Changes to the safeguarding regime for payment services and e-money firms

The FCA has published Policy Statement PS25/12, setting out significant reforms to the safeguarding regime for payment services and e-money firms.

The new Supplementary Regime strengthens requirements around record-keeping, reconciliations, audits and resolution planning to reduce customer fund shortfalls and enable faster returns if a firm fails.

The changes will take effect from 7 May 2026 and apply to authorised payment institutions, authorised and small e-money institutions and credit unions that issue e-money. Small payment institutions may opt in voluntarily. From this date firms must comply with the requirements laid out in CASS 15 of the FCA Handbook.

What’s changing?

The most significant change is that the scope of those firms required to do a safeguarding audit has been extended and many firms will be required to appoint external auditors to undertake this reporting.

Record-keeping and reconciliations

Firms must maintain accurate, up-to-date records that enable the prompt identification of “Relevant Funds” and perform both internal and external reconciliations. Internal reconciliations will be based on firms’ ledgers, while external reconciliations must verify balances held with third parties. The FCA has refined the frequency and timing requirements following industry feedback.

Reporting and monitoring

Larger firms will be subject to enhanced monitoring and a new monthly regulatory safeguarding return. This will include information on safeguarding methods, amounts held, reconciliation outcomes, and notifiable breaches, giving the FCA earlier visibility of emerging risks.

Audits and assurance

All firms safeguarding Relevant Funds must appoint an independent, qualified auditor to conduct an annual safeguarding audit. The audit must assess:

Whether the firm has adequate systems to meet safeguarding requirements.
Whether it complied with those requirements at period-end.
Any breaches identified and remedial actions taken.

The auditor’s report must be submitted to the FCA within four months of the audit period end. Firms below a certain threshold (i.e. £100,000 of safeguarded funds at anytime over a period of at least 53 weeks) may be exempt from the full audit requirement.

A new FRC assurance standard will set out the framework for these audits that registered auditors must comply with.

Resolution packs

Firms must prepare and maintain a resolution pack, a clear, retrievable set of records to support the return of customer funds in the event of insolvency or operational failure.

Segregation, investment ad diversification

The FCA has clarified how firms must segregate Relevant Funds from their own funds and set stricter expectations on where and how those funds may be held or invested. The emphasis is on liquidity, security, and diversification to minimise the risk of loss or delay.

Proportionality and practical adjustments

The FCA has incorporated limited flexibility, such as excluding weekends and bank holidays from reconciliation timetables and relaxing certain requirements for firms that do not hold Relevant Funds.

What firms should do now

Carry out a gap analysis – compare current safeguarding arrangements to the new CASS 15 requirements.
Engage auditors early – confirm audit scope, thresholds, and reporting timelines.
Upgrade reconciliations and record-keeping – ensure systems can produce accurate, timely data.
Prepare a resolution pack – assemble and test it before the rules take effect.
Review governance and third-party oversight – ensure adequate monitoring of banks and custodians.

Why these changes matter

The FCA’s reforms respond to cases where failed firms held insufficient or poorly recorded customer funds, leading to delays and losses. PS25/12 aims to make safeguarding arrangements clearer, more consistent and more robust – ultimately enhancing customer protection and market confidence. While firms have had formal safeguarding requirements since 2020, external audits of compliance under CASS 15 will likely be more detailed than firms have previously experienced.

How can Price Bailey help?

We are registered auditors and have considerable experience in the audit of financial services businesses as well as client money CASS auditing. Visit our CASS audit webpage for more information. We will be happy to assist you with your external auditing requirements.

We always recommend that you seek advice from a suitably qualified adviser before taking any action. The information in this article only serves as a guide and no responsibility for loss occasioned by any person acting or refraining from action as a result of this material can be accepted by the authors or the firm.

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