By: Money Navigator Research Team
Last Reviewed: 23/01/2026
FACT CHECKED
Quick Summary
A safeguarding account is typically a separate account at a bank (or the Bank of England), or a separate custody arrangement for approved assets, used to hold “relevant funds” that payment/e-money firms must keep separate from their own money.
In day-to-day operations, the provider usually instructs movements in and out of those safeguarding arrangements to execute payments, but the bank/custodian can still refuse or block instructions (for example, where its own controls require it).
In a failure scenario, control commonly shifts to an insolvency office-holder, and access can be delayed by reconciliation and verification steps.
This article is educational and not financial advice.
What a “safeguarding account” is in real life
The FCA describes safeguarding as a set of requirements for authorised payment institutions and electronic money institutions. In practice, this usually means the firm sets up one or more dedicated accounts/arrangements to keep customer “relevant funds” separate. See the FCA’s overview of safeguarding requirements for payment institutions and e-money institutions for the regulatory framing.
A crucial practical point: safeguarding is not “a feature in the app”. It is the back-end structure – accounts, records, reconciliations, and legal documentation – that determines whether funds are clearly identifiable and separable.
If you want the concept-level definition first, our guide to safeguarding explained sets that baseline. This post focuses on where funds sit and who can move them.
Where safeguarded funds are typically held
The common route: segregation into a separate account at a bank
The FCA’s Payment Services and Electronic Money – Our Approach document explains that one way to safeguard is the segregation method, including the expectation that relevant funds are kept separate and, if still held at the end of the next business day after receipt, deposited in a separate account with an authorised credit institution (or the Bank of England), or invested in approved secure, liquid assets and placed with an authorised custodian.
This is the practical meaning of “safeguarding account” you’ll most often hear: a bank account clearly designated as safeguarding (the FCA also sets expectations about account naming and evidence where naming constraints exist).
An alternative route: insurance or comparable guarantee
The same FCA Approach Document also describes the insurance/comparable guarantee method as an alternative safeguarding route (and that a firm may use a mix, as long as records clearly show which funds are safeguarded by which method).
The underlying legal bases sit in the Payment Services Regulations 2017 and the Electronic Money Regulations 2011.
What “who controls release” means in practice
When people ask “who controls release?”, they usually mean: who can actually move money out of the safeguarding arrangements and who can stop that happening.
Control layer 1: the payment/e-money firm’s operating model
In normal operations, the firm generally has operational control in the sense that it can send payment instructions, move money to facilitate settlement, and pay out to users – because the safeguarding money has to support everyday payment flows.
The firm’s internal controls (authorised signatories, payment approval limits, reconciliation checks) typically determine how those instructions are generated and approved.
That said, safeguarding rules do not require the bank to “auto-release” money on customer demand. Customers’ access is usually mediated by the provider’s platform and its payment rails.
Control layer 2: the safeguarding bank or custodian can still block movements
Even if the account is designated as safeguarding, the bank/custodian remains a regulated entity with its own obligations. It can refuse instructions for operational, legal, sanctions, fraud, or other compliance reasons – particularly in fast-moving risk events.
This is one reason restrictions can feel sudden. If you are mapping how broader freezes and payout holds arise across the payments chain, our guides on restriction triggers and payout delays and why payment processors hold payouts during restrictions provide adjacent context (distinct from safeguarding itself, but often experienced at the same time).
Control layer 3: “no set-off” expectations and acknowledgement documentation
A key control concept is preventing the safeguarding bank from treating safeguarded funds as if they were the firm’s own money (for example, by asserting a right of set-off).
The FCA has issued additional safeguarding guidance that discusses expectations around acknowledgements and demonstrating that the safeguarding bank/custodian has no interest in, recourse against, or right over the relevant funds (outside the limited circumstances allowed by the regulations).
The FCA has also published a template safeguarding bank/custodian acknowledgement letter that illustrates how these designations and acknowledgements may be documented between the firm and the safeguarding bank/custodian.
How “release” happens in day-to-day payment flows
A common misunderstanding is that safeguarding means money sits untouched until a customer withdraws. In many models, safeguarded funds move as part of normal payment operations:
Inbound receipts > segregation: relevant funds are identified and segregated (including frequent intraday movements where practical).
Execution and settlement: the firm may need to move money to complete card settlement, faster payments, or other rails – while still maintaining safeguarding compliance overall.
