Safeguarding and the FSCS: how your money is protected with a payment firm

If you send money abroad through a specialist transfer firm, or keep a balance in an app that is not a bank, your money is protected by a different system from the one that guards bank deposits. The Financial Services Compensation Scheme (FSCS), which pays out up to £120,000 per person when a bank fails, does not cover payment services. The FCA said exactly that when the money transfer firm Premier Payment Solutions entered liquidation: "No. The FSCS only applies to certain types of activity and does not cover payment services."¹

Instead, firms that issue electronic money or provide payment services must follow rules called safeguarding. Broadly, this means holding your money separately from their own, usually at a bank, so that if the firm collapses your money is still identifiable and can be returned to you². Safeguarding is a real protection, but it is not the same as FSCS compensation: there is no guaranteed payout, no fixed limit and no automatic seven-day payment. This page explains how each system works, which firms must safeguard, and what to check before you send money anywhere.

Money held by a payment or money transfer firm is not covered by the FSCS

The FSCS is the UK's statutory compensation scheme, funded by levies on the financial services industry, and it is free to use⁵. But its deposit protection only covers money held as deposits with banks, building societies and credit unions. The FSCS's own protection checker is explicit about the boundary: "FSCS can't protect e-money or payment services firms."⁶ Its guidance repeats the point for anyone searching for a firm it cannot find: "we can't protect you if an e-money firm or payment services firm fails."⁷

This matters because many accounts that look like bank accounts are not bank accounts. A prepaid card, a multi-currency balance in a transfer app, or a "current account" offered by a non-bank fintech may legally be electronic money, held by an e-money institution rather than a bank. The money sits with the firm, not as a deposit, so the FSCS deposit scheme never attaches to it. When Premier Payment Solutions Ltd went into liquidation, the FCA's notice spelt out the consequence for its customers: the FSCS does not cover payment services¹.

There is one narrow connection worth understanding. The FSCS explains that if a payments firm holds your money at a regulated bank as part of its safeguarding arrangements, and it is that bank which fails, the FSCS may "look through" the payments firm and compensate its customers. But, as the FCA's policy statement puts it, "FSCS does not cover cases where the payments firm itself fails."⁸ So the protection you get depends on which link in the chain breaks.

How safeguarding works: your money kept apart from the firm's

Safeguarding is the set of legal rules that replace FSCS protection for payment and e-money firms. The core idea is simple: the firm must keep the money you give it, or that it holds for you, separate from its own money. The FSCS describes the arrangement in these terms: "These funds must be held separately from the firm's own funds, typically with a bank."²

The detail sits in two sets of regulations. Under the Payment Services Regulations 2017, an authorised payment institution "must keep relevant funds segregated from any other funds that it holds"¹⁰. Under the Electronic Money Regulations 2011, an electronic money institution must keep relevant funds segregated, either placing them in a separate account with an authorised credit institution or investing them in secure, liquid, low-risk assets held with an authorised custodian¹¹. E-money firms also have a second option: covering the funds with an insurance policy or guarantee from an authorised insurer or credit institution, with the proceeds payable into a separate account if the firm becomes insolvent¹².

The FCA tightened part of this picture in an August 2025 policy statement. Where a firm both issues e-money and provides unrelated payment services, it must hold the funds received in exchange for issued e-money in a separate safeguarding account from funds received for the other payment services⁸. In practice this reduces the risk of money being mixed up or misrecorded when a firm fails.

What safeguarding does not do is guarantee you a fixed sum. If the firm fails, the safeguarded money is pooled and distributed to the customers it belongs to. If records are poor, or money was mislaid before the failure, the pool may be short. That is the fundamental difference from the FSCS, which pays compensation up to a limit regardless of what is recoverable.

Which firms must safeguard

The duty to safeguard attaches to the type of licence a firm holds. Three categories matter to a consumer sending money or holding an app balance.

• Authorised payment institutions must safeguard relevant funds, either by segregation in a separate account with an authorised credit institution or the Bank of England, by investment in secure, liquid assets held with an authorised custodian, or by insurance or a comparable guarantee¹³.
• Electronic money institutions must safeguard funds received in exchange for e-money they have issued, using one of the two methods described above¹². The regulations allow a firm to safeguard some funds one way and the rest the other way¹⁴.
• Small payment institutions are treated differently, as the next section explains.

