Key takeaways
- Payment groups move money between their entities every day to fund payouts, settle flows and manage liquidity.
- Customer money held by one entity cannot be used to fund another entity's operations.
- Every intercompany transfer should have a documented purpose, an approval and a matching record in both entities.
- A transfer that is approved, executed and reconciled the same day is the standard regulators and auditors expect.
Why funds move between entities
In a global payment group, money rarely stays where it arrives. A US entity collects from senders and an EU entity pays recipients. A UK entity earns fees that are paid to a group holding company. A newly licensed entity in Canada needs capital from its parent. Each of these creates an intercompany transfer, money moving from one legal entity to another within the same group.
These transfers are normal. The risk is that, under pressure, money is moved without a clear purpose or approval, and customer money in one entity ends up covering another entity's needs. That is a breach of customer-money rules in almost every jurisdiction.
The risk grows with the number of entities. A group with ten licensed entities may make dozens of intercompany transfers a day, in several currencies, initiated by different teams in different time zones. Without a common process, it becomes impossible to say with confidence that every transfer came from the right source.
The rules that apply
Customer money held under UK safeguarding, US permissible investment rules, Canadian RPAA requirements or EU safeguarding rules belongs to customers of that entity. It can leave the entity's protected accounts only to pay those customers or their recipients, or to remove the firm's own money, such as earned fees, when the reconciliation confirms it is an excess. It cannot be lent to another group company, used to pay group expenses, or swept to a group cash pool.
Only the entity's own money, above its regulatory buffers, is available for intercompany funding. That is why the transfer process must begin from a reconciled view of which layer of cash the money comes from.
Fees are a common grey area. A payment firm earns fees on customer transactions, and those fees belong to the firm once earned. But until the daily reconciliation confirms the fee has been separated from customer money, moving it out of a protected account risks taking customer funds. The safe sequence is reconcile, confirm the excess, withdraw it to the operating account, and only then transfer it within the group.
Controls for every transfer
The table sets out the controls a regulated group should apply to every intercompany transfer.
| Control | Purpose |
|---|---|
| Documented purpose and agreement | Shows why the money moved and on what terms |
| Source layer confirmed from reconciled position | Proves the money was the entity's own, not customer funds |
| Approval by authorised people in both entities | Separates request from approval |
| Buffer check after transfer | Confirms the sending entity still meets its requirements |
| Matching record in both entities' books | Allows the transfer to be reconciled on both sides |
| Same-day reconciliation | Confirms the transfer arrived and was recorded correctly |
Worked example
A group's UK e-money entity has a reconciled position showing £2.4 million of operating cash above its regulatory buffers. Group treasury requests £1.0 million to fund the Canadian entity's growth. The UK finance lead confirms the money comes from operating cash, not safeguarded funds, checks the buffer after transfer remains above the minimum, and approves. The Canadian finance lead approves receipt and records it as capital from the parent. Both entities record the transfer under the same reference, and the next morning's reconciliation matches it on both sides.
Safeheld shows each entity's cash by layer, routes intercompany transfers for approval in both entities, and reconciles them on both sides. See multi-entity reconciliation and treasury controls for regulated payment firms.
Frequently asked questions
Can customer money be used for intercompany funding?
No. Customer money held by an entity can be used only to pay its customers or their recipients.
What should every intercompany transfer have?
A documented purpose, confirmation of the source of funds, approval in both entities, a buffer check and matching records.
Why reconcile intercompany transfers on both sides?
To confirm the money arrived and was recorded identically, so neither entity shows a false shortfall or surplus.
Can group cash pooling include customer funds?
No. Only the entity's own money above regulatory buffers can be pooled.
References
- FCA Handbook, CASS 15.8 Records, accounts and reconciliations
- Massachusetts General Laws c.169B §9: permissible investments
- Bank of Canada, Retail payment supervision
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.