FCA Compliance for Electronic Money Institutions: Requirements, Safeguarding and Supervisory Expectations

Electronic money institutions operate under the Electronic Money Regulations 2011, the Payment Services Regulations 2017 in respect of any unrelated payment services provided, the FCA Handbook, and the FCA's Approach Document. Since May 2026, safeguarding has been governed by CASS 15.

This article sets out the requirements applying to EMIs, the safeguarding obligations under the Supplementary Regime, the areas where the e-money model creates specific difficulty, and the practical components of a compliance framework.

Authorisation and permissions

The Electronic Money Regulations 2011 provide for two categories.

Authorised electronic money institutions. Firms exceeding the small EMI thresholds or electing full authorisation. AEMIs must hold initial capital and maintain ongoing own funds, and are subject to the full conduct and safeguarding framework.

Small electronic money institutions. Firms whose total business activities generate average outstanding electronic money below the prescribed threshold. SEMIs are registered rather than authorised and are subject to reduced requirements, although CASS 15 applies to them.

Electronic money is defined as electronically stored monetary value represented by a claim on the issuer, issued on receipt of funds for the purpose of making payment transactions, and accepted by persons other than the issuer.

The definitional boundary matters. Products that appear similar - closed-loop instruments, limited network exclusions, gift instruments - may fall outside the definition or within a specific exclusion, and the analysis should be documented rather than assumed.

Safeguarding under CASS 15

CASS 15 came into force on 7 May 2026, supplementing the safeguarding requirements in the Electronic Money Regulations 2011 rather than replacing them.

For an EMI, relevant funds include sums received in exchange for electronic money that has been issued. The underlying principle is that e-money is a redemption liability, and safeguarding exists so that the liability is covered by identifiable assets held outside the firm's general estate.

That principle answers several questions the rules do not address directly. Electronic money remains a liability until it is redeemed, which means that inactive and dormant customer balances continue to require safeguarding cover. Firms that write dormant balances to income without a proper legal basis create a safeguarding shortfall that persists until corrected.

Where an EMI also provides unrelated payment services, funds held in respect of electronic money and funds held for unrelated payment services form separate asset pools. They must be reconciled and reported separately throughout.

This is a point firms operating mixed models sometimes overlook, and it affects the structure of the reconciliation rather than only its presentation in the monthly return.

On each reconciliation day, the firm must perform an internal safeguarding reconciliation against its own records and an external safeguarding reconciliation against third-party records, comparing the D+1 segregation requirement against the D+1 segregation resource for each asset pool.

Relevant funds must be placed in a designated safeguarding account promptly, and at the latest by the close of the business day following the day on which they were received, unless a permitted insurance or guarantee method applies.

The segregation deadline is the requirement most frequently breached, and the breaches are typically structural rather than deliberate. Where funds are received into an operational collection account and swept on a schedule assuming same-day settlement, any settlement delay pushes the transfer beyond the deadline. Firms should monitor the age of unsegregated receipts rather than only the safeguarding balance.

Safeguarding may be achieved by segregation, by holding relevant funds as secure liquid assets with an authorised custodian, or by insurance or a comparable guarantee.

Where insurance or a guarantee is used, the policy must not contain conditions or restrictions beyond certification of an insolvency event. Notification requirements apply: at least two months before first use, on any change of cover or provider, and a decision at least three months before expiry as to whether to continue.

Most UK EMIs use segregation. Insurance is difficult to place at commercially viable pricing at scale, and supervisory scrutiny of policy terms is close.

The monthly safeguarding return under SUP 16.14A, the annual safeguarding audit under SUP 3A subject to the £100,000 threshold, the CASS 10A resolution pack retrievable within 48 hours, and the notification obligations all apply as they do to payment institutions.

Responsibility for safeguarding compliance must sit with a director or senior manager of sufficient skill and authority.

Own funds

Authorised EMIs must hold initial capital and maintain ongoing own funds.

Own funds in respect of electronic money issuance are calculated by reference to average outstanding electronic money. Where the firm also provides unrelated payment services, own funds for that activity are calculated under one of the methods in the Payment Services Regulations. The two are calculated separately and aggregated.

Firms should monitor own funds continuously rather than at reporting dates, particularly where outstanding e-money is growing, and should hold a wind-down plan demonstrating orderly cessation.

Redemption rights

Electronic money holders have a right to redeem at par value at any time. Firms must set out redemption conditions clearly in the contract, including any fees, and must not impose conditions that frustrate the right.