Timing differences: settlement cycles, refunds, reversals, and chargebacks can create temporary timing gaps between a user-facing balance and what is fully settled at scheme/bank level.
If you need a focused view of settlement timing during restrictions (rather than safeguarding mechanics), our guide on card settlement payouts when an account is frozen is a useful companion.
Summary table
| Scenario | Outcome | Practical impact |
|---|---|---|
| Provider uses segregation method | Relevant funds are held separately (often at a bank) | Customer money is operationally separated from the firm’s own funds |
| Provider uses approved assets + custodian | Relevant funds may be invested into approved secure, liquid assets and held separately | “Safeguarded” does not always mean “cash in a single bank account” |
| Bank/custodian flags risk activity | Instructions can be paused or refused | Users may see delays even without insolvency |
| Provider platform restricts access | Customer can’t initiate withdrawals/spend | Safeguarding structure may still exist, but access is operationally limited |
| Insolvency event begins | Control can shift to an office-holder | Reconciliation and verification can delay returns |
| Records are unclear or complex | Reconciliation takes longer | “Release” may be slower because entitlements must be validated |
What changes during administration or special administration
When a firm fails, “release control” often changes hands. The UK introduced a special administration regime for payment and electronic money institutions (PESAR), with statutory objectives including returning customer funds as soon as practicable. GOV.UK summarises why PESAR exists and what it aims to do.
At a practical level, delays are often driven by:
identifying the safeguarded pool,
reconciling ledgers to bank/custody records,
resolving timing differences (settlement, disputes),
validating payee identities and payout routes.
For a step-by-step view focused on access timelines (rather than account mechanics), see our guide on what happens if an e-money provider enters administration and our overview of access to safeguarded funds if a provider fails.
What safeguarding does and doesn’t do
Safeguarding is designed to reduce the risk that customer funds become part of the firm’s own estate in insolvency.
It is not the same as FSCS deposit cover for bank deposits, which is why comparisons between e-money accounts and business bank accounts can be confusing. Our guide on safeguarding vs deposit cover covers the core difference.
A nuance that matters in practice: FSCS deposit cover relates to the failure of deposit-takers. The FSCS notes that its rules apply to money held with banks/building societies/credit unions (not e-money firms themselves).
Separately, the Bank of England has explained amendments clarifying that the FSCS depositor regime can cover eligible customers of e-money/payment firms if the credit institution holding those firms’ safeguarded funds fails.
This is a different event from the e-money firm failing, but it can matter when you’re tracing “where the money sits”.
Scenario Table
| Scenario-level | Process-level | Outcome-level |
|---|---|---|
| Segregation with clear safeguarding account designation | Account is named/treated as safeguarding; acknowledgements support “no set-off” expectations | Lower ambiguity about what is safeguarding vs operating cash |
| Segregation but weak internal mapping | Ledgers do not cleanly map customer entitlements to pooled holdings | More reconciliation work before funds can be distributed in failure |
| Custody/asset route used | Relevant funds invested into approved assets; custody and valuation processes apply | “Release” depends on custody mechanics and liquidation/transfer processes |
| Bank partner restricts the account | Bank pauses movements pending its checks | Access delays can arise even if the provider’s ledger is intact |
| Insolvency begins under PESAR | Administrator follows statutory objectives and reconciliation steps | Returns depend on validation and distribution process, not app balances |
Compare Business Bank Accounts
Business bank accounts provided by deposit-taking banks operate under a different failure framework to e-money accounts.
The practical difference is that bank deposits are associated with FSCS deposit cover (subject to eligibility and scheme rules), whereas e-money safeguarding is a separation-and-process model rather than an FSCS payout mechanism.
If you want the bank-side explanation in one place, our guide to FSCS cover for money in a business bank account sets out how deposit cover works at a high level. For broader provider comparisons and account types, see our business bank accounts hub.
Frequently Asked Questions
Often, yes, but not always in the simplified “one account per customer” sense. Many programmes use pooled safeguarding accounts, designated as safeguarding, with customer entitlements tracked in the firm’s ledger and reconciliation process.
Safeguarding can also involve holding approved secure, liquid assets in a separate custody account rather than holding all relevant funds as cash. The FCA Approach Document sets out both routes and the operational expectations around segregation and depositing with an authorised credit institution or using an authorised custodian.
Typically, the safeguarding account is held in the name of the payment/e-money institution (not in each customer’s name), but designated to show it is a safeguarding account. The firm’s records then map customer entitlements to the pooled holdings.
