In December 2024, the Financial Conduct Authority (FCA) closed its consultation on overhauling the safeguarding regime for payments firms and e-money firms. If you’re an e-money institution (EMI), it’s important to understand and prepare for the future impact on how you’ll operate.
About the consultation
The FCA’s consultation paper, CP24/20, was issued in September 2024. To overhaul its Electronic Money Regulations and Payment Services Regulations (EMRs and PSRs) for safeguarding client money, the FCA plans to add a new chapter to its Client Asset Sourcebook: CASS 15.
The FCA is responding to ‘inadequate safeguarding [which] has resulted in significant consumer harm where firms have failed and entered insolvency.’ Its key proposals will strengthen record-keeping, monitoring, reporting and practices.
The rule changes will be introduced in two stages: interim and end-state. The FCA intends to publish final interim rules with an accompanying policy statement by the end of June 2025. So far, it’s not set a date for introducing the final end-state rules.
What the new rules will mean for EMIs
Under the new CASS 15 safeguarding rules proposed in CP24/20, the requirements for EMIs will include:
More detailed record keeping and reconciliation requirements
To reduce the risk of the loss or diminution of relevant funds, EMIs will be required to perform separate daily reconciliations of internal and external relevant funds.
By documenting and demonstrating thorough reconciliation procedures, EMIs will be better able to stand up to scrutiny by their auditors and/or the FCA.
Maintaining a resolution pack
In the event of insolvency, the CASS resolution pack will assist liquidators in the orderly wind-down of the firm. Key information in the pack would include clear directions to ensure the safe return of relevant funds.
Holding funds under a statutory trust
All funds, assets and insurance policies/guarantees used for safeguarding will be held on trust in favour of clients.
Imposing a statutory trust over relevant funds removes legal uncertainty over the status of those funds: another step to make the wind-down process more efficient.
External audit of safeguarding practices
A firm such as BKL, with specialist experience in auditing EMIs, PSPs and other FS businesses, can conduct the safeguarding audit and submit the annual report to the FCA.
The safeguarding audit requirement will be extended to all authorised payment and e-money institutions, although small payment institutions will continue to be able to opt in voluntarily. Your EMI or payment firm may be one of the 325 small-medium firms which, according the FCA, will now be within scope of a safeguarding audit.
A monthly safeguarding regulatory return
The EMI’s regulatory adviser or internal compliance function would help them to meet this FCA submission requirement.
More detail is available in CP24/20 here. It includes specific proposals for stronger safeguarding practices.
Our view on CP24/20 and CASS 15
Bringing payments firms and e-money firms under CASS, alongside other FS businesses, will bring clarity for payments firms, EMIs, clients and auditors alike.
We’re pleased that the new CASS 15 rules will include a resolution pack. By giving liquidators what they need to put an orderly wind-down plan into action (with ‘orderly’ meaning no longer than three months), clients will have more certainty and a shorter wait for their funds to be returned.
We also welcome the imposition of a statutory trust for relevant funds. It ends confusion over how liquidators would rank these funds when conducting a wind-down.
Under CASS 15, auditors will be obligated to submit safeguarding audits to the FCA, even if nothing material has been found, within four months of year end. As we’ve conducted EMI safeguarding audits in this way for several years, this new requirement makes sense to us.
There is one point in CP24/20 that could potentially mislead EMIs. The FCA refers to 325 ‘additional firms that will require an audit based on the criteria for the small company audit exemption in the Companies Act 2006’. However, that exemption never covered EMIs: irrespective of FCA requirements, EMIs have always been required to submit audited accounts to Companies House. This shows the value of seeking professional guidance to navigate the new rules.
We expect the CASS 15 end-state rules to be introduced in 2026. EMIs should use 2025 to get ready for the changes and approach auditors now, to ensure that they can conduct your safeguarding audit during 2026.
Advantages of preparing early for CASS 15
CASS compliance isn’t just a legal obligation. It’s part of being a responsible business, trusted by your customers.
CASS 15 will enable businesses to identify risks to safeguarding funds early, as well as reconciliation issues, and to address these proactively.
Some firms underestimate orderly wind-down planning: appropriate triggers, time required and fixed costs needed. Having a well-maintained resolution pack will ensure that EMIs are ready.
In 2023, the FCA opened supervisory cases relating to approximately 15% of firms that safeguard, to address concerns about their safeguarding arrangements. Potential sanctions include restricting a firm’s ability to conduct new business. With CASS 15’s higher standards likely to increase FCA interventions, early preparation will give EMIs peace of mind.
The sooner your EMI prepares for CASS 15, the sooner you can unlock the advantages – before the FCA announces the new end-state rules and increases the pressure.
How BKL can help
Our financial services and fintech audit specialists work closely together, sharing knowledge and supporting clients as a team.
We can apply our years of experience working with and auditing EMIs to ensure that your business is compliant with CASS 15 and other FCA regulations.
By working closely with regulatory advisers and solicitors who also specialise in financial services and CASS rules, we’ll give you extensive support throughout your fintech’s journey.
Together we will reduce the stress around regulatory compliance, freeing you to focus on innovating, helping your customers and securing your EMI’s future.
Contact us today for a chat about your business. You can also learn more about how we help EMIs and other fintechs on our Smart Finance, Sure Future page.