By: Money Navigator Research Team
Last Reviewed: 23/01/2026
FACT CHECKED
Quick Summary
“Safeguarded” (in UK e-money/payment accounts) means the provider must protect relevant customer funds using regulated methods such as segregating funds in a safeguarding account (separate from the firm’s own money) or using an insurance/guarantee approach, so funds are better insulated if the provider fails.
This is not the same as FSCS cover, and refunds can still take time in insolvency, with potential deductions for insolvency costs depending on the situation. The FCA has also set out stronger safeguarding expectations, with changes due to take effect on 7 May 2026.
This article is educational and not financial advice.
What “safeguarded” refers to (and who it applies to)
In the UK, “safeguarding” is the regulatory framework used by non-bank payment providers to protect customer funds they hold while providing payment services or issuing e-money.
The term most commonly shows up when a business uses an account that looks like a current account, but is actually provided by an electronic money institution (EMI) or an authorised payment institution (API) rather than a bank.
The FCA explains the main categories of non-bank providers and the protection model they use, including safeguarding for EMIs and APIs. (See the FCA’s explanation of using payment service providers.)
A key nuance: small payment institutions (SPIs) can operate under a lighter regime and don’t necessarily have to safeguard in the same way. That makes “safeguarded” a meaningful claim only when the provider is actually subject to (or has opted into) safeguarding requirements under the relevant regime.
The legal meaning: what safeguarding is designed to do
Safeguarding exists to reduce the risk that customer money is treated like ordinary company cash if the provider fails.
At a high level, the FCA describes safeguarding requirements for EMIs and authorised payment institutions as rules that apply to relevant funds received for payment services or in exchange for e-money, and points firms to detailed expectations in its approach guidance. (See the FCA’s safeguarding requirements page and the FCA’s Payment Services and Electronic Money Approach Document.)
What are “relevant funds”?
For e-money issuance, the Electronic Money Regulations define safeguarding requirements in terms of funds received in exchange for e-money (called “relevant funds”). (See Electronic Money Regulations 2011 – regulation 20.)
For payment services, safeguarding typically applies to money received for the execution of payment transactions and related activities, with the FCA summarising the “relevant funds” concept for payment institutions on its safeguarding page. (See FCA safeguarding requirements.)
The two core safeguarding methods
Safeguarding is usually delivered via one of two approaches:
Segregation (separate account / relevant assets)
For e-money firms, regulation sets out a segregation-based option that involves placing relevant funds (or qualifying low-risk assets) into a separately designated safeguarding account and keeping them insulated from other monies the firm holds. (See Electronic Money Regulations 2011 – regulation 21.)Insurance or guarantee
As described by the FCA, EMIs/APIs can also use an insurance/guarantee approach as an alternative safeguarding method, with operational detail discussed in the FCA’s approach guidance. (See the FCA’s Approach Document and the FCA’s safeguarding requirements page.)
Safeguarding is not FSCS cover (and the difference matters)
A common misunderstanding is: “My money is safeguarded, so it’s FSCS covered.” Those are different concepts.
FSCS cover is primarily about deposits held with UK-authorised banks, building societies and credit unions (subject to eligibility and limits).
FSCS sets out what it covers and the deposit compensation limit on its pages, including the current deposit limit for failures after late 2025. (See FSCS: what we cover and its explanation of coverage and limits.)
By contrast, the FCA is explicit that funds held by payment and e-money firms are not directly protected by FSCS; instead, safeguarding is the mechanism intended to protect those funds if the firm fails.
(See the FCA’s press release on changes to payment safeguarding rules and the FCA consumer guidance on using payment service providers.)
FSCS also states that it can’t protect money held with e-money institutions and payment providers in the way it protects deposits, meaning customers typically won’t get the same quick compensation route if the provider fails. (See FSCS guidance on e-money and FSCS protection.)
A subtle but important edge case: “bank holding safeguarded funds” failure
Even though safeguarding isn’t FSCS cover, there is an indirect scenario worth understanding: if safeguarded funds are held at a bank, and that bank fails, FSCS may protect eligible customers in relation to the deposit protection regime at the safeguarding bank level (subject to the rules and structure).
