Key takeaways
- The EMRs and PSRs allow relevant funds to be invested in secure, liquid assets approved by the FCA, held in a separate account with an authorised custodian.
- CASS 15.4.2G approves assets in the UK CRR Article 114 categories with a specific risk capital charge of no higher than 0%, and units in a UCITS that invests solely in those assets.
- Any other asset needs a written application to the FCA (CASS 15.4.4R), and PS25/12 did not widen the approved range.
- Investments must follow the CASS 15.4.6R principles on concentration, liquidity, credit risk and foreign exchange, reviewed at least annually.
- Relevant assets count as item C of the safeguarding resource, valued at the previous business day's close, and form part of the D+1 segregation resource.
What are the key facts on secure, liquid assets?
Relevant funds can be invested, but only in a narrow set of approved assets and under specific controls.
| Item | Position |
|---|---|
| Rule | EMRs regulation 21(2)(b) and (6); PSRs regulation 23(6)(b); CASS 15.4 |
| Regulator | Financial Conduct Authority |
| Applies to | Safeguarding institutions using the segregation method |
| Approved assets | UK CRR Article 114 categories with a 0% specific risk capital charge, and UCITS investing solely in them |
| Review | Investment policies reviewed at least annually (CASS 15.4.6R(5)) |
| Last checked | 11 October 2026, against the FCA Handbook and PS25/12 |
What do the regulations allow?
They allow a firm to invest relevant funds in secure, liquid assets the FCA approves and to hold those assets in a separate account with an authorised custodian, as an alternative to a bank account.
EMRs regulation 21(2)(b) and PSRs regulation 23(6)(b) set out the option. Under EMRs regulation 21(6), assets are secure and low-risk if they fall within the capital requirements categories the regulation specifies, and are liquid if the FCA approves them as such. An authorised custodian is a person authorised under the Financial Services and Markets Act 2000 to safeguard and administer investments. The custody account must be designated to show that it holds safeguarded assets, and no one else may have an interest in or right over them except as the regulations allow.
CASS 15.4.1G summarises the position and repeats the key point on liquidity: assets are liquid if approved as such by the FCA. The firm cannot decide for itself that an asset is liquid enough.
Which assets has the FCA approved?
Two types: assets in the UK CRR Article 114 categories with a specific risk capital charge of no higher than 0%, and units in a UCITS that invests solely in those assets.
CASS 15.4.2G sets the approval. Article 114 of the UK Capital Requirements Regulation covers exposures to central governments and central banks. The monthly safeguarding return asks firms to identify which Article 114 paragraph each asset relies on, which shows the main routes in practice.
| Article 114 paragraph (as listed in the return) | Exposure | Example |
|---|---|---|
| 114(2) | Central government or central bank with an external credit assessment corresponding to a 0% risk weight | Highly rated government bonds and bills |
| 114(3) | The European Central Bank | Exposures to the ECB |
| 114(4) | The UK government or the Bank of England, denominated and funded in sterling | UK Treasury bills and gilts |
| 114(7) | A third country government or central bank given a 0% risk weight by an equivalent authority | Certain overseas sovereign debt |
CASS 15.4.3G reserves the FCA's right, in exceptional circumstances, to decide that an asset within these categories is not secure and liquid. Any asset outside them needs a written application under CASS 15.4.4R showing how the consumer protection purpose of safeguarding will be met and how liquidity risk will be managed. PS25/12 confirmed that firms may continue to invest in the same range of assets as before, with no broadening (PS25/12, paragraph 5.8).
What principles govern the investments?