The licence type also signals what the firm is allowed to do. An authorised payment institution has passed fuller FCA scrutiny than a small one, including capital requirements, and the e-money regime similarly requires firms to meet capital requirements as well as safeguarding duties¹⁵. None of this makes a firm safe, but it tells you which rulebook applies to your money.

For everyday purposes, the practical question is not the firm's category but whether it holds your money at all. A broker that takes your money and sends it on, a prepaid travel card, and a remittance app all hold customer money at some point, and safeguarding is what governs that period. The moment the money leaves the firm and arrives in the recipient's account, neither safeguarding nor FSCS protection follows it.

Where safeguarding stops: small payment institutions and currency exchange

Not every firm in this market has to safeguard. The FCA stated plainly, in the context of Premier Payment Solutions' liquidation: "Small Payment Institutions are not required to safeguard customer funds under the PSRs."¹ A small payment institution is a lighter-touch category of firm, and the regulations only apply the safeguarding paragraphs to funds that such a firm safeguards voluntarily¹³.

This creates a real gap for consumers. If a small payment institution fails, there may be no segregated pool of customer money at all, and the FCA's warning about unauthorised firms gives a sense of how bad the outcome can be: "You also won't be protected by the FSCS if the firm goes out of business, so it is unlikely you would get your money back."¹⁶ Checking a firm's category on the Financial Services Register, covered in the last section of this page, tells you which position you are in.

There is a second exclusion that catches people sending money abroad. The FCA's policy statement confirms that where a foreign exchange transaction is carried out independently of any payment services, those funds do not have to be safeguarded⁸. So a firm that simply exchanges currency for you, outside the regulated payment services framework, may be holding your money without the safeguarding duty attaching to it. The distinction is technical, and consumers rarely see it, which is why the firm's permissions on the FCA register matter more than its advertising.

Safeguarding or FSCS: how the two protections differ

The two systems answer the same fear, a firm collapsing with your money, in different ways. The FSCS is a compensation scheme: it pays eligible customers up to a limit, from funds levied on the industry, whether or not anything is recovered from the failed firm. Safeguarding is a custody rule: it tries to make sure your money still exists, identifiable and apart, when the firm goes down.

The differences play out in three ways. First, certainty: the FSCS limit is fixed and published, while a safeguarding claim depends on the state of the pool. Second, speed: the FSCS states that if a bank or building society fails it "will automatically pay back customers' money within seven working days in most cases"¹⁸, whereas an administration can run for months. Third, scope: FSCS deposit protection covers deposits, current accounts and savings accounts⁶, while safeguarding covers money held by payment and e-money firms in the course of providing those services.

One further wrinkle: some businesses sit outside FSCS deposit protection even at banks. The FSCS notes that authorised financial services firms are not protected as depositors, so a wealth management company's own funds would not be covered¹⁹. And most cryptoassets are not FSCS protected because they are not regulated²⁰. The lesson is the same in each case: the label on the product tells you less than the licence of the firm holding your money.

FSCS protection at banks: up to £120,000 per person

For contrast, it is worth being precise about what bank customers get. The FSCS protects up to £120,000 per person or company, per authorised firm²¹. The limit rose to this level for failures from 1 December 2025, and the FSCS announced in March 2026 that it "now protects eligible deposits from the first pound up to £120,000 per person, per authorised firm"²². The same figure appears across the scheme's guidance for banks, building societies and credit unions²³, including credit union savers²⁴ and the FSCS Protected badge materials⁹.

The limit applies per person, per authorised firm, not per account. All the accounts you hold with one banking group count together, so spreading money between two brands owned by the same bank does not double your protection. Joint account holders are treated as having equal shares, and business customers are protected up to £120,000 in total across accounts in the business name¹⁹. Online-only banks are covered in exactly the same way as branches: the FSCS answers the question "what if my bank just exists online?" with the same protection, provided the firm is authorised².

Payment is automatic and fast. The FSCS states you will normally get your money back within seven working days of a bank, building society or credit union failing²⁵. You do not have to apply in the standard case, and the scheme is free to use²⁶. The Bank of England consulted in March 2025 on the rules underpinning this protection, which the PRA sets and the FSCS operates²⁷.

