Safeguarding client funds explained
What safeguarding means for your money
Safeguarding your funds means your money is held apart from the provider’s business money. If that company fails, your balance is supposed to be available to return to you. This practice is required by law for payment institutions and electronic money institutions (EMIs), though those aren’t banks (just to be clear).
The legal rules come from the EU’s Payment Services Directive and E-Money Directive, and the UK applies much the same model. What this means for you: your money shouldn’t get used to run the business, cover debts, or finance things the provider invests in.
It’s different from bank deposit protection. There isn’t a set payout limit here. Instead, how well your money is protected relies on the provider actually keeping your funds apart, sometimes backed up by insurance or a financial backer if required.
The two main ways firms safeguard money
To meet safeguarding duties, firms use one or both methods:
- Segregation: customer money gets put in a separate account (usually at a regular bank or a central bank) separated from what the business uses day to day.
- Insurance or a guarantee: an insurer or a bank promises to make customers whole if the provider can’t repay them itself.
Firms also have to reconcile their records often (that means checking everything matches the amounts owed). Many providers offer a summary of their safeguarding approach in a short customer statement. That’s worth checking if you’re comparing providers.
What safeguarding does not protect against
Safeguarding’s scope is insolvency, or the provider's failure. It doesn’t cover scams, sending money to the wrong account, or someone taking over your login. There’s no guarantee you’ll get your money right away if the business fails. Recovery can drag on for months. Fees or costs might come up depending on the insolvency case.
Regulators have found cases where firms didn’t separate money as required. That’s why supervisors pay attention to how safeguarding is handled. You can look for details in the firm’s own safeguarding statement as well as its regulatory register entry. If you want to see the difference from regular deposit protection, read safeguarding versus deposit protection. For steps if a payment provider fails, check what happens if a payment provider goes bust.
Frequently asked questions
Is safeguarding the same as deposit insurance?
No, they aren’t the same. Deposit insurance (also called a deposit guarantee scheme in the EU) pays out set amounts to covered depositors when a bank collapses. Safeguarding makes a provider set customer money aside so it can be given back if the firm fails. There isn’t a fixed limit per customer, but you’re only protected if the money was actually held separately or properly insured.
How can I check if my provider safeguards my money?
You’ll want to look for a safeguarding statement, or a section on protection in the terms and conditions. Next, check the provider’s entry in the regulatory register to confirm what permissions it holds. Feel free to ask which bank or insurer holds customers’ funds, and whether these are set aside in separate accounts. If you get a direct, specific answer, that’s a promising sign. Vague or evasive responses should raise questions for you.