Key takeaways
- Banks that provide safeguarding accounts to payment and e-money firms hold money that belongs to the firm's customers, not to the firm.
- The account must be designated as a safeguarding account, and the bank confirms in an acknowledgement letter that it has no claim over the funds for the firm's debts.
- Under CASS 15, firms must review their safeguarding banks at least annually, so banks should expect structured due diligence requests.
- Banks that understand their clients' safeguarding obligations can offer better service and manage their own risk more effectively.
What a safeguarding account holds
When a UK payment institution or e-money institution opens a safeguarding account, the bank is holding money the firm has received for its customers. The firm is the account holder, but the money is safeguarded for the firm's customers under the Electronic Money Regulations, the Payment Services Regulations and, since 7 May 2026, CASS 15. If the firm fails, the money in the account is used to repay those customers, not the firm's other creditors.
That has practical consequences for the bank. The account must be designated so its purpose is clear. The bank cannot use the balance to cover the firm's own debts. And the bank becomes part of the firm's safeguarding arrangements, which the firm's auditor and the FCA will examine.
Designation and acknowledgement letters
The account name should show it is a safeguarding account. The bank confirms in an acknowledgement letter that the account holds funds safeguarded for the firm's customers and that it will not exercise set-off, a lien or any other claim over them for the firm's obligations. Our guide to acknowledgement letters lists what each letter must contain. A new letter is needed whenever a new safeguarding account or currency is opened, or an account's details change.
Banks should also avoid debiting their own fees from safeguarding accounts. A fee taken from customer funds creates a shortfall that the firm must correct the same day.
Due diligence and information requests
CASS 15 requires firms to select their safeguarding banks with due skill, care and diligence and to review them at least annually. Firms also manage concentration risk, often by spreading funds across several banks. Banks should therefore expect regular, structured requests for information on credit standing, regulatory status, operational capability, statement delivery and exit terms. Our guide to safeguarding bank due diligence sets out what firms ask.
Daily external reconciliation under CASS 15 also means firms need timely, complete electronic statements for every safeguarding account, ideally in formats such as camt.053. Late or incomplete statements make it harder for the firm to meet its obligations.
| Firm need | What the bank can provide |
|---|---|
| Daily external reconciliation | Timely electronic statements in standard formats |
| Account designation and no set-off | Correctly titled accounts and signed acknowledgement letters |
| Annual due diligence | A standard information pack on credit, regulation and operations |
| Concentration management | Clear account limits and notice of any change in appetite |
| Resolution planning | Clear contacts and procedures if the firm fails |
Monitoring and exits
Banks providing safeguarding accounts carry their own risks: financial crime, the firm's financial health and reputational exposure if a client fails with a shortfall. Monitoring the account against the firm's expected activity, and understanding how the firm reconciles it, helps the bank manage those risks. Where a bank decides to exit a safeguarding relationship, a reasonable notice period and cooperation in moving funds protect the firm's customers, and the bank's own reputation, far better than an abrupt closure.
Safeheld works with banks as well as firms, giving each a clear view of safeguarded balances, reconciliation status and supporting records. See PS25/12 safeguarding and CASS 15 reconciliation.
Frequently asked questions
What is a safeguarding account?
A bank account designated to hold funds a payment or e-money firm safeguards for its customers.
Can a bank set off a safeguarding account against the firm's debts?
No. The bank confirms in an acknowledgement letter that it has no claim over safeguarded funds for the firm's obligations.
Why do payment firms send banks due diligence requests?
Because CASS 15 requires firms to review their safeguarding banks at least annually.
What statements do firms need from safeguarding banks?
Timely, complete electronic statements for every safeguarding account, to support daily external reconciliation.
References
- FCA, PS25/12: Changes to the safeguarding regime for payments and e-money firms
- FCA Handbook, CASS 15.8 Records, accounts and reconciliations
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.