By: Money Navigator Research Team
Last Reviewed: 22/01/2026
FACT CHECKED
Quick Summary
E-money business accounts (often provided by electronic money institutions) typically rely on safeguarding rather than FSCS cover.
Safeguarding is designed to separate customer “relevant funds” from the provider’s own money (or protect them via an insurance/guarantee route), so that if the provider fails, customers have a defined route to recover funds from the safeguarded pool.
However, safeguarding is not the same as a bank deposit model: access can still be disrupted, and if a provider enters insolvency, funds can be tied up while records are reconciled and distributions are made – outcomes and timelines depend on the specific failure scenario and the quality of records.
This article is educational and not financial advice.
What an e-money business account is (and what it isn’t)
An e-money business account is commonly offered by a non-bank payments firm that issues electronic money and provides payment services (for example, receiving transfers, making payments, and issuing payment cards).
The FCA’s consumer guide on using payment service providers explains why this matters: the customer-safety model is generally safeguarding, not deposit cover.
That distinction is structural. A bank account balance is typically a deposit liability of a deposit-taker, whereas an e-money balance is typically electronic money issued by an e-money firm.
The FCA’s press release on changes to payment safeguarding rules summarises the practical implication in plain terms: funds held by payment and e-money firms are not directly protected by FSCS cover, and safeguarding weaknesses can mean delays (or losses) if a firm fails.
Safeguarding explained: what it is trying to achieve
Safeguarding is a regulatory framework intended to protect “relevant funds” received in exchange for e-money and/or to execute payment transactions.
At a high level, the FCA describes two routes in its explanation of how safeguarding works for EMIs and authorised payment institutions: funds are either placed into a separate safeguarding account with a bank, or protected with an insurance policy or similar guarantee.
The detailed legal obligations sit in legislation rather than marketing language. For e-money, the safeguarding requirements are set out in the Electronic Money Regulations 2011 (PDF).
For payment services, safeguarding requirements are set out in the Payment Services Regulations 2017 (PDF). Those instruments matter because they frame what counts as relevant funds, how they must be treated, and what happens when an insolvency event occurs.
What safeguarding does not promise: uninterrupted access
Safeguarding is designed to improve the prospects of money being returned if a provider fails. It is not a guarantee of uninterrupted day-to-day access, and it is not the same mechanism as deposit cover.
Two authoritative explanations make this practical point clearly:
The FCA notes in its safeguarding explanation for users of payment providers that customers may get “most” of their money back if a firm goes out of business, but that it may take time and may not be the full amount because some costs can be taken by an administrator or liquidator.
FSCS similarly explains in its guide to e-money and FSCS cover that it cannot provide its “quick and easy compensation service” for e-money and payment providers, and money can be tied up during insolvency.
Access to funds in practice: why disruption can happen even without failure
Operational restrictions and reviews
Separately from safeguarding, payments firms can restrict account functionality while reviewing activity or meeting legal obligations. The practical impact is similar to what happens in bank compliance reviews:
- Payments may be delayed, limited, or paused while checks run
For a process-first explanation of restriction mechanics and what it tends to affect (card payouts, transfers, and timing), see our guide on why UK business accounts get restricted during compliance reviews.
Many payment flows involve stages and cut-offs. This can create timing differences between what an interface shows and what is fully settled and available under the provider’s internal rules.
The FCA’s multi-firm review of safeguarding arrangements at non-bank payment providers highlights why timing and segregation discipline matter: relevant funds should be segregated upon receipt, and the framework includes requirements when funds are still held after specific time windows.
Provider failure events (insolvency)
If the provider becomes insolvent, payment initiation and card use can stop, even if safeguarded funds exist. The experience then becomes an insolvency process:
- Identifying the safeguarded pool
- Reconciling records
- Validating claims, and making distributions
The FCA’s policy statement page on strengthening safeguarding standards explains the regulator’s rationale: weaknesses in safeguarding practices have created risks of shortfalls and delays when firms fail, and the regime has been strengthened to reduce those outcomes.
Summary Table
| Scenario | Outcome | Practical impact |
|---|---|---|
| Provider operates normally | Safeguarding framework applies to relevant funds | Day-to-day access depends on operational processes and controls, not FSCS cover |
| Provider restricts account functions during checks | Payments and withdrawals may be limited or paused | Short-term disruption can affect payroll timing, supplier payments, and cashflow visibility |
| Provider enters insolvency | Insolvency practitioner takes control and starts reconciliation and claims processing | Funds can be temporarily inaccessible while records are reconciled and distributions are arranged |
| Safeguarding bank fails (provider does not) | Depositor protection rules may apply to eligible customers for safeguarded funds held at that bank | Outcome depends on eligibility and structure; the scenario is different from the e-money provider failing |
What happens if the e-money provider fails: the typical sequence
1) Operations may stop before money is returned
In a failure scenario, the immediate impact is often operational: card spending and outbound payments may be halted while the insolvency practitioner secures systems and records.
FSCS’s explanation of why e-money balances can be tied up is useful here because it describes the practical consequence: the absence of a standard “quick compensation” pathway means insolvency processes can take time.
2) The safeguarded pool is identified and reconciled
Safeguarding is only as effective as the quality of segregation and records. The FCA’s multi-firm review on safeguarding arrangements explains why reconciliation discipline matters and sets expectations around segregation and safeguarding accounts/assets.
The legal basis for what must be safeguarded (and how) is in the Electronic Money Regulations 2011 (PDF) and the Payment Services Regulations 2017 (PDF).