FSCS discusses this nuance in its explainer about online-only banking and related structures. (See FSCS guidance: What if my bank just exists online?.)
This does not mean an e-money balance becomes a normal bank deposit. It means the “where is the money actually held?” question can matter when the safeguarding institution is itself a deposit-taker.
Summary table
| Scenario | Outcome | Practical impact |
|---|---|---|
| Provider is an authorised EMI/API and remains solvent | Relevant funds are safeguarded using required methods | Day-to-day use can feel like a bank account, but the legal protection model is different |
| Provider fails (insolvency event) | Safeguarding is intended to separate relevant funds from the firm’s own money for distribution to customers | Access may be delayed while an administrator/liquidator identifies balances and processes claims |
| Provider is a small payment institution (SPI) | Safeguarding may not apply unless the firm has opted in | The word “safeguarded” may not be a safe assumption across all non-bank providers |
| Funds are “in transit” (eg card top-up not yet credited) | Safeguarding timing rules can mean funds are safeguarded after they’re available/credited | Short operational gaps can exist between initiation and safeguarded status |
| Safeguarding bank fails | FSCS may apply at the safeguarding bank level for eligible customers, depending on structure | Risk shifts from provider failure mechanics to deposit-taker failure rules |
| Account is restricted for compliance reasons | Safeguarding doesn’t prevent restrictions or delays to access | “Safeguarded” is about insolvency protection, not guaranteed day-to-day access |
What “safeguarded” does and doesn’t mean in practice
What it does mean
Separation from the firm’s own funds: Safeguarding is intended to stop customer money being treated as ordinary working capital if the provider fails. The FCA describes segregation and insurance methods as the core ways to do this. (See the FCA’s consumer guidance and the FCA’s safeguarding requirements page.)
Process protection, not speed protection: Even when funds are safeguarded, the FCA notes that getting money back after a provider failure may take time, and insolvency costs may reduce what is returned in some cases. (See FCA: using payment service providers.)
What it doesn’t mean
It isn’t a promise of immediate access. Safeguarding is an insolvency-resilience mechanism; it doesn’t prevent operational freezes, investigations, or payment holds.
It isn’t FSCS cover for the provider failing. Both the FCA and FSCS stress that FSCS protection doesn’t apply to the money held with an e-money/payment firm in the way it applies to deposits. (See FCA safeguarding rule changes and FSCS e-money guidance.)
It doesn’t necessarily cover all money moving through a platform. Safeguarding applies to “relevant funds” as defined in the framework; timing and classification can matter. (See Electronic Money Regulations 2011 — regulation 20.)
What’s changing: tighter safeguarding expectations (effective 7 May 2026)
The FCA has set out reforms aimed at improving safeguarding outcomes for customers of payment and e-money firms, noting that safeguarding can still involve delays or losses when firms fail. The FCA states these changes will come into effect on 7 May 2026. (See FCA press release on safeguarding changes and Policy Statement PS25/12.)
Practically, the direction of travel is toward stronger operational controls (for example, more robust reconciliations and reporting), with the intention of reducing shortfalls and improving how quickly firms can evidence and return relevant funds in stress scenarios.
Where businesses feel the difference most
1) Insolvency is a process, not an instant refund event
If an e-money/payment firm fails, an administrator or liquidator will typically be responsible for returning money to customers. The FCA highlights that safeguarding should mean customers get most of their money back, but it may take time, and it may not be the full amount after costs. (See FCA: using payment service providers.)
For a deeper, scenario-based walkthrough focused specifically on access when a provider fails, see our guide on e-money business accounts, safeguarding, and access after provider failure.
2) “Safeguarded” doesn’t stop restrictions while a provider investigates activity
Account restrictions can happen for many reasons (verification, monitoring, suspicious activity controls, or other compliance processes). Safeguarding doesn’t prevent those restrictions; it addresses what happens to relevant funds if the firm fails.
If the issue is day-to-day access disruption (rather than insolvency), the mechanics often resemble the “restricted account” problem set more than the “provider failure” problem set. For background on restriction processes in UK business banking, see why UK business accounts get restricted during compliance reviews.
