How safeguarding works for EMIs and payment institutions

Safeguarding is how electronic money institutions (EMIs) and payment institutions (PIs) protect the money customers entrust to them. The central idea is that relevant customer funds are kept separate from the firm’s own money and handled so that, if the firm fails, those funds are identifiable and available to customers rather than absorbed by the firm’s creditors 1. Safeguarding is a protective mechanism — it is not a deposit-guarantee scheme, and it is not the same as the firm’s prudential capital. This guide explains how safeguarding works conceptually so you can ask precise questions; the specific rules depend on the jurisdiction and supervisor.

Legal and regulatory status was reviewed on 7 July 2026.

Purpose of safeguarding

The purpose of safeguarding is to protect relevant customer funds — the money received in exchange for electronic money, or held while a payment service is performed — so those funds are not exposed to the firm’s own business risks 1 2. Safeguarding is about the customers’ money, not the firm’s profitability. It aims to keep customer funds identifiable and recoverable independently of the firm’s solvency.

Segregation

The most common safeguarding method is segregation: keeping relevant customer funds separate from the firm’s own funds, typically in dedicated accounts at a credit institution or in other permitted forms 1. Segregation is what makes customer funds distinguishable from company money. The mechanics — which accounts, at which banks, and how funds enter and leave them — are what determine whether segregation actually holds in practice.

Insurance or guarantee alternatives where applicable

Depending on the framework and jurisdiction, a firm may protect relevant funds through permitted alternatives to segregation, such as an insurance policy or comparable guarantee that pays out to customers if the firm cannot meet its obligations 2. Whether such alternatives are available, and on what terms, is jurisdiction-specific. If a provider relies on an insurance or guarantee method, understand who the counterparty is and what triggers a payout.

Reconciliation

Reconciliation is the routine of checking that the funds held in safeguarding accounts match the firm’s records of what it owes customers. Regular, accurate reconciliation is central to safeguarding: without it, shortfalls or surpluses can go unnoticed. Ask how often reconciliation is performed, how discrepancies are investigated, and how quickly any shortfall is corrected 3.

Timing

Timing determines whether funds are protected at the moments that matter. Relevant questions include when incoming funds are moved into safeguarding, how quickly they are recognised, and how outflows are handled. Gaps in timing — for example funds sitting outside a safeguarding account before being swept in — can create windows of exposure, so the flow should be mapped end to end.

Safeguarding accounts

Safeguarding accounts are the dedicated accounts, usually at one or more credit institutions, in which segregated customer funds are held. Understand how many such accounts exist, at which banks, and how they are titled so that the funds are identifiable as customer money. The account model a customer sees can differ from where funds actually sit — see named accounts, virtual IBANs and pooled accounts.

Bank counterparty concentration

Because safeguarded funds are often held at banks, the choice of bank matters. If all customer funds sit with a single credit institution, the failure of that bank becomes a concentration risk for customers. Diversification, monitoring of counterparties, and clarity on what happens if a safeguarding bank fails are all part of assessing a safeguarding arrangement.

Insolvency implications

The point of safeguarding is tested at insolvency. If the firm fails, safeguarded funds are intended to be identifiable and returned to customers rather than forming part of the general estate 1. The practical outcome depends on how well segregation and reconciliation were maintained, on the applicable insolvency law, and on the facts of the failure. Recovery is a process and may involve delay; safeguarding is protection, not an instantaneous guarantee of immediate access.

Difference from deposit guarantee

Safeguarding and a deposit-guarantee scheme are different things and should never be conflated. A deposit-guarantee scheme applies to deposits at banks and compensates depositors up to a defined level if a bank fails. Safeguarding applies to relevant customer funds at EMIs and PIs and works through segregation or permitted alternatives. Customers should not be told that safeguarded funds are covered by a deposit-guarantee scheme.

Difference from prudential capital

Aspect	Safeguarding	Deposit guarantee	Prudential capital
Whose money	Customers’ funds	Depositors’ funds at a bank	The firm’s own regulatory resources
Applies to	EMIs and PIs	Banks (deposits)	Authorised firms generally
Core mechanism	Segregation or permitted alternatives	Statutory compensation scheme	Capital held against risks
Protects against	Firm insolvency affecting customer funds	Bank failure	Firm’s own business and operational risks

Prudential capital is the firm’s own regulatory resource and absorbs the firm’s risks; it is separate from safeguarded customer funds and should not be described as protecting them directly.