If a payment firm fails: claiming through the administrator

When a payment or e-money firm fails, the process is very different from a bank failure. There is no FSCS payout. Instead, an administrator or liquidator is appointed, and the customers' route to their money runs through them.

The FSCS describes its own role in insolvencies of the firms it does cover: "If a firm is in administration or liquidation we will work closely with the administrator or liquidator to verify eligible claims", and where a small firm fails with no administrator appointed, it works with the firm's officials to obtain records²⁸. But that machinery belongs to the schemes the FSCS covers. For a payment firm, the administrator identifies the safeguarded pool, verifies claims against it, and distributes what is there. The FCA's Premier Payment Solutions notice shows the shape of this: customers were directed to the liquidation process, not to the FSCS¹.

Two points follow for anyone holding money with such a firm. First, eligibility for any FSCS help at all requires that "the firm was authorised, it carried out a regulated activity for you, you lost money, and it owes you a legal liability"²⁹, and a payment firm holding safeguarded money fails that test for deposit purposes. Second, costs can eat into a pool: in one insolvency the FSCS noted it would cover the costs deducted by joint special administrators for distributing client money in most cases³⁰, but that statement concerned a scheme the FSCS covers, and no equivalent backstop exists for an ordinary payment firm's customers.

The dedicated page on when a payment firm fails goes further into what claiming involves, and your rights under the Payment Services Regulations covers the other protections those rules give you.

Complaints and the Financial Ombudsman Service

Safeguarding and the FSCS deal with a firm collapsing. If the firm is still trading but has treated you badly, the complaint route is the Financial Ombudsman Service. Its banking and payments remit covers "current accounts, savings accounts, direct debits, money transfers, electronic payment platforms, cheques and banker's drafts", and it handles issues such as account closures, disputed transactions, IT failures and problems with switching services³¹. Its easy-read leaflet confirms the same coverage in plain terms: bank accounts and bank cards, insurance, and problems with loans³².

The ombudsman also covers scams. The FCA's complaint eligibility rules extend its remit to authorised push payment fraud victims where the respondent was involved in the transfer³³. Money transfer firms have been within the ombudsman's remit since November 2009³⁴, a fact it highlighted as its caseload in the area grew³⁵. Complaints about bank transfers, electronic money and banking services made up 2% of its enquiries in 2017/18, down from 3% the year before³⁶. Across all products in 2023/24, it upheld 37% of the complaints it resolved³⁷.

The process is free. You complain to the firm first, and if it does not resolve the matter within eight weeks or sends a final response you are unhappy with, the ombudsman looks at the relevant law, regulations and industry codes, your correspondence, payment records and credit file³². The ombudsman is not a compensation scheme for failed firms: it can order a live firm to put things right, but it cannot recover money a collapsed payment firm no longer holds.

Checking a firm before sending money

The single most useful check takes a couple of minutes. The FCA's guidance on checking a firm tells you to search the Financial Services Register, and warns that if the firm is not authorised you will not be protected by the FSCS if it goes out of business¹⁶. The FCA's Firm Checker tool does the same job: search the firm by name and check its status and permissions¹⁷. The FSCS's own protection checker is based on the same register, so a result there reflects the FCA's records⁶, and the FSCS directs people to check whether a firm is authorised before they rely on any protection²⁶.

What to look for depends on what you are doing:

1. Search the register by the firm's exact name. Clone firms copy the names of genuine authorised firms, so check the address and firm reference number match the firm you are dealing with¹⁶.
2. Check the permissions. A firm should hold permission for the activity you are using, such as issuing electronic money or providing payment services¹⁷.
3. Note the category. Whether the firm is an authorised payment institution, a small payment institution or an e-money institution determines whether safeguarding is compulsory¹.
4. Check the FSCS protection checker to see what, if anything, its schemes would cover for that firm⁶.

If a firm is not on the register at all, the FCA's scam guidance is blunt: it is unlikely you would get your money back if things go wrong¹⁶. MoneyHelper's scam guidance adds practical protections for the payment itself: paying by credit card for items over £100 gives more protection, and a bank transfer abroad leaves you with much less protection if something goes wrong. The pages on scams involving payments abroad and identity and security checks cover those angles in detail, and ways to send money abroad sets out the types of firm in the market.