Recent regulatory scrutiny has reinforced a persistent concern within UK financial services. When payment and electronic money institutions fail, the timely and orderly return of customer funds can be difficult to achieve in practice.
In December 2025, HM Treasury published an independent review of the Payment and Electronic Money Institution Insolvency Regulations 2021. The review assessed whether the current special administration regime operates effectively to protect customers and support the return of safeguarded funds following the failure of a payment or electronic money institution.
The review relates specifically to safeguarding requirements rather than the FCA client money rules. However, the findings are relevant to client asset protection more broadly, given the shared objectives across safeguarding and the FCA client assets regime around segregation, reconciliation, record keeping and the timely return of funds in a failure scenario.
Key findings from the safeguarding insolvency review
The review identified several material weaknesses in how safeguarding arrangements operate when firms enter special administration.
In particular, it highlighted prolonged delays in the return of safeguarded funds, with customers in some cases waiting more than twelve months to receive their money. The review also identified uncertainty arising from the absence of a clear hierarchy between the statutory objectives of the insolvency regime, which can hinder decision making and delay distributions.
Further concerns were raised regarding gaps in effective consumer protection. Customers of failed payment and electronic money institutions do not benefit from Financial Services Compensation Scheme coverage, and the current framework was found to be slow and costly to operate in practice.
Safeguarding arrangements in practice
Safeguarding requirements are intended to protect customer funds by ensuring they are segregated from a firm’s own money and can be clearly identified and returned in the event of insolvency.
The review demonstrates that segregation alone is not sufficient. Safeguarding arrangements must be supported by accurate records, effective reconciliation processes and clear operational ownership on an ongoing basis.
Where weaknesses exist in record keeping, reconciliations or governance oversight, the ability to return funds promptly is materially compromised. The review reinforces the importance of safeguarding arrangements that operate effectively under stress, not only during normal business activity.
Wider relevance for client asset protection and CASS
Although the review focuses on safeguarding for payment and electronic money institutions, the underlying themes extend beyond safeguarding alone.
Firms subject to the FCA client assets regime face similar expectations around the identification, segregation and reconciliation of client money and custody assets. The operational challenges identified in the review mirror issues frequently raised in CASS audits and regulatory reviews, particularly where data quality is poor, reconciliations are insufficiently robust, or accountability is unclear.
For this reason, the review provides relevant context for client asset protection frameworks more generally, even though it does not amend or apply directly to the CASS rules.
Supervisory expectations and regulatory focus
From a supervisory perspective, the review reinforces a long-established regulatory emphasis on outcomes in practice.
The Financial Conduct Authority continues to expect firms to demonstrate that safeguarding and client asset arrangements function effectively in both business as usual and failure scenarios. Firms must be able to evidence where customer or client funds are held, how they are reconciled, and how they would be returned promptly if operations cease.
This expectation extends to governance arrangements, management information, wind down planning and operational resilience.
Implications for firms
The review reiterates a well-recognised principle. Effective protection of customer and client funds does not depend on complex legal structures alone. It depends on disciplined operational execution.
Clear accountability, accurate records, timely reconciliations and credible contingency planning remain central to safeguarding and client asset protection. Firms that treat safeguarding as a narrow compliance requirement, rather than a core operational control, are more likely to encounter difficulties in a stress or insolvency scenario.
Conclusion
The independent review of the Payment and Electronic Money Institution Insolvency Regulations highlights significant weaknesses in how safeguarding arrangements operate in practice when firms fail.
While the review applies specifically to payment and electronic money institutions, its findings are relevant to client asset protection more broadly. The challenges identified around segregation, reconciliation, record keeping and the timely return of funds are common across safeguarding and CASS environments.
As regulatory expectations continue to develop, firms should ensure that safeguarding and client asset arrangements are robust, well governed and capable of operating effectively in failure scenarios. The ability to evidence control, accuracy and preparedness remains central to protecting customers and maintaining confidence in the UK financial system.
