Key takeaways
- An acknowledgement letter is a written confirmation from the bank or custodian that an account holds customer funds for safeguarding, not the firm's own money.
- Its main purpose is to stop the bank treating safeguarded funds as available to cover the firm's own debts, known as set-off.
- The letter must match the account exactly: name, number, currency and designation.
- Acknowledgement letters belong in the resolution pack and should be reviewed whenever an account changes.
What an acknowledgement letter is
When a UK payment or e-money firm opens a safeguarding account, the account must be designated so that it is clear the money in it is held for customers. An acknowledgement letter is the written confirmation from the bank, custodian or other institution that it understands this. It typically confirms that the account holds funds the firm is safeguarding for customers, that the institution has no claim over those funds for any debt the firm owes it, and that the account is named and designated accordingly.
The letter matters most on the worst day: if the firm fails. An administrator returning customer funds needs to show, quickly and without dispute, that the money in each account belongs to customers. The acknowledgement letter is that evidence. It is one of the core documents in the resolution pack.
Why set-off matters
Set-off is a bank's right to take money from one account a customer holds to cover a debt the same customer owes on another, such as an overdraft or unpaid fees. If a bank could set off against a safeguarding account, customer money could be used to pay the firm's debts to the bank. The acknowledgement letter removes that risk by confirming the institution will not exercise any such right over the safeguarded funds.
This is also why bank charges should not be taken from a safeguarding account. A charge debited from customer funds creates a shortfall that the firm must make good from its own money the same day.
What to check in every letter
Firms should check each letter against the account it covers before filing it.
| Check | Why it matters |
|---|---|
| Account name includes the safeguarding designation | Shows on the face of the account that funds are held for customers |
| Account number and currency match exactly | A letter for the wrong account protects nothing |
| Legal entity names are correct | Firm and institution must be the right legal entities |
| No set-off, lien or other claim over the funds | Prevents customer money covering the firm's debts |
| Signed by an authorised signatory and dated | Makes the confirmation enforceable |
| Stored in the resolution pack | Must be retrievable quickly on insolvency |
Common errors
The most common problems are simple. A new currency account is opened under an existing safeguarding relationship but no new letter is obtained. An account is renamed or renumbered and the letter is not updated. A letter is signed by the firm but never countersigned by the bank. A letter is filed in an email inbox rather than in the resolution pack. Each of these is an audit finding, and each could delay the return of customer funds on insolvency.
A simple control prevents them: maintain a register of every safeguarding account, with the date and location of its acknowledgement letter, and check it whenever an account is opened, closed or changed, and at least once a year. Safeheld keeps the account register alongside daily reconciliation, so an account without a valid letter is flagged. See PS25/12 safeguarding and safeguarding bank due diligence.
Frequently asked questions
What is a safeguarding acknowledgement letter?
A written confirmation from the institution holding a safeguarding account that the account holds customer funds and that it has no claim over them for the firm's debts.
Why does set-off matter for safeguarding?
Without a waiver, a bank could use customer money to cover the firm's own debts to the bank.
When is a new acknowledgement letter needed?
Whenever a new safeguarding account or currency is opened, or an existing account's details change.
Where should acknowledgement letters be kept?
In the resolution pack, with a register linking each letter to its account.
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.