3) Terminology can be misleading
Some providers describe accounts as “current accounts” or “business accounts” even when they are delivered via e-money or payment permissions. A neutral way to anchor reality is regulatory status: the FCA explains that the Financial Services Register is the public record of authorised firms and their permissions. (See the FCA’s Financial Services Register page.)
Scenario Table
| Scenario-level | Process-level (what the mechanism is) | Outcome-level (what it changes) |
|---|---|---|
| Non-bank provider holds customer money to run payments/issue e-money | “Relevant funds” must be protected under safeguarding rules and reconciled against customer entitlements | Lower risk that funds are treated as general company assets if the firm fails |
| Funds are received but not yet credited/available | Timing rules determine when safeguarding must be applied (and what counts as “received”) | Short timing differences can matter during operational disruption |
| Provider uses segregation method | Funds go into a designated safeguarding account / relevant assets structure separate from operational cash | Improves traceability and separation for insolvency distribution |
| Provider uses insurance/guarantee method | Insurance/guarantee is intended to pay out into a separate account on insolvency | Protection depends on the terms/coverage and insolvency execution mechanics |
| Insolvency occurs | Administrator/liquidator validates balances and distributes funds | Return of funds is possible but can be delayed; costs can reduce net return |
| Safeguarding regime tightened (7 May 2026) | Stronger controls/reporting expectations to evidence and maintain safeguarding | Reduced risk of shortfall and better evidence quality during failure events |
Compare Business Bank Accounts
If a business is choosing between a bank business current account and an e-money/payment account, the key difference is the protection model:
Banks (deposit-takers): deposits are generally eligible for FSCS cover (subject to FSCS rules and limits). FSCS sets out what it covers and the deposit limit on its site. (See FSCS: what we cover.)
E-money/payment firms: balances are generally protected via safeguarding, not FSCS cover, and refunds after a provider failure are handled through an insolvency process. (See FCA: using payment service providers and FSCS e-money guidance.)
For a neutral overview of providers and features typically compared for UK businesses, see our hub: compare business bank accounts. For FSCS context specific to business bank accounts, see is money in a business bank account protected by the FSCS?.
Frequently Asked Questions
No. Safeguarding is the protection model used by e-money institutions and authorised payment institutions; FSCS cover is the deposit compensation framework for eligible deposits at UK-authorised banks, building societies and credit unions. The FCA explicitly distinguishes safeguarding from FSCS cover for payment and e-money firms. (See FCA safeguarding rule changes.)
FSCS also explains that it can’t protect money held with e-money institutions and payment providers in the same way it protects deposits, meaning customers don’t usually get the same “quick compensation” experience if a non-bank provider fails. (See FSCS e-money and FSCS protection.)
Safeguarding is about the type of provider and the type of funds, not whether the customer is a consumer or a business. If an authorised EMI issues e-money to a business (or an authorised payment institution holds relevant funds while executing payments), the safeguarding framework applies to the relevant funds as defined by the rules. (See FCA safeguarding requirements.)
That said, the practical experience can differ for businesses because operational reliance is often higher (payroll, supplier runs, tax payments). That makes the distinction between insolvency protection and day-to-day access especially important: safeguarding is designed for the former, and doesn’t prevent operational restrictions.
For e-money, “relevant funds” are the funds received in exchange for issued e-money, and the regulation framework points to safeguarding those funds via specific methods. (See Electronic Money Regulations 2011 – regulation 20.)
In mixed scenarios (for example, where only part of incoming money relates to a payment transaction and part relates to non-payment services), the rules include concepts around estimation and classification.
In practice, that means “safeguarded” is tied to what the provider is doing with the money (issuing e-money or executing payments), not just the existence of a balance on a screen.
The regulations set timing expectations around when funds need to be safeguarded, including circumstances where funds received via certain payment instruments do not need to be safeguarded until they are credited or otherwise made available, subject to timing limits. (See Electronic Money Regulations 2011 – regulation 20.)
Operationally, this creates a practical distinction between (a) money that’s fully settled and sitting as an account balance, and (b) money that’s still moving through payment rails, card settlement, or internal processing. That distinction can matter most during disruption (outages, restrictions, or provider stress), because “in transit” money may not sit in the same place as “already credited” money.
