On 7 August 2025, the FCA published its policy statement (PS25/12) on changes to the safeguarding regime for payments and e-money firms which will be contained in the new CASS 15. The new rules are due to come into force on 7 May 2026.
Background
As noted in our previous article on the consultation paper (CP24/20), the FCA will update the current safeguarding regime in two stages:
- the Supplementary Regime (previously referred to as interim rules); and
- the Post-Repeal Regime (previously referred to as end-state rules).
PS25/12 sets out the FCA's final rules and guidance to the Supplementary Regime, and responds to comments made in CP24/20.
In addition to PS25/12, the FCA has published a draft version of the FCA's Approach Document with updates which it intends to implement when the final rules come into effect.
The Supplementary Regime
Our previous article sets out the key features of the Supplementary Regime, including changes relating to reconciliations and record keeping and enhanced monitoring and reporting.
Following CP24/20, the FCA has made its rules more proportionate and improved pressure points, in particular:
- amending the rules so that reconciliations are not required on weekends and bank holidays;
- introducing a £100,000 threshold for relevant funds, under which payments firms will not be required to arrange a safeguarding audit;
- removing the requirement for a limited assurance audit for payments firms that do not hold relevant funds; and
- increasing the implementation timeline from six months to nine months.
Aim of the Supplementary Regime
The FCA will consider the Supplementary Regime a success if there is a decline in shortfalls of relevant funds held by failed firms, and a decline in finding insufficient safeguarding from supervisory cases.
Implementation of the Supplementary Regime
The Supplementary Regime and the amendments to the approach document will come into force on 7 May 2026. The rules that firms will need to comply with will be contained in CASS 10A, CASS 15, SUP 3A and SUP 16.14A in the FCA handbook, as well as the updated approach document.
The Post-Repeal Regime
The FCA has confirmed that once the Supplementary Regime comes into force, it will review the implementation of the Post-Repeal Regime and consult on further proposals if changes are necessary. This approach follows concerns that were raised in feedback to CP24/20 around rules imposing a statutory trust and receiving relevant funds directly into a designated safeguarding bank account.
Review of the Payment and Electronic Money Special Administration Regime (PESAR)
In 2021, the UK introduced PESAR – a bespoke insolvency regime for payment and e-money firms.
This special administration regime introduced an additional objective for insolvency practitioners: to ensure the return of relevant funds as soon as reasonably practicable. This matters because, unlike bank customers, users of payment and e-money firms are not protected by the Financial Services Compensation Scheme.
Interplay between PESAR and Safeguarding rules
The FCA's new safeguarding rules are designed to make PESAR work better in practice.
Daily reconciliations and mandatory "resolution packs" will mean:
- administrators can quickly identify customer funds and records when a firm collapses;
- better segregation of accounts – this should minimise shortfalls, protecting both consumers and creditors; and
- for FinTech firms and those handling cryptoassets or operating complex digital payment infrastructures, much-needed clarity on how to ring-fence customer funds in an increasingly digital environment.
Treasury review of PESAR
In December 2024, HM Treasury (HMT) launched an independent review of PESAR to assess whether it's delivering on its objectives and how they might be improved (the HMT Review). Those involved in the sector, including insolvency practitioners, regulators, and trade bodies, have been providing feedback:
- UK Finance's response in May 2025 welcomed the review, and:
- argued that PESAR as originally implemented has not let to an acceleration of return of funds to customers;
- noted that the focus on this objective might also inhibit the continuation of trading by business operating under it;
- warned against a "one-size-fits-all" approach; and
- argued that the sector is diverse, and the regime needs flexibility to work proportionately across firms of different sizes, business models and technological complexity.
- Early experiences with PESAR have highlighted both:
- the importance and the challenges of the regime; and
- delays in returning funds can diminish consumer trust in FinTech.
- Accordingly, there's a focus on streamlining administration procedures, improving record-keeping (as addressed by the new FCA rules), and possibly clarifying the legal status of safeguarded funds.
The HMT review is expected to explore these angles, including whether administrators have the right tools and powers to distribute funds, and how to deal with shortfalls or complex pooling arrangements in insolvency. HMT's final report is due at the end of this year.
What next?
Ultimately, the FCA's safeguarding enhancements and the HMT Review are working alongside one another. Together, they seek to ensure that, if a payments or e-money firm fails, customers are made whole as quickly as possible and the impact on the wider financial system is contained.
The FCA's Supplementary Regime reforms should reduce the likelihood and severity of insolvency shortfalls. Meanwhile, any changes emerging from the PESAR review will likely refine the special administration process (for example, by improving how administrators can return funds, or by adjusting the regime's objectives and timelines). For FinTech firms and their stakeholders, these developments are essential because they not only provide greater protection for consumers but also reinforce confidence in the resilience of the UK's payments sector.
Stronger safeguarding rules, coupled with an organised special administration regime, will better protect customers of payment and e-money institutions. By ensuring firms maintain robust records and segregated accounts in life, and by honing the tools to return funds in insolvency, regulators and policymakers are closing the gaps exposed by past failures. This approach should make the Special Administration Regime more effective, bolster confidence in the FinTech sector, and ultimately help achieve the FCA's measure of success.