CASS 15.4.6R sets five principles, and CASS 15.4.7R sets conditions on redemptions and reinvestment.
| Principle | Requirement | Rule |
|---|---|---|
| Concentration | A suitable spread of investments | CASS 15.4.6R(1) |
| Liquidity | Investments made in line with an appropriate liquidity strategy | CASS 15.4.6R(2) |
| Credit risk | Investments made in line with an appropriate credit risk policy | CASS 15.4.6R(3) |
| Foreign exchange | Any foreign exchange risk prudently managed | CASS 15.4.6R(4) |
| Review | The policies for each of the above reviewed at least annually | CASS 15.4.6R(5) |
| Redemptions | Proceeds paid into a relevant funds bank account | CASS 15.4.7R(1) |
| Third-party managers | Sale proceeds promptly reinvested in relevant assets or paid into a relevant funds bank account | CASS 15.4.7R(2) |
CASS 15.4.5R requires the firm to take reasonable steps to make sure its investments comply. The liquidity strategy deserves the most attention, because customers can ask for their money at any time. A firm should know how much of each pool it can turn into cash the same day, the next day and within a week, and should match that profile to its history of outflows and its funding forecasts.
Can a third party manage the assets?
Yes, if it has permission to manage investments, but the firm stays responsible for making sure relevant funds are invested only as the rules allow.
Appointing a manager is optional (CASS 15.4.13G). Where a firm does appoint one, the manager must hold permission for managing investments (CASS 15.4.8R), and the firm must use due skill, care and diligence in selecting, appointing and periodically reviewing it, make sure its mandate prevents decisions that conflict with the rules, and require it to report the number of relevant assets held at least every business day, as at the close of the previous business day (CASS 15.4.9R). The firm must consider the manager's expertise and market reputation (CASS 15.4.10R), keep dated records of its selection grounds and each review (CASS 15.4.11R), and remains responsible for compliance (CASS 15.4.12R).
Custodians holding relevant assets are also third parties under CASS 15.6, so the due diligence and diversification rules apply to them; see bank due diligence and diversification. Each relevant assets account needs a countersigned acknowledgement letter under CASS 15.7.4R; see acknowledgement letters.
How do relevant assets count in reconciliations?
They are item C of the safeguarding resource, valued at the previous business day's close, and are reconciled externally by quantity rather than value.
CASS 15.8.26R includes in the resource the value of relevant assets in relevant assets accounts, based on records at the close of the previous business day, and CASS 15.8.28R requires them to be valued impartially and with due skill, care and diligence. The external reconciliation compares quantities, for example units of a UCITS or nominal amounts of a bill, not values (CASS 15.8.48G). Because item C is part of the D+1 segregation resource, funds invested in approved assets meet the D+1 deadline; see D+1 segregation timing.
In the monthly safeguarding return, question 12 lists each relevant asset against the Article 114 paragraphs relied on and flags any asset outside CASS 15.4.2G, and question 13 gives the value held with each custodian at the period end.
How does a price move affect the safeguarding position?
A fall in the value of relevant assets reduces the safeguarding resource and can create a shortfall the firm must fund the same day.
Worked example. An e-money institution has a safeguarding requirement of £48,000,000. It holds £28,200,000 in relevant funds bank accounts and £20,000,000 nominal of 3-month UK Treasury bills with a custodian.
| Line | Monday (GBP) | Tuesday (GBP) |
|---|---|---|
| Treasury bill price at the previous business day's close | 99.05 | 98.95 |
| Item C: value of Treasury bills | 19,810,000 | 19,790,000 |
| Item A: relevant funds bank accounts | 28,200,000 | 28,200,000 |
| Safeguarding resource (items A and C) | 48,010,000 | 47,990,000 |
| Safeguarding requirement | 48,000,000 | 48,000,000 |
| Result | Excess 10,000 | Shortfall 10,000 |
A small fall in price turned a £10,000 excess into a £10,000 shortfall. Under CASS 15.8.50R the firm pays £10,000 into a safeguarding account by the end of Tuesday. Many firms hold a cash buffer of their own money in the safeguarding account to absorb movements like this; any such buffer should be recorded as the firm's own funds and reconciled like everything else. When the bills mature, the redemption proceeds must be paid into a relevant funds bank account under CASS 15.4.7R(1), so the firm should check that the custodian's standing instructions point there.