Agent and programme structures

Where a product is delivered through agents, distributors or a programme partner on top of a licensed EMI or PI, safeguarding responsibility sits with the regulated entity. The distributor’s brand does not change where the funds are safeguarded or who is accountable. Map the flow of funds through every entity so you can see where customer money is held and safeguarded — see choosing an EMI or BaaS provider and the add accounts and IBANs stack.

Operational evidence

Safeguarding is only as good as the operations behind it. Ask for evidence: account structure, reconciliation frequency and results, exception handling, and how shortfalls are funded and corrected. A firm that can clearly explain and evidence its safeguarding operations is easier to assess than one that describes it only in marketing terms.

Audit and reporting

Safeguarding arrangements are typically subject to audit and regulatory reporting expectations that vary by jurisdiction 3. Understand what independent assurance exists over the arrangement, how frequently it is reviewed, and what is reported to supervisors. Audit and reporting do not replace day-to-day reconciliation but provide additional oversight.

What customers should be told

Communications to customers should describe protection accurately: that funds are safeguarded, and that safeguarding is not a deposit-guarantee scheme. Avoid implying deposit insurance, and avoid overstating the speed or certainty of recovery on insolvency. The distinction between an EMI, a PI and a bank is relevant here — see EMI versus payment institution.

Due-diligence questions

Use the “Questions to ask providers” section below as a starting point for provider due diligence, and align the answers with your own compliance framework and legal advice.

Failure scenarios

The “Common failure modes” section sets out how safeguarding can break down in practice.

Safeguarding review checklist

• Safeguarding method (segregation or permitted alternative) confirmed in writing
• Safeguarding banks named, with counterparty concentration assessed
• Reconciliation frequency and exception-handling process documented
• Timing of inflows and outflows into safeguarding mapped end to end
• Insolvency treatment and expected recovery process understood
• Prudential capital confirmed as separate from safeguarded funds
• Audit and regulatory reporting arrangements reviewed
• Customer communications checked for accurate, non-deposit-guarantee wording

Questions to ask providers

• Which safeguarding method do you use, and is it segregation or a permitted alternative?
• At which banks are safeguarded funds held, and how is counterparty concentration managed?
• How often is reconciliation performed, and how are shortfalls detected and corrected?
• What is the timing between receiving funds and placing them into safeguarding?
• What happens to customer funds if your firm, or a safeguarding bank, fails?
• How is safeguarding evidenced through audit and regulatory reporting?
• How is safeguarding described to end customers?

Common failure modes

• Describing safeguarding to customers as if it were a deposit-guarantee scheme.
• Weak or infrequent reconciliation that allows shortfalls to go undetected.
• Timing gaps where funds sit outside safeguarding before being swept in.
• Concentrating all safeguarded funds at a single bank without assessing the risk.
• Conflating safeguarded customer funds with the firm’s prudential capital.
• Being unable to evidence the arrangement beyond a marketing description 3.

What this does not cover

This guide explains safeguarding concepts; it does not state the specific safeguarding rules, thresholds or methods that apply to any firm, jurisdiction or product, and it does not conclude that any arrangement is compliant. Requirements are jurisdiction-specific. This is general information, not legal, regulatory, financial or tax advice, and it does not assess any provider.

FAQ

Is safeguarding the same as a bank deposit guarantee?

No. A deposit-guarantee scheme compensates depositors if a bank fails. Safeguarding protects relevant customer funds at EMIs and PIs through segregation or permitted alternatives and is not a compensation scheme 1.

Does safeguarding mean my customers get their money back instantly if the firm fails?

Not necessarily. Safeguarding is designed to keep funds identifiable and recoverable, but recovery is a process that depends on how the arrangement was maintained and on applicable insolvency law. It is protection, not an instant guarantee.

Is safeguarding the same as the firm’s capital?

No. Prudential capital is the firm’s own regulatory resource for its own risks. Safeguarded funds are customers’ money kept separate from the firm. The two are distinct and should not be conflated 2.

Why does it matter which bank holds safeguarded funds?

Because safeguarded funds are often held at banks, concentrating them at a single institution creates counterparty risk. Understanding which banks hold the funds and how concentration is managed is part of assessing the arrangement.

Are safeguarding requirements the same across the EU?

The framework sets common principles, but specific requirements, methods and supervisory expectations can vary by jurisdiction 3. Confirm the details that apply with advisers and the relevant authority.