Key takeaways
- UK payment institutions can provide services through agents, and e-money institutions can distribute e-money through distributors.
- The firm remains responsible for safeguarding customer funds its agents and distributors receive on its behalf.
- Funds received by an agent or distributor must be identified and brought into safeguarding within the required time.
- The firm needs daily visibility of what each agent or distributor holds, and contracts that support it.
How agents and distributors work
Many UK payment and e-money firms reach customers through third parties. A payment institution can register agents to provide payment services on its behalf, such as a shop that accepts money for transfer abroad. An e-money institution can use distributors to distribute or redeem e-money, such as a retailer that sells prepaid cards. Agents and distributors are registered with the FCA through the firm, not licensed in their own right.
The model lets firms grow quickly without building their own network. It also creates a safeguarding risk: customer money is collected by a business the firm does not control day to day, and may sit in that business's accounts before reaching the firm.
Who is responsible
The firm is. Responsibility for safeguarding does not pass to the agent or distributor. Funds an agent or distributor receives from customers on the firm's behalf are funds the firm must safeguard, and the firm must be able to show where they are, how much there is and when they reached a safeguarding account. If an agent fails, goes missing or mixes customer money with its own, the firm must still make customers whole.
This applies however the arrangement is described commercially. Calling an agent a partner, a reseller or a collection point does not change the position if it receives customer money on the firm's behalf. Firms should map every third party in their payment flows and identify which ones touch customer funds.
The firm's safeguarding policy should state how funds collected through each type of agent or distributor are treated, when they become the firm's safeguarding obligation, and how quickly they must reach safeguarding.
Controls that make it work
The most effective control is to have customer funds paid directly into the firm's own accounts wherever possible, so agents and distributors never hold the money. Where they must collect cash or receive payments, contracts should require prompt remittance on a fixed schedule, prohibit using customer funds for any other purpose and give the firm the right to see account records.
Due diligence matters before appointment as well as afterwards. Firms should assess each agent's or distributor's financial standing, controls and staff before registration, and review them regularly. An agent in financial difficulty is more likely to delay remittances or mix customer money with its own.
| Control | Purpose |
|---|---|
| Direct payment into the firm's accounts where possible | Keeps customer money away from third parties |
| Contractual remittance schedule | Sets when collected funds must reach the firm |
| Daily reconciliation of collections against remittances | Shows what each agent or distributor holds |
| Ageing of amounts due from each agent | Flags slow or missing remittances |
| Limits on amounts outstanding per agent | Caps the firm's exposure to any one third party |
| Regular review and audit of agents | Confirms the controls operate in practice |
Reconciliation and reporting
Each day, the firm should reconcile what each agent or distributor collected, using transaction records from the firm's own systems, against what it remitted. The difference is what the agent still holds. That amount forms part of the firm's safeguarding calculation, and any remittance that is late must be treated as a potential shortfall. The same discipline applies to US money transmitters, where authorized delegate receivables are subject to ageing and concentration limits.
Safeheld reconciles agent and distributor collections against remittances daily, ages amounts outstanding per agent and feeds the result into the safeguarding calculation. See CASS 15 reconciliation and payment institution safeguarding.
Frequently asked questions
Are agents responsible for safeguarding customer funds?
No. The payment or e-money firm remains responsible for safeguarding funds its agents and distributors receive on its behalf.
How should firms control funds held by agents?
By having funds paid directly to the firm where possible, contractual remittance schedules, daily reconciliation, ageing and limits per agent.
Do amounts held by agents count in the safeguarding calculation?
Funds received by agents on the firm's behalf are part of the firm's safeguarding obligation and must be identified and brought into safeguarding in time.
Is the US treatment similar?
US money transmitters also remain responsible for funds collected by authorized delegates, with ageing and concentration limits on delegate receivables.
References
- FCA, PS25/12: Changes to the safeguarding regime for payments and e-money firms
- FCA Handbook, CASS 15.8 Records, accounts and reconciliations
- The Electronic Money Regulations 2011
- The Payment Services Regulations 2017
About Safeheld
Safeheld reconciles client money every day, resolves every difference and prepares every regulatory return for sign-off, for regulated firms in the United States, the United Kingdom, the European Union, Canada, Australia, Singapore and Hong Kong. To discuss your operations, contact us at safeheld.com/contact.
This article is for general information and does not constitute legal or regulatory advice.