Safeguarding is designed to keep relevant funds insulated from the firm’s own working capital and from claims by other creditors if the firm fails. The FCA describes the segregation method as placing money in a separate safeguarding account with a bank (or using a suitable insurance/guarantee alternative). (See FCA: using payment service providers and the FCA’s Approach Document.)
However, safeguarding doesn’t mean the provider can never move money for legitimate payment execution (for example, settling outgoing payments). The practical point is that safeguarding is about ensuring that, at the required points in time, the firm holds and protects the correct amount of relevant funds in the required way.
The FCA indicates safeguarding is intended to mean customers should get most of their money back if the firm fails, but also notes that it may take time and may not be the full amount because insolvency costs can be deducted depending on the circumstances. (See FCA: using payment service providers.)
That uncertainty is not unique to e-money; it’s a feature of insolvency processes generally. Safeguarding aims to reduce the risk of a shortfall caused by misuse or commingling, but it does not eliminate the administrative and legal steps needed to return money.
This is an important edge case. While e-money balances are not deposits and are not directly protected by FSCS in the usual way, FSCS explains that safeguarded funds are often held with a bank and that FSCS may protect safeguarded funds if the bank holding them fails, depending on structure and eligibility. (See FSCS: what if my bank just exists online?.)
In other words, the risk event matters: provider insolvency is typically handled through the provider’s insolvency process; safeguarding-bank insolvency may bring FSCS deposit protection considerations into play. The two scenarios have different mechanics and timelines.
Yes. “Safeguarded” is not the same as “cannot be restricted”. Restrictions can occur for various compliance and risk reasons, and safeguarding is primarily about protection in insolvency, not guaranteed access at all times.
The Financial Ombudsman Service notes it can consider complaints where an e-money business has, for example, unfairly placed restrictions on an account, and it explains the types of evidence it considers. (See the Financial Ombudsman’s page on electronic money complaints.)
One practical distinction is regulatory status. The FCA explains that the Financial Services Register lists firms and their authorisations/permissions and is the official public record. (See the FCA’s Financial Services Register.)
This matters because the protection model typically follows status: deposit-takers sit in the FSCS deposit cover world; EMIs/APIs sit in the safeguarding world for relevant funds. Where platforms “wrap” multiple providers (for example, offering access to third-party bank accounts inside an app), it’s the underlying provider and account structure that determines which model applies.
E-money and payment services complaints can be escalated depending on the issue and the provider. The Financial Ombudsman Service explains the types of e-money complaints it can help with and how it assesses them (including restrictions and disputed actions). (See Financial Ombudsman: electronic money.)
The FCA also provides consumer information on payment service providers and, separately, publishes information on safeguarding expectations and reforms, but it is not a complaints adjudicator in the way the Ombudsman is. Understanding the different roles (provider > Ombudsman > regulator oversight) helps explain why “regulated” doesn’t always mean “instant resolution”.
The hidden mechanism behind the word “safeguarded” is that it describes how money is treated in a failure scenario, not how money behaves on an ordinary Tuesday.
Most real-world confusion comes from mixing three different risks into one label:
- (1) provider insolvency
- (2) operational access disruption (restrictions/outages)
- (3) where the safeguarded funds are actually held.
Safeguarding meaningfully addresses the first category, can be adjacent to the third, and often has little to say about the second. That’s why “safeguarded” can be simultaneously true and still leave a business exposed to short-term access disruption.
Sources & References
FCA guidance on using payment service providers and how safeguarding works
FCA overview of safeguarding requirements for EMIs and authorised payment institutions
FCA policy update: payment safeguarding rules changes and implementation date
FCA document: Policy Statement PS25/12 (safeguarding regime changes)
FCA guidance: Payment Services and Electronic Money Approach Document
UK law: Electronic Money Regulations 2011 – safeguarding requirements
UK law: Electronic Money Regulations 2011 – safeguarding option 1 (segregation)
UK law: Payment Services Regulations 2017 – safeguarding requirements (regulation 23)
Financial Ombudsman guidance: complaints about electronic money services
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