By: Money Navigator Research Team
Last Reviewed: 23/01/2026
FACT CHECKED
Quick Summary
- Safeguarding (used by many e-money institutions and payment firms) is a set of rules that requires customer funds to be segregated or otherwise protected so they are ring-fenced from the firm’s own money. In an insolvency, customers generally claim against a separate “asset pool”, but returns can take time and outcomes depend on records, reconciliations, and any shortfall.
- FSCS deposit cover (used for eligible deposits at PRA-authorised banks, building societies, and credit unions) is a statutory compensation scheme with defined limits and a structured payout process. For failures from 1 December 2025, the standard limit is £120,000 per eligible person, per authorised firm, with separate rules for temporary high balances and some account types.
In practice, the key difference is this: safeguarding aims to ring-fence funds, while FSCS deposit cover is a compensation promise up to a set limit for eligible deposits.
This article is educational and not financial advice.
Safeguarding vs deposit cover: the core definitions
What is an EMI (electronic money institution)?
An EMI is a firm authorised (or registered, in some cases) to issue electronic money and provide certain payment services. It is not the same thing as a deposit-taking bank.
A helpful starting point for how EMIs and payment institutions are supervised is the FCA’s overview of electronic money and payment institutions and the FCA’s guide to checking a firm is authorised.
What “safeguarding” means (in plain English)
Under the Electronic Money Regulations 2011 (PDF), EMIs must safeguard funds received in exchange for e-money (see the safeguarding requirements section and the safeguarding options that follow).
Under the Payment Services Regulations 2017 (PDF), authorised payment institutions must safeguard “relevant funds” (see the safeguarding requirements provisions).
The FCA summarises the practical meaning and scope on its page: Safeguarding requirements for authorised payment institutions and electronic money institutions.
If you want a deeper internal explainer on the mechanics, see our guide to safeguarding for e-money institutions.
What “FSCS deposit cover” means
FSCS deposit cover applies to eligible deposits held with PRA-authorised banks, building societies, and credit unions. FSCS explains scope, limits (including business accounts), and timing on banks, building societies and credit unions cover.
FSCS also details the deposit cover limit increase (effective 1 December 2025) here: deposit cover limit increase to £120,000, and the Bank of England provides a plain-English explainer: what the FSCS is and the deposit limit.
For an internal, business-focused explainer, see FSCS cover for business bank accounts.
How safeguarding works in practice (and what it does not do)
Safeguarding is designed to separate customer funds from the firm’s operating money. The Electronic Money Regulations set out safeguarding requirements and then provide safeguarding “options”, including keeping relevant funds segregated and placing them in separate accounts, with rules around account designation and use (see the safeguarding requirements and safeguarding option provisions in the Electronic Money Regulations 2011 (PDF)).
For payment institutions, safeguarding requirements for “relevant funds” are set out in the Payment Services Regulations 2017 (PDF), with the FCA summarising the expectation around segregation and insurance methods in its safeguarding requirements guidance.
What happens if an EMI fails?
The FCA is explicit that funds held by payment and e-money firms are not directly covered by FSCS and that safeguarding can still lead to delays and, in some cases, losses if the firm fails (see the FCA’s statement in its press release on safeguarding rule changes).
In the Electronic Money Regulations, the insolvency provisions describe how claims can be paid from an “asset pool” with priority over other creditors, with specific carve-outs for costs of distributing the pool (see the insolvency events section in the Electronic Money Regulations 2011 (PDF)). Operationally, that means an insolvency process may involve administrators confirming what belongs in the pool and then distributing it.
For a practical, business-workflow view of access issues during provider failure, see what happens to safeguarded funds if an e-money provider fails.
How FSCS deposit cover works (in practice)
FSCS deposit cover is a statutory compensation framework for eligible deposits at deposit-takers. FSCS sets out:
what is covered and how the limit is applied (including how it works for small business and personal accounts), and
how long payouts typically take (FSCS states seven working days for standard cases after a bank, building society, or credit union fails).
These details are described on FSCS cover for banks, building societies and credit unions and the dedicated page on the deposit cover limit increase to £120,000.
The Bank of England also clarifies that the £120,000 limit applies for failures from 1 December 2025, and explains how brands under the same authorised firm interact with the limit in its FSCS explainer.
The legal framework for deposit guarantee schemes is rooted in the Deposit Guarantee Scheme Regulations 2015 (PDF), which sets out how the regime is structured and the role of the PRA as competent authority.
