Overview
The UK financial services landscape is undergoing a transformative shift with the introduction of the Financial Conduct Authority’s (“FCA”) policy statement PS25/12, published on July 31, 2025. The FCA has proposed significant changes to the safeguarding rules for payment and e-money firms in the UK.
The new regulatory requirements focus on strengthening the resilience and integrity of payment firms amid rising digital transaction volumes and cyber threats and aim to protect consumers while fostering innovation.
Previous Failures and Shortcomings
The FCA has outlined the key drivers for reform:
- Lack of FSCS protection: Funds held by payment and e-money firms are not covered by the Financial Services Compensation Scheme (“FSCS”). Poor safeguarding can therefore lead to consumer losses or delays in fund recovery.
- Widespread poor practice: Around 15% of firms were under supervisory review in 2023 due to concerns over safeguarding arrangements.
- Significant fund shortfalls: Insolvent firms between 2018 and 2023 had an average 65% shortfall in safeguarded funds.
These failures exposed systemic weaknesses, including inadequate risk management, insufficient technological investment, and poor regulatory alignment. PS25/12 seeks to address these shortcomings through a two-stage reform consisting of Interim Rules and End-State Rules.
New Rule Requirements
The Policy Statement introduces a comprehensive framework to enhance oversight of payment firms and tighten the current framework via:
Interim Rules
- Strengthening compliance with existing safeguarding requirements under the Electronic Money Regulations (EMRs) and Payment Services Regulations (PSRs);
- Improving record-keeping, monitoring, and reporting (e.g., monthly regulatory returns); and
- Enhancing the FCA’s ability to identify and intervene in firms with weak safeguarding practices.
After an evaluation of the effectiveness of the Supplementary Regime (Interim Rules,) the FCA will consult firms in the industry further. The FCA has not yet finalised its long-term reforms, but it aims to implement:
End-State Rules
- Replace EMRs and PSRs safeguarding requirements with a Client Assets Sourcebook (CASS)-style regime.
- Legal priority for customers in insolvency;
- Mandatory safeguarding accounts and formalised reconciliation; and
- Repeal of existing safeguarding rules under PSRs/EMRs.
These changes will apply to:
- Authorised payment institutions;
- E-money institutions (including small ones);
- Credit unions issuing e-money; and
- EEA firms in supervised run-off under the Financial Services Contracts Regime.
Objectives of the New Regime
Following these changes the FCA aims to ensure that consumer funds are secure and segregated from the firm’s assets thereby enabling quick and full recover of funds if a firm fails. Additionally, these changes are aimed to provide a levelled playing field for participants with consistent safeguarding standards and will encourage due diligence in selecting the appropriate institutions to hold and safeguard funds.
The news rules will require annual audits by qualified auditors, monthly reporting for payment firms, firms to conduct daily checks to make sure the right amount of money is being safeguarded to protect consumers and better planning if firms fail so customers can receive their money back in a timely manner.
How Complyport Can Help
Firms must act now to assess their current safeguarding practices, systems, governance, and readiness for compliance.
Our experienced team closely monitor the regulatory landscape and help our clients to maintain the highest levels of regulatory compliance. Our e-money and payment services offering includes:
- Prudential risk management: including liquidity thresholds and wind-down planning.
- Anti-money laundering (AML) and know your customer (KYC) frameworks: including the mandatory annual business-wide risk assessments required by regulation.
- KYC Compliance Managed Service: outsourced support for customer onboarding.
- Consumer Duty implementation: to ensure firm-wide compliance.
- Operational resilience frameworks: tailored to business models.
- Training: done in-person or virtual for staff and senior management.
- Senior management authorisation and assessment: for e-money and payment service roles.
- Firm-wide regulatory risk framework creation: aligned to business model and risk appetite.
- Ongoing advisory services: for ad hoc regulatory queries.
Book a meeting with a Subject Matter Expert: If you are reviewing your safeguarding arrangements, preparing for compliance with the FCA’s new payment and e-money firm rules, or seeking guidance on implementing the interim or end-state requirements under PS25/12, our SMEs can guide you through the process. We offer tailored consultations to ensure your governance, operational resilience, and safeguarding frameworks meet FCA standards from day one.
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