A Regulatory Shift You Need to Know About

If you use digital payment firms like PayPal, Revolut, or Wise, the FCA’s revised safeguarding rules directly affect how your money is protected. For payment-type companies, these changes impact the nature of their compliance requirements.

Between the first quarter of 2018 and the second quarter of 2023, the FCA observed insolvent firms with an average shortfall of customer funds of 65% for payment firms and 80% for e-money institutions. Both unmatched numbers underscore the reason why these rules exist. More people are using e-money and digital payments every year. A report shows that the use of such institutions for current accounts grew fivefold between 2017 and 2022. The stakes have changed, and so must the safeguards.

What Are the New Safeguarding Rules?

The revised framework applies from May 7, 2026, and introduces several new obligations for payment firms. The framework is often described by compliance professionals as a “CASS-style” regime, echoing the FCA’s Client Assets Sourcebook applied to investment firms.

1. Annual Safeguarding Audits

• Firms must appoint an independent auditor to carry out an annual safeguarding audit.
• Exceptions: small payment institutions, payment initiation service providers, and firms safeguarding less than £100,000 over 53 weeks.
• Audit deadlines: first audit within six months of the financial year end, later audits within four months.

2. Monthly FCA Reporting

• Firms must submit detailed monthly reports to the FCA.
• Reports must confirm the sufficiency of safeguarded funds and note any risks or reconciliation gaps.

3. Daily Reconciliation of Funds

• Firms are required to reconcile safeguarded funds daily.
• Any discrepancies must be corrected immediately.

4. Resolution Pack Maintenance

• Firms must maintain a resolution pack, separate from a wind-down plan.
• This pack should allow quick access to records and procedures, ensuring that customer funds can be identified and returned within 48 hours of insolvency.

5. Insurance and Guarantee Adjustments

• Where firms use insurance or comparable guarantees instead of segregation, these must provide immediate payout with no restrictions.
• Expiry management: if such insurance is due to expire, firms must notify the FCA and prepare to switch safeguarding methods at least three months in advance.

6. Governance and Oversight

• Firms must designate safeguarding responsibility to senior staff.
• Accurate records, policies, and risk assessments must be maintained.
• Material breaches, including reconciliation failures, must be reported to the FCA without delay.

Why the FCA Introduced These Rules

The FCA’s Matthew Long put it bluntly: “People rely on payment firms to help manage their financial lives. But too often, when those firms fail, their customers are left out of pocket.”

These rules are a direct response to the real-world failures of payment companies. Safeguarding is not abstract. It is about making sure that when you transfer money through an app, you can trust that the money is available, even if the company goes under.

What It Means for Businesses

In reference to businesses working in the UK payments sector, the implications of the rules are:

• Being costlier to comply: The expenses incurred for auditors and setting up reconciliations daily can be considered operational costs.
• Brought under greater scrutiny: Monthly reporting will put the attention of firms closer to the FCA.
• Clear accountability: Senior staff are required to own safeguarding; hence, responsibility cannot be diffused thinly across departments.

The proportionate approach does provide some relief for smaller firms. Those handling minimal customer funds are not burdened with the same requirements. The exemption for firms safeguarding less than £100,000 over 53 weeks is a technical detail that reflects this.

What It Means for Consumers

If you are using a payment app, the FCA’s new rules are intended to improve your protection. The idea is simple: your money should be safeguarded, reconciled daily, and accessible quickly if the firm fails.

Consider this: in past insolvencies, customers faced long waits and significant losses. Under the new framework, firms must maintain a resolution pack that can return money in 48 hours. While it remains to be seen how effectively this works in practice, it represents a major step forward in regulatory design.

Industry Response

Industry body UK Finance has expressed support for the tightening of safeguarding protections, while reminding regulators to keep the system practical and internationally competitive. For firms already investing in compliance, these rules align the United Kingdom closer to the standards it adheres to globally.

Increased scrutiny, by contrast, may prompt smaller companies to rethink their strategies. Will the market consolidate further at the larger firms’ behest, to the advantage of their economies of scale? That is a question worth watching.

What This Means for the Rest of the World

The UK is not alone in confronting the risks around payment firms. Regulators across Europe, North America, and Asia have been debating how to strengthen customer fund protection. This approach by the FCA is going to be studied elsewhere, especially with the rise of cross-border digital finance.

For global firms working in several markets, this means putting safeguarding practices into step not only with UK-based standards but also on record that other jurisdictions may follow. If you are a fintech headquartered outside the UK but serving UK clients, these rules will apply. If you are an overseas regulator, you may look at the UK as a template for tightening your own frameworks.

For international consumers, it signals a broader shift: the expectation that digital payment apps should be as safe as traditional banks when it comes to protecting deposits. The FCA’s decision sets a benchmark that could influence regulatory conversations worldwide.

Practical Takeaways

For payment firms:

• Review your safeguarding practices now and map out gaps against FCA requirements.
• Prepare for daily reconciliations and monthly reporting infrastructure.
• Start conversations with external auditors to secure timely safeguarding audits.
• Create and maintain a resolution pack.
• Ensure clear governance and designate accountability.

For consumers:

• Stay informed about how your provider safeguards your funds.
• Pay attention to FCA communications or warnings about firms in distress.
• Recognise that regulatory changes are designed to protect your financial security.

Redrawing the Playbook

These revised UK payment safeguarding rules come into force in May 2026. That gives firms time to adapt, but it also sets a clear countdown clock. Digital finance has expanded at a pace regulators could not ignore. The new rules are the FCA’s attempt to bring the system in line with consumer expectations of safety and accountability.

This is a moment for payments to demonstrate reliability, not mere convenience. For participants in the financial services industry, it remains a reminder that technology is not solely responsible for trust but also regulation that holds firms accountable.

The outside world will have the UK decision as a case study-a marker for what financial regulation will mean in the age of digital money.