Summary table
| Scenario | Outcome | Practical impact |
|---|---|---|
| Money held at an EMI in an e-money account | Funds must be safeguarded under the e-money regime | Access and return timing can depend on the safeguarding structure and the insolvency process |
| Money held at a payment institution for payment services | “Relevant funds” must be safeguarded under the payments regime | Segregation/insurance methods may affect how funds are handled if the firm fails |
| Money held as an eligible deposit with a PRA-authorised bank | FSCS deposit cover applies up to the applicable limit | Standard cases are typically paid quickly after a failure, subject to eligibility and limits |
| Safeguarded funds placed by an EMI into an account at a bank | The safeguarded account is legally held by the EMI, not each end customer | If the safeguarding bank fails, outcomes depend on the account structure and insolvency/claims mechanics |
| Temporary high balance at a bank (qualifying circumstances) | Higher, time-limited cover may apply under FSCS rules | Claims may take longer and the process can be more document-heavy than standard deposits |
The big differences that matter in a business setting
1) Legal nature of the balance: “deposit” vs “e-money”
A bank deposit is a liability of the bank (you are a creditor of the bank), and FSCS deposit cover is designed to compensate eligible depositors if that bank fails.
E-money is a distinct concept: it is issued by an EMI, and the safeguarding regime focuses on separating the customer funds received in exchange for that e-money (see safeguarding requirements in the Electronic Money Regulations 2011 (PDF) and the FCA’s safeguarding requirements guidance).
2) Who is expected to “make you whole”?
Under FSCS deposit cover, FSCS is the mechanism that pays compensation up to the limit for eligible deposits (see FSCS bank cover).
Under safeguarding, there is no separate compensation promise that mirrors FSCS deposit cover; the focus is on ring-fencing funds and distributing them appropriately in an insolvency, with the FCA warning that delays and losses can still happen (see FCA press release on safeguarding rule changes).
3) Speed and operational continuity
FSCS describes a standard payout timeframe of seven working days for deposits after a bank, building society, or credit union failure (see FSCS bank cover).
Safeguarding, by contrast, can involve an insolvency process that identifies the safeguarded “asset pool” and distributes it, with some insolvency distribution costs able to sit ahead of customer claims (see the insolvency events section in the Electronic Money Regulations 2011 (PDF)). That difference can matter for payroll runs, supplier payments, tax payments, and general cashflow timing.
4) Limits: a defined cap vs a ring-fenced pool
FSCS deposit cover uses a defined cap (currently £120,000 for failures from 1 December 2025, subject to eligibility and firm-level aggregation), with additional rules for temporary high balances (see FSCS deposit limit increase and the Bank of England explainer).
Safeguarding does not operate as a “cap and compensate” model. Instead, it seeks to preserve an asset pool that corresponds to customer entitlements (see safeguarding requirements and safeguarding options in the Electronic Money Regulations 2011 (PDF)).
Scenario Table
| Level | Safeguarding (EMIs / payment firms) | FSCS deposit cover (deposit-takers) |
|---|---|---|
| Scenario-level | Firm holds customer funds in connection with issuing e-money or executing payments | Customer holds an eligible deposit with a PRA-authorised bank, building society or credit union |
| Process-level | Funds are segregated or otherwise safeguarded (eg separate account designation; asset pool concept) | FSCS applies statutory compensation rules, eligibility tests and firm-level limits |
| Outcome-level | Customers usually claim against a safeguarded pool; timing and final return can vary with insolvency mechanics | Compensation is paid up to the limit for eligible deposits; standard cases are typically paid quickly after failure |
Common edge cases that create confusion
“My fintech uses a bank – does that mean FSCS deposit cover applies to me?”
Some products are structured as bank accounts (with the bank as the deposit-taker), while others are e-money accounts (with an EMI issuing e-money and safeguarding funds). The label “account” is not, on its own, enough to confirm which regime applies.
A neutral way to verify a firm’s status is the FCA’s guidance on how to check a firm is authorised, using the FCA register tools it references.
“What if the safeguarding bank fails rather than the EMI?”
Safeguarding often involves placing relevant funds into a separate account at an authorised credit institution (see safeguarding option provisions in the Electronic Money Regulations 2011 (PDF)). In that structure, the account is typically held in the name of the EMI (with specific designation rules), which means end-customer outcomes can be structurally different from “each customer holds their own deposit at the bank”.
This is one reason the FCA states that safeguarded funds are not directly covered by FSCS in the way deposits are, and that delays or losses can occur if the firm fails (see FCA safeguarding rule changes press release).
