Payments in 2025 #2 – Safeguarding

Later this year the Financial Conduct Authority will determine its approach to changing the safeguarding regime for payments firms.

Setting new safeguarding standards

In autumn 2024 the FCA consulted on how UK payment institutions and e-money firms should protect their customers’ funds. The FCA used CP24/20 to put forward interim changes to the safeguarding regime in 2025 with further reform to follow. The end-state regime would impose a statutory trust over the funds that payments firms hold for clients.

Industry responses to the consultation have welcomed aspects of the proposals but have raised concerns and questions. These relate to, for example:

• the implications of imposing a trust structure
• the practicalities of receiving funds directly into a designated safeguarding account
• the competitive disadvantage that UK payments firms may face under the proposed regime relative to their global counterparts

The FCA is expected to finalise its policy in 2025. Its consultation suggested that the interim rules would take effect before the end of this year. The application date for the end-state rules will depend on the timing of changes to the relevant legislation.

EU updates to safeguarding rules

Safeguarding requirements under the EU regime will also be under review this year. The European Commission’s proposals for a revised Payment Services Directive (PSD3) would amend the current regime under PSD2 and the E-Money Directive.

While not as extensive as the FCA’s proposals, there are points of comparison with the UK. For example, EU payment institutions would be required to:

• manage concentration risk by not depositing all customer funds with one safeguarding bank
• notify their regulator before making any material changes to their safeguarding processes

Negotiations between EU legislators on the detail of the PSD3 proposals are expected to start later in 2025.

Date for the diary: June 2025 – the FCA is due to finalise its safeguarding policy in the first half of the year

This is the second in a series of five blogposts looking at the outlook for payments regulation in the EU and UK. Read our Payments Outlook 2025 for more.