FCA Aims to Solve Consumer Trust Crisis with 2026 Safeguarding Overhaul

The UK Financial Conduct Authority (FCA) has announced new payment safeguarding rules set to take effect on 7 May 2026, aiming to strengthen consumer protection and enhance the safety of customer funds held by payments and e-money firms. The rules, outlined in the FCA’s policy statement PS25/12, are part of a broader effort to address compliance shortcomings in the current regime. These changes follow a nine-month consultation period and provide firms with a nine-month implementation window, extending from the initially proposed six-month timeline. The new rules are structured into two phases: the “Supplementary Regime” and the yet-to-be-finalized “Post-Repeal Regime.”

Under the Supplementary Regime, firms will be required to maintain robust procedures for identifying and reconciling “relevant funds”—funds that must be safeguarded. The FCA has adjusted some of the initial proposals in response to industry feedback, including allowing firms to exclude weekends and bank holidays from reconciliation requirements. Firms with less than £100,000 in relevant funds will no longer need to arrange annual safeguarding audits, and those with no relevant funds will not be required to undergo limited assurance audits. These adjustments reflect the FCA’s commitment to proportionality, ensuring the new regime is more practical for firms of varying sizes and complexities.

The updated safeguarding framework includes several new operational requirements. Firms must now appoint an individual within the organization to oversee compliance, with responsibilities to report to the governing body. This role is critical for ensuring adherence to the revised rules. Firms are also required to maintain detailed “resolution packs,” containing all necessary documentation to facilitate the rapid return of customer funds in the event of insolvency. These packs must be updated regularly and made accessible within 48 hours if requested. Additionally, firms must establish and retain records for at least five years to support audit and supervisory requirements.

To ensure the integrity of the safeguarding process, the FCA mandates enhanced due diligence for all third-party providers. This includes evaluating the capital strength, creditworthiness, and regulatory compliance of banks, insurers, and other entities involved in safeguarding arrangements. Firms must also periodically assess the need to diversify their pool of providers, including the use of multiple banks, to reduce concentration risk. Safeguarding agreements must be clearly defined in written letters that are countersigned by authorized representatives of the provider. These letters must be reviewed and updated annually to ensure ongoing compliance.

The new rules also address the use of insurance or comparable guarantees as a safeguarding method. Firms must ensure that these instruments provide unconditional payouts upon insolvency, regardless of the cause—such as fraud or negligence. A contingency plan must be in place at least three months before the expiration of any safeguarding insurance or guarantee, and firms must inform the FCA of their intentions to continue using the arrangement.

While the Supplementary Regime is set to be implemented in 2026, the FCA has deferred a decision on the proposed End-State Regime, which would establish a more comprehensive statutory trust over customer funds. Feedback from the industry raised concerns about the feasibility and legal implications of such a shift. The FCA has committed to reviewing the proposals after the first full audit cycle under the new rules and will seek further consultation before finalizing the Post-Repeal Regime. This phased approach allows for a more measured evolution of the safeguarding framework while addressing the operational and legal challenges raised by firms.

The implementation of the new rules is expected to impose additional costs on firms, particularly in the areas of technology upgrades, due diligence, and compliance training. While larger firms may have the resources to adapt quickly, smaller firms may struggle with the financial and administrative burden. However, the FCA has taken steps to mitigate these impacts, such as reducing audit requirements for firms with smaller balances. The success of the new regime will depend on firms’ ability to balance these compliance costs with their operational efficiency and innovation capabilities.

In the broader regulatory context, the FCA’s changes align with the UK’s ongoing post-Brexit review of financial services regulation. The integration of the former Payment Systems Regulator (PSR) into the FCA is part of a broader effort to streamline oversight and reduce regulatory complexity. While the UK continues to develop its own regulatory framework, it remains attentive to international trends, including the European Union’s upcoming Payment Services Directive 3 (PSD3). These developments highlight the evolving nature of payments regulation and the need for firms to stay agile in a rapidly changing environment.

Source:

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[2] Changes to payments safeguarding - what firms need (https://www.womblebonddickinson.com/uk/insights/articles-and-briefings/changes-payments-safeguarding-what-firms-need-know)

[3] The end of the PSR and new directives: What's next for UK (https://finance.yahoo.com/news/end-psr-directives-next-uk-150305150.html)

[4] FCA's New Rules: Balancing Consumer Protection and (https://www.onesafe.io/blog/fca-payment-safeguarding-rules-impact-fintech)