“Does a limited company get a separate FSCS limit from the director personally?”
FSCS explains how it applies limits across personal and small business accounts and distinguishes separate legal entities (for example, companies and LLPs) from sole traders in its bank cover page. The Bank of England also explains that limits apply per person and per authorised firm (see its FSCS explainer).
Compare Business Bank Accounts
If the goal is to understand accounts where balances are structured as eligible deposits (and therefore fall into the FSCS deposit cover framework, subject to eligibility and limits), our comparison hub is here: compare business bank accounts.
This comparison is informational: product structures differ, and whether FSCS deposit cover applies depends on the legal nature of the account (deposit-taking bank vs e-money issuance), not the app interface or branding.
Frequently Asked Questions
No.
- Safeguarding is a regulatory requirement for many payment firms and EMIs to ring-fence customer funds, typically through segregation or comparable methods. It is designed to reduce the risk that customer funds are used to pay the firm’s own creditors.
- FSCS deposit cover is a compensation framework for eligible deposits at PRA-authorised deposit-takers. It works through statutory rules, with defined limits and payout processes described by FSCS on its bank cover pages.
Not necessarily. “Business account” can describe both deposit accounts at banks and e-money accounts at EMIs. The legal structure determines whether it’s a deposit or e-money.
FSCS sets out the scope for banks, building societies and credit unions on its bank cover pages, including examples that involve business accounts and separate legal entities.
For failures from 1 December 2025, FSCS states the standard deposit cover limit is £120,000 per eligible person, per authorised firm. FSCS explains the change and how it applies on its deposit limit increase page.
The Bank of England also explains that the higher limit applies for firms that fail from that date, and outlines how the limit applies to joint accounts and authorised-firm groupings.
FSCS states it will pay compensation within seven working days of a bank, building society or credit union failing for standard deposit cases, with more complex cases taking longer.
That timeframe is described on FSCS’s bank cover page, alongside notes on temporary high balances and the need for additional steps in more complex claim types.
Safeguarding is designed to protect customer funds by separating them from the firm’s own money. However, the FCA warns that customers can still experience delays and can lose money if a payment or e-money firm fails.
The Electronic Money Regulations include insolvency provisions describing priority of customer claims over other creditors within the safeguarded “asset pool”, while also recognising that certain distribution costs can sit ahead of claims.
In the e-money safeguarding framework, the asset pool is the collection of segregated funds and/or designated accounts (and related arrangements) that correspond to safeguarded customer entitlements.
The Electronic Money Regulations describe the asset pool in connection with insolvency events and the priority of electronic money holders’ claims, which helps explain why insolvency administration steps can affect timing.
Often the safeguarded account is held by the EMI (with designation requirements), not as separate deposit accounts in each customer’s own name. That can make end-customer outcomes different from a direct depositor relationship with a bank.
This structural difference is part of why the FCA states safeguarded funds at payment and e-money firms are not directly covered by FSCS in the same way that deposits are.
Yes, safeguarding frameworks can include different methods (commonly described as segregation and insurance/guarantee approaches) depending on the firm type and the rules that apply.
The FCA summarises the safeguarding approach and methods in its safeguarding requirements guidance for payment institutions and EMIs, alongside expectations for systems and controls.
A factual way to check is via the FCA’s public register tools and the FCA’s explanation of how to check a firm is authorised. These resources focus on the firm’s regulatory status and permissions.
Because branding and app design can be similar across banks and EMIs, register status is often the clearest indicator of which regime applies (deposit cover vs safeguarding rules).
The Deposit Guarantee Scheme Regulations 2015 set out the framework for deposit guarantee schemes in the UK and the role of authorities in the regime, forming part of the legal basis for how deposit guarantee arrangements operate.
FSCS and the Bank of England then publish the operational detail that is most useful day-to-day (limits, timing, aggregation rules and temporary high balance concepts) on their explainer pages.
Most confusion comes from treating “where the money sits in an app” as the same thing as “what the money legally is”. Safeguarding is fundamentally an accounting and insolvency-law separation mechanism: it tries to ensure a pool of assets exists that corresponds to customer entitlements, and then relies on administration and distribution processes if the firm fails.
FSCS deposit cover is fundamentally a compensation mechanism for eligible deposits at deposit-takers: it is designed to pay out up to a defined limit under defined rules, usually without the depositor needing to navigate insolvency distribution mechanics in the same way.
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