Redemption terms, dormancy provisions and fee structures should be reviewed against both the Regulations and, where retail customers are involved, the Consumer Duty.

Financial crime

EMIs are subject to the Money Laundering Regulations 2017 and to the FCA's financial crime expectations.

The e-money model presents specific risk characteristics: rapid onboarding, remote customer relationships, the potential for anonymous or low-verification products within prescribed limits, and distribution through third parties. Business-wide risk assessments should address these directly rather than adopting generic payments-sector risk.

The FCA has identified weaknesses across the regulated population including weak business-wide risk assessments and over-reliance on third-party due diligence. For EMIs, transaction monitoring data completeness and oversight of distributors are recurring areas of attention.

Distributors and agents

EMIs may distribute and redeem electronic money through persons acting on their behalf, and may provide payment services through registered agents.

The firm remains responsible for the funds and for the conduct of distribution. Obligations include due diligence before appointment, ongoing monitoring proportionate to activity and risk, ensuring that relevant funds held by or flowing through distributors are properly safeguarded, and ensuring that customer-facing conduct meets the firm's regulatory standards.

Firms with substantial distribution networks should expect supervisory interest in how oversight operates in practice.

Operational resilience and incident reporting

EMIs must identify important business services, set impact tolerances, map supporting resources and test their ability to remain within tolerance. Major operational and security incidents are reportable to the FCA within prescribed timescales.

Building a defensible compliance framework

Safeguarding operations. Daily internal and external reconciliation across separate asset pools, monitoring of unsegregated receipt ageing against the segregation deadline, breaks investigated and resolved with recorded approval, and a reconciliation calendar defined in advance.

Outstanding e-money. Accurate tracking of total outstanding electronic money including dormant balances, with the safeguarding requirement calculated from that figure rather than from a proxy.

Safeguarding evidence. Records created as controls operate, retrievable by date, with returns, resolution pack, board reporting and audit evidence drawn from the same records.

Own funds. Continuous monitoring with separate calculation for e-money issuance and unrelated payment services, and a tested wind-down plan.

Financial crime. A business-wide risk assessment addressing the specific characteristics of the e-money model, transaction monitoring with complete data, and distributor oversight.

Redemption and customer terms. Redemption rights, dormancy provisions and fee structures reviewed against the Regulations and, where relevant, the Consumer Duty.

Governance. Clear allocation of safeguarding responsibility, oversight with sufficient information to challenge, and compliance monitoring that tests controls.

Where firms most often have difficulty

Asset pools combined. E-money and unrelated payment services reconciled together, misstating both.

Dormant balances treated as income. Unredeemed e-money written off without a proper legal basis, creating a safeguarding shortfall.

Segregation deadline breached structurally. Sweep arrangements that assume same-day settlement, with no monitoring of unsegregated receipt ageing.

External reconciliation weaker than internal. Both required daily; the difference is visible in the records.

Distributor oversight documentary. Appointment due diligence performed, ongoing monitoring nominal.

Own funds calculated on a single basis. Firms with mixed activity applying one method rather than calculating e-money and payment services separately.

Regulatory developments to track

The FCA's intended Post-Repeal Regime, replacing the safeguarding provisions of the Electronic Money Regulations and Payment Services Regulations with a full CASS-style regime under which relevant funds would be held on statutory trust. Consulted on and deferred for further consultation.

Continued supervisory work on financial crime controls across the payments and e-money sector.

Developments in the UK regulatory approach to stablecoins, where the boundary with electronic money is directly relevant to firms considering token-based products.

Dates and scope may change. Firms should confirm the current position against FCA publications.

About Regulatory Counsel

Regulatory Counsel advises UK and international financial services firms on authorisation, prudential and conduct requirements, governance, financial crime and regulator engagement.

Our work with electronic money institutions covers FCA authorisation and variation of permission, safeguarding framework design and CASS 15 gap analysis, safeguarding audit preparation, own funds and wind-down planning, financial crime frameworks and business-wide risk assessment, distributor and agent oversight, redemption and customer terms review, operational resilience, regulatory reporting, compliance monitoring, remediation, and preparation for supervisory engagement.

Contact our regulatory team at info@regulatorycounsel.co.uk.

This article is provided for general information and does not constitute legal or regulatory advice. Firms should confirm the current position against FCA publications and take advice on their specific circumstances.