Safeguarding customer funds: Key FCA changes  

The Financial Conduct Authority (FCA) is consulting on significant changes to the safeguarding rules for payment and e-money firms. These updates aim to tackle persistent compliance issues and reduce consumer harm, following insolvency cases where less than 50% of customer funds were recovered. 

If you manage a payment or e-money institution, these new rules will reshape how you safeguard customer funds, with major implications for your daily operations and compliance processes. 

Our financial services solicitors are here to help you navigate these changes and prepare your business for what lies ahead.  

What’s changing? 

The FCA wants to overhaul safeguarding practices to improve consumer protection. Key proposals include: 

• Same-day segregation: Customer funds must now be segregated on the same business day they’re received, replacing the current next-day (D+1) requirement. 

• Daily reconciliations: Firms will need to perform both internal and external reconciliations every business day to ensure accuracy. 

• Stronger insolvency protections: A statutory trust will be introduced over customer funds, offering better safeguards if a firm goes insolvent. 

• New reporting and audit rules: You’ll be required to submit enhanced audits and a monthly regulatory return to the FCA. 

These new rules will be set out in the Client Assets Sourcebook (CASS) section of the FCA’s Handbook of rules and guidance, providing firms with a clear framework for compliance. 

Why is the FCA making these changes? 

Between 2018 and 2023, insolvencies among payment and e-money firms revealed widespread issues with safeguarding practices. These failures led to significant losses for consumers, and recent case law has added uncertainty about the protection of funds during insolvency. By introducing stricter rules, the FCA aims to provide clearer protections and reduce the risk of consumer harm. 

When will the changes take effect? 

The proposed changes would be implemented in two stages: 

1. Interim rules (2025): 

• The FCA plans to finalise these rules by mid-2025. 

• A six-month transition period will follow, giving firms time to adjust. 

2. End-state rules: 

• These will establish the statutory trust and replace the current regulations. 

• A 12-month implementation period is expected after publication. 

What does this mean for your business? 

These proposed changes would likely impact your operations in several ways: 

• Daily operations: Same-day fund segregation and daily reconciliations will require streamlined processes and robust systems  

• Compliance framework: New monthly regulatory returns and enhanced audit requirements demand stronger oversight  

• Resource planning: Additional staffing or technology investments may be needed to handle the increased workload  

• Banking relationships: Review and potential updates to your banking arrangements to ensure same-day fund transfers. 

Planning will be crucial. Start by reviewing your safeguarding policies, updating reconciliation practices, and ensuring your systems can handle daily reporting requirements. 

What’s next? 

John Pauley, Financial Services Partner at Harper James commented:  

This is the biggest shake-up of safeguarding rules we've seen, with same-day fund segregation being a game-changer for many firms. Those with international operations or complex payment flows need to start preparing now – reviewing systems, updating processes, and identifying potential bottlenecks. The timeline is tight, but early planning will make compliance achievable.

The FCA is consulting on these proposals until 17 December 2024. Businesses should use this time to provide feedback and begin preparations. 

If you’re unsure how these changes affect your business or need help preparing our financial services experts can guide you through the upcoming changes and help you stay compliant.