Safeguarding account
A safeguarding account is a segregated account, held at a credit institution, in which an e-money institution (EMI) or payment institution keeps its customers' money separate from its own operational funds. The account protects client funds: if the firm fails, the money in it is kept out of reach of the firm's other creditors and returned to customers.
Why safeguarding accounts exist
Customers of EMIs and payment institutions aren't covered by a deposit guarantee scheme, such as the EUR 100,000 cover for bank deposits in the EU or the UK's Financial Services Compensation Scheme (FSCS). Safeguarding protects them instead. Unlike deposit cover, it isn't capped at a fixed amount: the whole safeguarded balance belongs to customers, minus the costs of returning it if the firm becomes insolvent. Our article on what happens to your money if an EMI fails explains this from a customer's point of view.
What EU rules require
Under the E-Money Directive (EMD2) and the Payment Services Directive (PSD2), firms must safeguard the relevant funds they receive from customers in one of two ways:- segregation: keep customer funds separate from all other money and, if they're still held at the end of the business day after they were received, place them in a separate account at a credit institution or in secure, liquid, low-risk assets approved by the supervisor
- insurance or a comparable guarantee: cover the funds with an insurance policy or a guarantee from an insurer or bank outside the firm's own group, paying out if the firm can't meet its obligations
How a safeguarding account works
- It's opened in the firm's name but clearly designated as holding customer money, so the bank and any insolvency practitioner can tell it apart from the firm's own accounts.
- Only relevant funds go in. The firm's operational funds, fees it has earned and its own capital stay in separate accounts.
- The firm reconciles the balance against what it owes customers, at least daily in practice, and tops up or withdraws the difference.
- Many firms spread safeguarded funds across more than one bank to reduce concentration risk.
- Supervisors check the arrangements at authorisation and afterwards, and many require an annual safeguarding audit.
What counts as relevant funds
Relevant funds are the money a firm receives from customers, or from other payment service providers for customers, to execute payment transactions or in exchange for e-money. The firm's own money isn't relevant funds: its capital, the fees it has earned and its company's operational funds must stay out of the safeguarding account. Mixing the two, even briefly, is one of the most common safeguarding failures that supervisors find.Safeguarding vs deposit protection
| Safeguarding account | Bank deposit protection | |
|---|---|---|
| Who it protects | Customers of EMIs and payment institutions | Depositors at banks |
| How it works | Customer money is ring-fenced from the firm's creditors | A guarantee scheme pays compensation |
| Limit | No fixed cap: the whole safeguarded balance, minus distribution costs | EUR 100,000 per depositor per bank in the EU (GBP 120,000 under the UK FSCS) |
| Speed of payout | Depends on the insolvency process | Usually within 7 working days |
| What can go wrong | Poor records or missing funds can delay or reduce returns | Balances above the limit aren't covered |
Good safeguarding practice
- Keep records that show, at any time, how much each customer is owed.
- Reconcile safeguarded funds against customer balances every business day, and fix any shortfall the same day.
- Spread funds across more than one licensed credit institution where possible.
- Review safeguarding arrangements at least once a year, including the strength of each banking partner.
- Build effective risk management procedures, with clear responsibility for safeguarding at board level.
Who must safeguard customer funds
Safeguarding requirements apply to authorised electronic money institutions (EMIs) and payment institutions (PIs) in the EU and the UK. Both receive money from end customers without being banks, so the law asks them to protect customer funds instead of offering deposit insurance. Banks, as credit institutions, hold eligible deposits instead and are covered by deposit guarantee schemes. An EMI that also provides payment services unrelated to e-money must safeguard those funds too. Small EMIs and small payment institutions registered under national exemptions may face different safeguarding obligations, depending on the country.Safeguarding and virtual accounts
Many EMIs give each client its own IBAN, often as virtual accounts linked to a pooled safeguarding account. The client sees a dedicated account number, while the underlying funds sit in one or more segregated safeguarding accounts at authorised banks. This works as long as the EMI's records show exactly how much of the pool belongs to each customer, so it can return the right amount to each one if it fails.Opening a safeguarding account
Finding a banking partner willing to open a safeguarding account is one of the harder steps for a new EMI or payment institution. Banks assess the firm's business model, customer base, AML controls and the payment infrastructure behind it, much as they would for any higher risk client. Firms usually need the account in place before authorisation is granted, because the supervisor checks the safeguarding arrangements as part of the application. A bank may also ask the firm to sign an acknowledgement that the funds belong to customers and can't be used to settle the firm's own debts.The UK regime
In the UK, safeguarding rules for payment and e-money firms come from the Payment Services Regulations 2017 and the Electronic Money Regulations 2011. The FCA's supplementary safeguarding regime, set out in CASS 15, has applied since 7 May 2026. It brings daily reconciliation, monthly safeguarding returns to the FCA, annual safeguarding audits and a resolution pack so funds can be returned quickly if the firm fails. It's an interim step: the FCA plans to replace the current rules with a full CASS-style client money regime later.What it means for customers
If you hold money at an EMI, ask how it safeguards your funds: by segregation or insurance, at which banks, and how often it reconciles. Check the firm's authorisation in its supervisor's register. Narvi is an e-money institution authorised by FIN-FSA in Finland and is subject to the EU safeguarding rules described here.FAQ
No. Safeguarding is a separate protection. It ring-fences customer money from the firm's creditors rather than paying compensation up to a limit.
E-money institutions and payment institutions, at a licensed credit institution. The account is in the firm's name but designated for its customers' funds.
An insolvency practitioner takes control and returns the safeguarded funds to customers, after deducting the costs of distribution.
Yes. EU rules allow an insurance policy or comparable guarantee from a firm outside the group, but most EMIs use segregated accounts.
Accounting treatment varies, but the funds belong to customers in insolvency, whatever the balance sheet shows. They can't be used to pay the firm's own creditors.
Related terms and sources
E-money institution · Payment service provider · FIN-FSA · Debanking · What happens to your money if an EMI fails · Browse the full glossary
Last reviewed November 2, 2026Disclaimer
This publication is provided for general information purposes and does not constitute legal, tax, or other professional advice from Narvi Payments Oy Ab or its affiliates, and it is not intended as a substitute for obtaining advice from a financial advisor or any other professional.
This publication is provided for general information purposes and does not constitute legal, tax, or other professional advice from Narvi Payments Oy Ab or its affiliates, and it is not intended as a substitute for obtaining advice from a financial advisor or any other professional.
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Narvi Payments Oy Ab is an Authorized Electronic Money Institution (EMI). Narvi’s EMI license is granted by the Finnish Financial Supervisory Authority (FIN FSA) with the registration number 3190214-6. Narvi’s license is passportised to all European Union countries.
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