What Happens to Your Customers' Money If Your E-Money or Banking Partner Fails?

Key takeaways

• When accounts are offered under another firm's e-money licence, the end customer's claim is against the licensed e-money institution, not against the business whose brand the customer sees.
• UK special administration under SI 2021/716 gives the administrator three equal objectives, the first being to return relevant funds as soon as reasonably practicable, and starts with a reconciliation based on the firm's own last reconciliation.
• In Ipagoo LLP [2022] EWCA Civ 302 the Court of Appeal held that the asset pool includes a sum equal to funds that should have been safeguarded but were not, to be made good from the firm's general estate.
• The FCA found an average shortfall of 65% in funds owed to clients at payments firms that became insolvent between Q1 2018 and Q2 2023.
• In the US Synapse case the CFPB alleged a shortfall of between $60 million and $90 million, and some end users waited more than eight months for distributions while partner banks reconciled records.

What are the key facts for businesses that rely on someone else's licence?

Your customers depend on the licensed firm's safeguarding and records, and your own records become evidence the day that firm fails.

Whose customer is the end user when you use another firm's licence?

Legally, the licensed institution's: it issues the e-money, holds the claim and safeguards the funds, even when the customer only ever sees your brand.

A programme manager is a business that designs, markets and runs an account or wallet product, while a licensed partner issues the money behind it. Under regulation 33 of the Electronic Money Regulations 2011, an EMI may distribute or redeem e-money through a distributor or agent, but may not issue e-money through them. Under regulation 36, the EMI is responsible for anything done or omitted by a distributor, agent or outsourced provider acting on its behalf, as if it had expressly permitted it.

Two consequences follow when the EMI fails. First, each end customer is an e-money holder with a claim on the EMI's asset pool, the ring-fenced pool of safeguarded funds. Second, the programme manager's own claims against the EMI, such as unpaid revenue share or fees, are not funds received in exchange for e-money, so they are generally ordinary unsecured claims. The same split applies in the US, where a fintech's customers hold deposits at a partner bank through pooled accounts opened "for the benefit of" them. Our guide to safeguarding through agents and distributors covers the duties in normal running.

What does a UK special administrator do first?

The administrator reconciles the asset pool using the firm's own last reconciliation, then works out who is owed what at the moment of failure.

Regulation 12 of SI 2021/716 sets three special administration objectives. The order in which they are listed "is not significant", and the administrator must start work on all three immediately after appointment.

Three provisions matter most to a business that depends on the licence. Regulation 13 requires an initial reconciliation "using the method adopted by the institution when it last carried out a reconciliation", based on records as they stood after that reconciliation; stale or missing reconciliations slow everything that follows. Regulation 17 requires the administrator to identify every holder and the amount owed at the precise time of special administration, and allows it to rely on "any agency, distribution or outsourcing arrangements", so your ledger may become the evidence for your customers' claims. Regulation 36 stops suppliers of software, data processing and safeguarding services from terminating supply because of the administration, so a programme manager that runs systems for the EMI may be required to keep them running.

Are funds received but never safeguarded still protected?

Yes in principle: the Court of Appeal held that the asset pool includes a sum equal to funds that should have been safeguarded, but that sum must come from whatever is left in the failed firm.

Ipagoo LLP entered administration on 1 August 2019. It had received EUR 3,810,972, GBP 235,854 and USD 265,980 from e-money holders, and it had not been possible to determine whether any of it was safeguarded as the regulations required. On 9 March 2022 the Court of Appeal dismissed both the FCA's appeal and the administrators' cross-appeal. It held that the Electronic Money Regulations do not create a statutory trust, a legal arrangement under which the money would belong to customers outright, but that the "asset pool" must include a sum equal to relevant funds that ought to have been, but were not, safeguarded.

The court also held that the costs of making good the asset pool count as costs of distributing it, which rank ahead of customer claims. For a programme manager the practical reading is direct: priority over other creditors is only worth what the failed firm still holds. A shortfall that is found years later, in an estate with little left, protects customers on paper and not in cash.

What has the FCA found in failed payments firms?

Large shortfalls, slow returns and poor records, which the safeguarding rules in force since 7 May 2026 are designed to reduce.

In PS25/12 (paragraph 2.3) the FCA reports that firms which became insolvent between Q1 2018 and Q2 2023 had an average shortfall of 65% in funds owed to clients. Paragraph 2.4 adds that where records are poor, insolvency practitioners spend significant time working out which funds belong to consumers, and that the failure of a payments firm holding funds for other regulated firms could cause those firms to fail in turn. That second risk is the one a programme manager carries.

