What is a safeguarding account?

A safeguarding account is an essential type of bank account for electronic money institutions and payment institutions to ensure that customers’ money is protected. This type of account protects the clients of E-Money Institutions (EMIs) and Payment Institutions (PIs) from a potential event of insolvency and other problems that can arise with increased competition among fintech companies.

Safeguarding accounts are not difficult to set up, but they take several months to establish. Establishing these accounts also requires a lot of documentation and financial resources. Below is what is necessary to know about safeguarding accounts, the requirements for setting up a safeguarding account, and how to apply for one.

What is a safeguarding account?

EMIs and PIs must have a safeguarding account to do business. A safeguarding account is a particular account that separates customer funds from the operational funds of an EMI or PI. This account also blocks third parties from accessing these funds.

A safeguarding account only applies to relevant funds. Relevant funds include any electronic payment service transaction and funds held by the payment service institution to execute a payment transaction on behalf of the customer. EMIs and PIs are obligated to protect the relevant funds they receive and have no other obligations once the payee receives the funds.

Requirements for a safeguarding account

Having a safeguarding account is essential to avoid a potential financial disaster and to prevent the commingling of business and client funds. Yet, it is important to note that opening a safeguarding account is complex. It requires a lot of documentation and financial resources at the start of the process. Plus, the EMI and PI must meet specific deadlines to prevent delays.

A safeguarding account is mandatory for EMIs and PIs to obtain a license and conduct business by the regulatory authorities. The FCA has published guidance on safeguarding money held by clients, which explains the importance of choosing a safeguarding account with a reputable bank. By following these guidelines, EMIs and PIs can protect their customers and ensure they receive the right level of service. Based on payment services regulations (PSRs) and electronic money regulations (EMRs), EMIs and PIs must safeguard client funds. These institutions must provide several assurances, including:

• Establishing a method of safeguarding, segregating and insuring client funds
• Blocking any third-party claims to client funds
• Developing relevant systems and controls to protect client funds
• Developing a process for client compensation during an insolvency event

How to apply for a safeguarding account

There are many banks in the EU. Unfortunately, many of them do not work with fintech institutions. EMBank is a financial institution that is fintech-friendly and offers safeguarding accounts. It understands the needs of EMIs and PIs by providing them with a dedicated relationship manager who can provide tailor-made banking solutions. They can guide financial institutions through the process of opening a safeguarding account so that they can begin their business operations. To learn more, it might be worth talking to one of EMBank’s relationship managers to see if it’s a good idea to start the application process.

The editorial unit