Safeguarding through insurance – how it works and what’s changing under the FCA’s 2026 Regime

Safeguarding is the key mechanism within the Payment Services Regulations (PSRs) and Electronic Money Regulations (EMRs) to protect relevant funds. When a firm becomes insolvent, it’s relevant funds (if properly safeguarded) become available for return to payment service users and e-money holders in priority to the claims of all other creditors.

Safeguarding can be performed through either segregation or through insurance (or comparable guarantee).

The option to safeguard through insurance has been available since the regulations were introduced. Whilst safeguarding through segregation remains the most commonly used safeguarding method by firms, the use of safeguarding through insurance is increasing.

A key benefit is access to working capital. Under segregation, firms cannot use relevant funds held in safeguarding accounts. Insurance removes this constraint, allowing firms to use funds for operations and growth. In some cases, the cost of insurance may be lower than borrowing, or borrowing may be unavailable, making insurance a practical alternative.

The insurance method of safeguarding requires the relevant funds to be covered by an insurance policy with an authorised insurer. The policy will need to cover either all relevant funds (not just the funds held by a firm at the end of the business day following the day that they were received) or certain relevant funds.

The insurance policy must have no condition or restriction on the prompt paying out of funds. The proceeds of an insurance policy must be paid into a separate safeguarding account held by the firm. This account must be used only for holding such proceeds. The proceeds of the insurance policy must be payable outside the firm’s insolvent estate. One way of doing this is for the insurance policy to be written in trust for the benefit of payment service users or e-money holders from the outset. To ensure that a firm’s relevant funds remain adequately safeguarded, the amount of the insurance cover must at all times:

include reasonable headroom to allow for any foreseeable variation in the amount of relevant funds

there should be no level below which the insurance policy does not pay out