FCA confirms stricter safeguarding rules for payment firms from May 2026
The UK Financial Conduct Authority (FCA) has confirmed a major overhaul of its safeguarding requirements for payment institutions and electronic money firms, set to come into force in May 2026. The changes are designed to strengthen consumer protection in the event of firm insolvency and to address persistent shortcomings within the industry.
Under the updated framework, payment firms will be required to implement robust safeguarding procedures to ensure a complete separation between customer funds and corporate assets, the regulator said in a press release. Such separation is critical to enabling the swift return of funds to customers in the event of a company’s failure.
New requirements and support for small businesses
The new rules were developed following months of engagement with industry stakeholders and will take effect after a nine-month transition period. The FCA is taking a proportionate approach toward smaller firms, scrapping mandatory audits for those holding less than £100,000 in client funds.
Key components of the new regime include mandatory annual audits by qualified professionals, monthly regulatory reporting, and daily reconciliation of safeguarded funds. Firms will also be required to prepare detailed wind-down plans to ensure faster and more complete reimbursement of client funds in case of insolvency.
Reasons for the reforms and FCA’s comments
The reforms were prompted by troubling findings from past payment firm failures. Between Q1 2018 and Q2 2023, failed payment institutions showed an average shortfall of 65% in customer funds, leading to significant losses for clients.
Matthew Long, Director of Payments and Digital Assets at the FCA, emphasized the importance of consumer trust in payment systems. “People rely on payment firms to manage their financial lives. But too often, when those firms fail, their customers are left out of pocket,” he said. “Most of those who responded to our consultation agreed we need to raise standards to protect people’s money and build trust, but any changes needed to be proportionate—especially for smaller firms.”
The regulator will closely monitor how the rules are implemented and has expressed its readiness to tighten requirements further if needed. With the new standards confirmed, firms are expected to take the necessary steps to better protect the funds they hold on behalf of consumers.
Read also: FCA to lift retail ban on crypto ETNs starting October 2025
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