Key takeaways
- Safeguarding is the set of rules that require payment and e-money firms to keep customer money protected from the firm's own creditors.
- It exists because these firms are not banks: customer money is not covered by deposit insurance, so it must be ring-fenced instead.
- The UK and EU use segregation or insurance; the US uses permissible investments held against outstanding obligations; Canada uses trust or insured segregated accounts.
- Every regime depends on the same daily task: reconciling what the firm owes customers with what it holds for them.
What safeguarding means
Safeguarding is the obligation on a payment or e-money firm to protect money it holds for customers so that, if the firm fails, customers get their money back. A customer who loads a wallet, sends a cross-border payment or holds a balance in a payments app is trusting the firm with money that is not the firm's own. Safeguarding rules make sure that money is kept apart from the firm's own funds and cannot be used to pay the firm's creditors.
Payment and e-money firms are not banks. They cannot lend customer money, and customer balances are generally not protected by deposit insurance schemes such as the FSCS in the UK or the FDIC in the US. Safeguarding is the protection that replaces deposit insurance for these firms.
Safeguarding covers a wide range of businesses: e-money wallets, remittance companies, card issuers, payment processors, marketplaces that hold funds for sellers, payroll platforms and stablecoin issuers. What they have in common is that at any moment they hold money that belongs to someone else, and safeguarding rules decide how that money must be held, checked and reported. In the UK, the money that must be protected is defined in law as relevant funds.
How safeguarding works in each major market
| Jurisdiction | Main rule | How funds are protected | Daily task |
|---|---|---|---|
| United States | State money transmission laws, many based on the MTMA | Permissible investments at least equal to outstanding obligations | Calculate obligations and eligible investments |
| United Kingdom | EMRs, PSRs and CASS 15 | Segregation in designated accounts, or insurance or guarantee | Internal and external reconciliation every reconciliation day |
| European Union | PSD2 and the E-Money Directive, national law | Segregation or insurance, as implemented nationally | Reconciliation as required by the national regulator |
| Canada | Retail Payment Activities Act | Trust account, or segregated account with insurance or guarantee | Confirm funds held match end-user balances |
Each regime is covered in detail in our guides to US permissible investments, UK PS25/12 safeguarding, PSD2 safeguarding and Canadian RPAA safeguarding.
Why safeguarding fails
When payment firms fail, the safeguarding gap is often large. The FCA found that UK payment and e-money firms that failed between 2018 and mid-2023 had an average shortfall of around 65% of the money owed to customers. In the US, the 2024 collapse of Synapse, a banking-as-a-service middleware company, left a gap of tens of millions of dollars between ledger records and bank balances.
These failures rarely start with fraud. They start with small, unexplained differences between what the firm's records say and what the bank holds, which are not investigated and accumulate over months. By the time the firm fails, no one can say with confidence who is owed what.
That is why regulators have moved from general expectations to specific daily obligations. The UK now prescribes when and how firms reconcile, the US requires permissible investments at all times rather than at quarter end, and Canada requires a written framework explaining how funds will be returned. Each change pushes firms toward the same discipline: know the position every day and fix differences immediately. For what happens to customers when a firm fails, see what happens to customer money if a payment or e-money firm fails.
The daily task behind every regime
Whatever the jurisdiction, safeguarding depends on one daily calculation: the total owed to customers, compared with the total held for them, using reconciled figures from the ledger, processors and banks. Our guide to what payment reconciliation is explains how those figures are built. A firm that performs this calculation accurately every day, investigates every difference and corrects shortfalls the same day is a firm whose customers will be repaid if it fails.
Safeheld reconciles each entity's position across banks, processors and ledgers and applies each jurisdiction's safeguarding rules to it. See Safeheld reconciliation.
Frequently asked questions
What is safeguarding in payments?
The obligation on payment and e-money firms to keep customer money protected from the firm's own creditors so it can be returned if the firm fails.
Is safeguarded money covered by deposit insurance?
Generally not. Safeguarding is the protection that applies instead.
Do US money transmitters safeguard funds?
US states require money transmitters to hold permissible investments at least equal to their outstanding obligations, which serves the same purpose.
What causes safeguarding shortfalls?
Usually small, unexplained reconciliation differences that are not investigated and accumulate over time.
References
- FCA, PS25/12: Changes to the safeguarding regime for payments and e-money firms
- Massachusetts General Laws c.169B §9: permissible investments
- Bank of Canada, Retail payment supervision
- Directive (EU) 2015/2366 (PSD2)
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.