The new rules give a partner business specific things to ask for. Each safeguarding account must be covered by an acknowledgement letter countersigned by the bank (CASS 15.7.3R), confirming the bank has no right against the funds for the firm's own debts. The resolution pack, the set of documents an administrator needs to return funds, must list every agent and e-money distributor (CASS 10A.2.1R(6)). Under CASS 15.8.60R the firm must tell the FCA without delay if its records are materially out of date, if it cannot complete a reconciliation, or if it cannot pay a shortfall. Our guide to acknowledgement letters explains the letter's wording.

What happened to fintech customers when Synapse failed?

Customers of fintech apps lost access to their money for weeks or months, and many did not get their full balance back, because the ledger and the partner banks' records did not match.

According to the CFPB complaint, Synapse provided the software between consumer fintech apps and partner banks, directed the movement of end users' money and tracked where each end user's funds sat. It filed for chapter 11 bankruptcy on 22 April 2024. Both Synapse and one partner bank had been aware of a deficit of tens of millions of dollars since at least September 2023.

With the trustee's help, the banks found they held less than Synapse's records showed end users were owed; the trustee estimated the shortfall at between $60 million and $90 million (CFPB). Our guide to what the Synapse collapse showed about ledger reconciliation covers the reconciliation failure itself.

What would the FDIC proposal require of banks and their fintech partners?

Daily reconciliation against records of each beneficial owner, and bank access to those records even if the fintech or its provider goes bankrupt.

The FDIC's proposed Part 375, published on 2 October 2024, would apply to custodial deposit accounts with transactional features: pooled accounts held for many beneficial owners who can direct payments out of them. Where a third party keeps the records, the bank would need "direct, continuous, and unrestricted access" to them, including on the third party's insolvency or bankruptcy, reconciliation no less often than at close of business daily, a contract assigning recordkeeping roles, and an independent validation of the third party's records at least annually. No final rule had been published in the Federal Register when this guide was checked. See our guide to the FDIC custodial account recordkeeping proposal.

What happened when a Lithuanian EMI with 90 distributors failed?

The regulator could not establish the exact amount owed to end users, and data problems with intermediaries delayed repayment.

On 22 June 2023 the Bank of Lithuania revoked the licence of UAB PAYRNET for serious, systematic and multiple violations and said it would apply to court to open bankruptcy proceedings. It found the institution had not properly safeguarded end user funds, keeping them at another e-money institution rather than in a dedicated account at a credit institution or central bank, that it did not have all the data on its end users, and that the exact amount of end user funds could not be determined. The firm worked exclusively through intermediaries: 90 agents, distributors or other legal entities. By 22 August 2023, the Bank of Lithuania reported that about half of customer funds had been returned, and that data exchange problems with some intermediaries had forced the firm to reconcile customer funds again, delaying returns.

How does daily evidence change what customers recover?

It decides whether every customer's claim is proven on day one or has to be rebuilt while balances stay frozen.

Worked example, with illustrative figures. Nexus Payments runs a business account programme under a UK EMI's licence. Each day it reconciles its customer ledger to the EMI's record of e-money issued for the programme. The EMI then enters special administration. It owes all its programmes' customers £200,000,000, the reconciled asset pool is £150,000,000 and distribution costs are £3,000,000.

If Nexus can show the £120,000 of card top-ups with matching processor reports and the £30,000 with a documented cause, its customers' full £12,400,000 of claims can be accepted at the bar date, the deadline the administrator sets for claims. Without that evidence, the administrator starts from the EMI's £12,250,000 and those customers must prove the rest themselves. Each customer's unpaid 26.5% remains an unsecured claim against the general estate.

What should a programme manager demand from its licensed partner?

Evidence, delivered on a schedule, that the funds behind your customers' balances exist, are protected and match your ledger.

• Daily reconciliation evidence: the partner's figure for e-money or deposits attributable to your programme, agreed to your ledger, with every difference listed and explained.
• Daily or at least monthly safeguarding account balances, showing the accounts hold at least the amount owed to your customers, by currency.
• Copies of countersigned acknowledgement letters for every account holding your customers' funds, and notice of any new or closed account.
• Written shortfall reporting: notice the same day a shortfall is found, its cause, when it was corrected, and confirmation of any notification to the regulator.
• Contractual access to your customers' records in an agreed format, including after the partner's insolvency, as the FDIC proposal would require of US banks.
• Your programme named in the partner's resolution pack as a distributor, with your contact and data delivery details.
• The partner's latest safeguarding audit opinion and any qualification, in summary form.
• A written description of how your customers would be identified, paid and if possible transferred under special administration.