That structure is one reason “who controls release” is not the same as “who owns the balance shown in the app”. Customer entitlement is real, but operational access is usually delivered through the firm’s platform and payment rails.
The FCA’s guidance and templates emphasise expectations that the safeguarding bank/custodian should have no interest in, recourse against, or right (such as set-off) over relevant funds in the safeguarding account, except where the regulations allow limited exceptions.
In practice, this is supported by documentation and account designation, which is why acknowledgement letters (or equivalent evidence) are a recurring theme in FCA materials. The FCA’s additional safeguarding guidance and its acknowledgement letter template illustrate how firms are expected to evidence this.
FCA guidance uses trust concepts when discussing how relevant funds should be treated and evidenced in safeguarding arrangements. The purpose is to ensure the funds are treated as separate and held to meet customer claims, rather than as the firm’s own money.
The exact legal effect in any specific case depends on the firm’s documentation and circumstances. What is consistent is the FCA’s expectation that arrangements and evidence support the separation and customer-claim purpose of the funds.
The FCA Approach Document explains operational expectations around segregation and what happens if funds are still held at the end of the business day following receipt. This is often referred to in industry shorthand as a “D+1” style requirement in segregation models.
In practice, firms may still move funds intraday to segregate frequently “as practicable” (particularly where fees and relevant funds can otherwise commingle). The operational goal is to reduce the window where relevant funds are mixed with other monies.
Yes. Firms may operate multiple safeguarding accounts, for example by currency, programme, or banking partner. The key practical requirement is that safeguarding accounts are used for safeguarding purposes (and not mixed with unrelated operating funds), with records clearly supporting reconciliation.
Multiple accounts can improve operational resilience, but it can also make reconciliation more complex if ledgers and partner reporting are not cleanly aligned.
FSCS deposit cover is designed around deposits held with deposit-takers (banks, building societies and credit unions), not around e-money balances held at an e-money firm. The FSCS explains this distinction in its consumer-facing guidance.
A related nuance is what happens if the bank holding safeguarded funds fails. The Bank of England has explained amendments clarifying that the FSCS depositor regime can cover eligible customers of e-money/payment firms in that scenario. That is different from the e-money firm itself failing, but it matters when tracing “where funds are held”.
Day-to-day, the firm generally authorises and sends payment instructions as part of operating its services (subject to its internal approval controls and reconciliation checks). That is how customers are able to spend, withdraw, or receive transfers in normal conditions.
However, the safeguarding bank/custodian can still refuse or pause transactions based on its own controls and legal obligations. This is why, operationally, both the firm and the bank partner can influence “release”.
Payment systems often have timing differences: card settlements, reversals, refunds, and chargebacks do not always finalise instantly. A platform may show an available balance based on ledger events, while settlement and reconciliations catch up over time.
Those timing differences can become more visible during restrictions, where payout rails slow down or pause. If you’re analysing payout timing rather than safeguarding structure, our guide to card settlement payouts when an account is frozen focuses on that operational layer.
In the UK, the legal category matters because it affects whether money is treated as a deposit or as e-money, and therefore whether FSCS deposit cover is relevant in the usual way. Providers typically disclose their regulatory status (bank vs e-money/payment institution) in their terms and regulatory statements.
The FCA also provides information about the Payment Services Regulations and Electronic Money Regulations framework, which helps clarify the perimeter. For a user-focused comparison of safeguarding and deposit cover, our safeguarding vs deposit cover guide ties the practical implications together.
Safeguarding is best understood as a chain of custody and evidence, not a promise of instant access. Funds may be segregated and appropriately designated, but the practical ability to move them depends on:
- the provider’s operational controls and rails
- the safeguarding bank/custodian’s controls
- in insolvency, the administrator’s reconciliation and distribution process
The “release” question is therefore less about a single button and more about which party is authorised – and willing – to action movements at each stage of the chain.
Sources & References
FCA overview of safeguarding requirements for payment institutions and e-money institutions
FCA Payment Services and Electronic Money – Our Approach (Approach Document PDF)
FCA additional safeguarding guidance for payment and e-money firms (PDF)
FCA template safeguarding bank/custodian acknowledgement letter (PDF)
FCA Policy Statement PS25/12 on safeguarding regime changes (PDF)
Bank of England note on FSCS deposit cover and safeguarded funds held at a failed bank
GOV.UK summary of the Payment and Electronic Money Special Administration Regime (PESAR)
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