FCA confirms tougher safeguarding rules for payments and e-money but delays longer-term reform

Payments firms must safeguard the funds they receive from customers in connection with making payments or issuing e-money. The Financial Conduct Authority has now finalised more rules that build on existing safeguarding requirements and has set firms the deadline of 7 May 2026 to prepare. The FCA has also paused further changes to safeguarding rules until it assesses how firms put the new supplementary regime into practice.

Pressing ahead with interim rules but pausing end-state rules

In its 2024 consultation on changes to the safeguarding regime for payments and e-money firms, the FCA reiterated its concerns about how the payments industry meets current standards. In response, the FCA proposed two phases of reform:

• In the longer term, the relevant legislation would be repealed and replaced by FCA rules. Under this end-state regime, firms would need to received funds directly into a designated safeguarding bank account and hold them under a statutory trust.
• Pending this legislative change, the FCA planned to introduce interim rules to improve compliance standards in the nearer term.

In PS25/12 the FCA confirms the introduction of the interim rules which it now rebrands as the supplementary regime. This regime will apply from 7 May 2026.

For the end-state rules, however, the FCA has decided to consult again before implementing the post-repeal regime. This is welcome news for firms who had concerns about the impact that the proposed end-state regime would have.

A higher bar for compliance

The supplementary regime is largely unchanged from the interim rules in the FCA’s consultation. Payments and e-money firms will need to implement wide-reaching requirements which relate to, for example, record-keeping, resolution packs, monthly safeguarding reporting and diversification of third parties.

The FCA has, however, amended some of the consulted rules. These changes seek to make the supplementary regime more proportionate. For example:

• Reconciliations: The FCA has simplified its internal safeguarding reconciliation rules and has allowed firms to follow an alternative reconciliation method if they meet certain conditions, including sign-off from an independent auditor. The final rules also do not require reconciliations to be carried out on weekends, bank holidays or days when relevant foreign markets are closed.
• Audits: The FCA has exempted firms from the requirement to have an external safeguarding audit if they have not been required to safeguard more than £100,000 of relevant funds at any time in the previous 53 weeks. Firms have also been given extra time to deliver their first external audit under the new regime (six months after the end of the audit period, rather than the usual four).
• Transition: The FCA has extended the implementation period before the rules come into force from six to nine months.

Next steps

Payments and e-money firms have until 7 May 2026 to implement the requirements under the supplementary regime.

The FCA is not proposing to implement the post-repeal regime “without further consideration and consultation”. It will review the implementation of the supplementary regime once a full audit period has been completed and will then consult on further proposals if it decides at that point that more change is necessary.