3) Claims are validated and distributions are made
Once the pool and entitlements are established, the insolvency practitioner can distribute funds. The FCA’s consumer explanation of how safeguarding works sets expectations for outcomes: customers may receive most of their money back, but it can take time and may be reduced by certain insolvency costs.
Scenario Table
| Scenario-level | Process-level | Outcome-level |
|---|---|---|
| E-money provider fails | Secure systems > identify safeguarded pool > reconcile ledgers > validate claims > distribute | Access disruption likely; return timelines depend on reconciliation and distribution mechanics |
| Safeguarding bank fails | Determine eligibility > apply depositor protection rules to safeguarded funds held at bank | Possible depositor cover for eligible customers; distinct from e-money provider insolvency |
| Provider remains solvent but restricts access | Internal controls, reviews, or incident response steps | Temporary disruption without insolvency; access may resume or remain limited depending on review outcomes |
Compare Business Bank Accounts
E-money accounts and business bank accounts can look similar in an app, but the underlying customer-safety model is different.
Business bank account (deposit-taker model): the balance is generally a deposit liability of a deposit-taker, and eligible deposits can fall within FSCS cover rules if the bank fails.
E-money business account (safeguarding model): customer relevant funds are generally subject to safeguarding rules rather than direct FSCS cover; if the provider fails, money is typically returned through an insolvency distribution process tied to safeguarded funds and records.
See our hub: Compare business bank accounts.
Frequently Asked Questions
Some e-money providers are not banks; they are payments firms that issue e-money and provide payment services. The FCA explains the category of firms and how they differ from deposit-takers in its consumer guide on using payment service providers.
A practical implication is that the customer-safety mechanism is typically safeguarding rather than deposit cover. That difference tends to matter most during provider failure events, where the route to getting money back is a safeguarding and insolvency process rather than a standard deposit compensation pathway.
The FCA states that funds held by payment and e-money firms are not directly protected by FSCS cover and instead must be safeguarded; it also notes that customers may face delays (or lose money) if a firm fails. This is summarised in the FCA announcement on changes to payment safeguarding rules.
FSCS separately explains in its guide to e-money and FSCS cover that it cannot protect money held with e-money institutions and payment providers, and that money may be tied up during insolvency.
The FCA describes safeguarding as either placing funds into a separate safeguarding account with a bank or protecting them via insurance/guarantee arrangements, in its explanation of how safeguarding works.
The detailed duties and definitions sit in legislation, including the Electronic Money Regulations 2011 (PDF) and the Payment Services Regulations 2017 (PDF). In an insolvency, those rules frame how safeguarded funds are identified and distributed.
Safeguarding is designed to improve the likelihood of funds being returned if a provider fails. It does not guarantee uninterrupted access, particularly in insolvency scenarios where systems may be frozen and records reconciled.
The FCA’s safeguarding explanation notes that getting money back can take time and may not be the full amount because some insolvency costs can be taken by an administrator or liquidator, as set out in the FCA’s guide on using payment service providers.
The FCA’s consumer guidance on how safeguarding works describes expectations cautiously: customers may receive most of their money back, but timing and amounts can be affected by insolvency processes and costs.
The FCA has also explained that it is strengthening the regime to reduce shortfalls and improve return processes, reflected in its policy statement page on changes to safeguarding standards. That context underlines why outcomes can depend on implementation quality, not just the label “safeguarded”.
In insolvency, costs and fees can affect what is returned and when. The FCA’s consumer explanation of safeguarding and insolvency outcomes explicitly notes that returns may not be the full amount because some costs could be taken by the administrator or liquidator.
This does not mean safeguarding is irrelevant; it means the process is not identical to a fixed-timetable compensation scheme. The practical impact is that businesses may experience timing uncertainty during the period when distributions are being arranged.
This is a different scenario from the e-money provider failing. The Bank of England explains that amendments clarified how depositor protection rules can apply to eligible customers of e-money and payment institutions if a credit institution holding safeguarded funds fails, as described on the Bank of England page about the Financial Services Compensation Scheme and depositor protection.
FSCS also flags that some apps can allow accounts or pots that are actually held at other firms (including banks), which can change what cover applies; this nuance is discussed in its guide to e-money and FSCS cover.
Yes. Restrictions can arise from operational controls, compliance checks, or incident response steps. These scenarios are distinct from insolvency and do not necessarily indicate provider failure.
For a process-focused explanation of how restrictions typically affect payments and cashflow, our guide on why UK business accounts get restricted during compliance reviews sets out common stages and practical impacts.
The FCA explains that firms and individuals authorised or registered for regulated activities can be checked on the Financial Services Register. This helps clarify the regulated status and the permissions held.
The FCA also provides guidance on how to check a firm or individual is authorised, including how to interpret different statuses. This is relevant because the safeguarding and complaint routes can depend on the provider’s regulatory category and permissions.
The Financial Ombudsman Service has guidance for businesses on complaints about electronic money services, including how it supports firms and how complaints are handled, on its page for electronic money services (business guidance).
Complaint eligibility and process depend on the firm and activity, and the Ombudsman’s role is distinct from insolvency distribution. In failure scenarios, complaints may relate to service issues before insolvency, while recovery of balances is typically handled through the insolvency process tied to safeguarding.
The hidden mechanism in many e-money failure stories is not the concept of safeguarding itself, but the gap between legal structure and operational continuity.
A firm can have safeguarding arrangements in place and still become unusable in the short term if systems are paused and reconciliations must be completed before distributions can be made.
In practice, the business impact is usually about timing and dependency chains: if incoming funds, payroll runs, or supplier payments depend on uninterrupted access, the “failure mode” that matters is the ability to keep making payments while administrators secure records and validate claims.
Sources & References
Related Content