Our guide to what happens to customer money if a payment or e-money firm fails covers the licensed firm's side of the same controls.

How does Safeheld help?

Safeheld matches your ledger, the licensed partner's reports and the bank statements every day, by legal entity and currency, and raises any difference as a break the day it appears.

Timing breaks, such as card top-ups in transit, clear by rule; others are worked to a cause with the evidence recorded, so the position behind every customer balance can be shown to an auditor, a bank or an administrator through read-only access and audit packs. See daily reconciliation in Safeheld.

Frequently asked questions

What happens if an e-money institution fails?

In the UK it usually enters special administration under SI 2021/716. Customer balances are frozen, the administrator reconciles the safeguarded funds, sets a deadline for claims and pays customers from the asset pool ahead of other creditors, after distribution costs.

If I run a programme on another firm's e-money licence, are my customers' funds mine?

No. The licensed e-money institution issues the e-money and owes it to each customer. Your own claims against it, such as unpaid fees or revenue share, are generally ordinary unsecured claims.

Are customer funds protected if the EMI never safeguarded them?

In Ipagoo LLP [2022] EWCA Civ 302 the Court of Appeal held that the asset pool includes a sum equal to funds that should have been safeguarded. That sum comes from the failed firm's general estate, so recovery depends on what is left.

How much did customers lose in failed UK payments firms?

The FCA reports in PS25/12 that payments firms which became insolvent between Q1 2018 and Q2 2023 had an average shortfall of 65% in funds owed to clients.

What happened to customer funds when Synapse failed?

Partner banks froze end user activity in May 2024 and found they held less than Synapse's records showed. The CFPB alleged a shortfall of $60 million to $90 million, and some end users waited more than eight months for distributions.

Can a programme manager stop providing systems to a failed EMI?

Not freely in the UK. Regulation 36 of SI 2021/716 stops suppliers of software, data processing and safeguarding services from terminating supply because of special administration, unless post-administration charges go unpaid for more than 28 days, the administrator consents or the court permits.

What should a programme manager ask its licensed partner for?

Daily reconciliation evidence agreed to its own ledger, safeguarding account balances by currency, countersigned acknowledgement letters, same-day shortfall reporting and guaranteed access to customer records after any insolvency.

Does the FDIC require daily reconciliation of fintech customer accounts?

The FDIC proposed it in October 2024 for custodial accounts with transactional features, together with bank access to third-party records on insolvency. No final rule had been published in the Federal Register as of 26 October 2026.

References

• The Payment and Electronic Money Institution Insolvency Regulations 2021 (SI 2021/716), legislation.gov.uk
• The Electronic Money Regulations 2011 (SI 2011/99), regulations 33 and 36, legislation.gov.uk
• Court of Appeal, Baker and Rowley v The Financial Conduct Authority, In the matter of Ipagoo LLP [2022] EWCA Civ 302 (9 March 2022)
• FCA, PS25/12 Changes to the safeguarding regime for payments and e-money firms (PDF)
• CFPB, Enforcement action: Synapse Financial Technologies, Inc. (complaint filed 21 August 2025, judgment entered 12 September 2025)
• CFPB v Synapse Financial Technologies, Inc., adversary complaint, US Bankruptcy Court C.D. Cal., 1:25-ap-01052 (PDF)
• FDIC, Recordkeeping for Custodial Accounts, proposed rule, 89 FR 80135 (2 October 2024)
• Bank of Lithuania, Licence of UAB PAYRNET revoked for serious violations, bankruptcy proceedings to be initiated (22 June 2023)

About Safeheld

Safeheld is reconciliation and regulatory reporting software for regulated firms that hold client money. For programme managers and the licensed institutions behind them, it reconciles ledgers, partner reports and bank statements every day by entity and currency, records the cause of every break and keeps the evidence an auditor, bank or administrator would ask for. To discuss your safeguarding operations, contact us at safeheld.com/contact.

This article is general information on the failure of e-money institutions and banking partners and is not legal or regulatory advice.