When does investing make sense?
Investing suits firms with large, stable balances and the operational capacity to run valuation, custody and liquidity controls every day.
The benefits are diversification away from bank credit risk and, depending on market conditions, a return on the funds. The costs are daily valuation, custodian due diligence, acknowledgement letters, an annual policy review, exposure to price movements that the firm must fund from its own money, and more work for the safeguarding auditor. A firm whose balances swing widely within the week will often find that the liquidity strategy limits how much it can invest. The decision belongs with the governing body, supported by the individual responsible for safeguarding oversight. A phased approach is common: invest a modest, stable share of the pool first, run the daily valuation and custodian reconciliation for several months, and widen the allocation only once those controls have worked through a period of normal outflows.
What should a firm check?
These checks cover the main control points for relevant assets.
- Confirm every asset is within CASS 15.4.2G, or covered by an FCA approval under CASS 15.4.4R.
- Record the Article 114 paragraph relied on for each asset, as the monthly return requires.
- Write and approve policies on concentration, liquidity, credit risk and foreign exchange, and review them at least annually.
- Hold assets only with an authorised custodian, in a designated account covered by a countersigned acknowledgement letter.
- Value assets impartially at the previous business day's close and reconcile quantities with the custodian every reconciliation day.
- Make sure maturities and sale proceeds go to a relevant funds bank account.
- Where a manager is used, check its permission, mandate, daily reporting and the dated records of each review.
How does Safeheld help?
Safeheld reconciles custodian records against the firm's ledger alongside bank accounts, so relevant assets appear in the same daily safeguarding position.
Its 7-day funding forecast shows how much of each pool is likely to be needed in cash, which supports the liquidity strategy. See cash positions and funding and our CASS 15 and PS25/12 guide.
Frequently asked questions
Can relevant funds be invested?
Yes. The EMRs and PSRs allow relevant funds to be invested in secure, liquid assets approved by the FCA and held in a separate account with an authorised custodian.
Which assets has the FCA approved for safeguarding?
Assets in the UK CRR Article 114 categories with a specific risk capital charge of no higher than 0%, and units in a UCITS that invests solely in those assets (CASS 15.4.2G).
Can a firm invest in other assets?
Only with FCA approval, following a written application under CASS 15.4.4R. PS25/12 did not widen the approved range.
How are relevant assets valued for reconciliation?
Impartially and with due skill, care and diligence, based on records at the close of the previous business day (CASS 15.8.26R and 15.8.28R).
Do relevant assets count towards the D+1 deadline?
Yes. The D+1 segregation resource is items A and C of the safeguarding resource, and item C is relevant assets.
Can an investment manager be used?
Yes, if it has permission for managing investments. The firm must select and review it carefully and remains responsible for compliance (CASS 15.4.8R to 15.4.12R).
Where must redemption proceeds go?
Into a relevant funds bank account (CASS 15.4.7R(1)).
References
- FCA Handbook, CASS 15.4 Segregation: secure, liquid assets
- FCA Handbook, CASS 15.6 Selection and appointment of third parties
- FCA Handbook, CASS 15.7 Acknowledgement letters
- FCA Handbook, CASS 15.8 Records, accounts and reconciliations
- The Electronic Money Regulations 2011, regulation 21
- The Payment Services Regulations 2017, regulation 23
- FCA, PS25/12: Changes to the safeguarding regime for payments and e-money firms (PDF)
- FCA Handbook, SUP 16 Annex 29BR Safeguarding return
About Safeheld
Safeheld is reconciliation and regulatory financial control software for regulated firms that hold client money. It reconciles bank, custodian and ledger records for each entity and currency, so relevant assets sit in the same daily safeguarding position as cash. To discuss your safeguarding operations, contact us at safeheld.com/contact.
This article is general information on the UK safeguarding rules and is not legal or regulatory advice.