation.
   
• Reconciliation Days: Reconciliations must now be performed on reconciliation days, not just business days, which are any day that is not a bank holiday or a weekend.
  
  
• Insurance-Based Safeguarding: Firms using insurance must meet stricter conditions:
  • Policies must ensure full payout on insolvency.
  • Payouts must be made directly into the safeguarding account.
  • Policies must be reviewed at least 3 months before expiry, and if not renewed, a contingency plan must be submitted to the FCA 
• Third-Party Due Diligence: Firms must conduct regular due diligence on banks, custodians, and insurers used for safeguarding. They must document the suitability of these providers and demonstrate how they manage operational and concentration risks specifically. Unlike the previous regime, which offered less specific guidance, these new rules introduce specific expectations around review frequency, documentation, and risk mitigation.

Potential Challenges Firms May Face 

Given the changes to the safeguarding obligations, firms may want to consider the following potential implications.

1. Operational Complexity
   Implementing reconciliation on designated days and preparing monthly returns may require system upgrades and tighter internal controls.
2. Audit Readiness
   Firms above the audit threshold must maintain detailed records and be prepared for scrutiny by statutory auditors, which may increase operational and regulatory burden for firms.
3. Third-Party Risk Management
   Ongoing due diligence and documentation of third-party suitability will demand more structured vendor oversight, which firms will need to consider implementing in their systems and controls.
4. Cost Implications
   Compliance costs may rise due to system changes, statutory audit fees, and legal reviews—especially for smaller firms.

 What Firms Should Do Now 

• Conduct a Gap Analysis: Review current safeguarding arrangements against PS25/12 requirements.
• Prepare for Monthly Reporting: Ensure systems can support the new FCA return format.
• Assess Audit Exposure: Determine if your firm exceeds the £100k threshold and prepare accordingly.
• Review Insurance Policies: Confirm compliance with payout and contingency planning rules.
• Strengthen Third-Party Oversight: Implement a documented due diligence process and risk mitigation strategy.

How Thistle Initiatives Can Help

At Thistle, we support firms in navigating regulatory change with confidence. Whether you need help preparing for audits, updating reconciliation processes, or reviewing insurance and third-party arrangements, our compliance consultants are here to guide you.

Get in touch today to book a gap analysis in preparation for the new changes.

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