The 2026 UK safeguarding regime: what changes for payment and e-money firms

The FCA has been consulting on strengthened safeguarding rules for payment institutions (PIs) and electronic money institutions (EMIs) since 2023. Implementation from 2026 means firms holding client funds need to understand what is changing, and why the regime is different from the FSCS deposit protection that applies to UK banks.

What safeguarding is, and what it is not

When a business opens an account with a UK-regulated EMI such as DigiDoe, its funds are not deposited in the traditional banking sense. The EMI holds an authorisation from the FCA (FRN 901043 in DigiDoe's case) under the Electronic Money Regulations 2011. Under those regulations, the EMI is required to safeguard client funds: to hold them in a way that keeps them separate from the firm's own money and ringfences them in the event of insolvency.

Safeguarding is not the same as FSCS protection. The Financial Services Compensation Scheme covers deposits held at banks and building societies authorised under the Financial Services and Markets Act 2000, up to £85,000 per eligible claimant. An EMI holding safeguarded funds does not fall within the FSCS deposit-protection framework. This distinction matters and regulated EMIs are required to make it clear to clients.

What the 2026 changes address

The FCA's consultation (CP23/20 and the subsequent policy statement) identified weaknesses in how safeguarding has been applied in practice. The principal concerns were:

• Shortfalls in segregation: some firms were not maintaining adequate separation between safeguarded funds and operational money.
• Inadequate reconciliation: daily or near-daily reconciliation was not consistently applied, meaning shortfalls could go undetected.
• Insolvency complexity: the process for returning client funds on firm failure was slow and uncertain, partly because of incomplete record-keeping.
• Asset quality in the safeguarding pool: questions about whether assets held to cover safeguarding obligations were genuinely liquid and low-risk.

The 2026 regime introduces a two-phase approach. The first phase, applying from the transition date, tightens existing requirements: more prescriptive rules on reconciliation frequency, clearer requirements on the types of account used for safeguarding, and strengthened record-keeping. The second phase introduces a statutory trust model, which would give client funds a clearer legal status in insolvency.

Reconciliation and record-keeping

Under the incoming rules, firms must carry out daily reconciliation of safeguarded funds. The reconciliation must compare the amount owed to clients (the "relevant funds") against the amount actually held in safeguarded accounts. Any shortfall must be identified and topped up promptly.

Record-keeping requirements become more granular. Firms must be able to identify, quickly and accurately, which funds belong to which clients. This is a practical operational requirement as much as a compliance one: in an insolvency, the speed and accuracy of that identification directly affects how quickly clients can access their money.

The statutory trust model

The longer-term change is the move toward a statutory trust. Under current rules, the legal relationship between the firm and safeguarded funds can be ambiguous in an insolvency. A statutory trust would mean that, as a matter of law, those funds are held for the benefit of clients and sit outside the general pool of assets available to creditors.

This is a meaningful strengthening of client protection. It does not make EMI accounts equivalent to FSCS-covered deposits, but it does make the insolvency outcome more predictable and the client's position clearer.

What this means operationally

For businesses using a regulated EMI, the practical implication is that the safeguarding framework they are already operating within is being strengthened. The key facts do not change:

• Funds are held in segregated accounts at qualifying credit institutions or central banks.
• They cannot be used by the EMI for its own purposes.
• They are ring-fenced in the event of the EMI's insolvency.

What changes is the robustness of how those obligations are monitored and enforced, and the clarity of the legal structure underpinning them.

A note on DigiDoe's approach

DigiDoe is an FCA-authorised EMI (FRN 901043). Client funds held in DigiDoe accounts are safeguarded in accordance with the Electronic Money Regulations 2011 and the FCA's safeguarding requirements. They are not FSCS-protected. Full terms and risk disclosures are available at the compliance page.

This article is educational overview only. It is not legal or regulatory advice. Firms considering how the 2026 changes apply to their specific situation should take independent legal or compliance advice.