Glossary
Safeguarding
Safeguarding is the regulatory requirement for payment and e-money institutions to keep customer funds separate from their own, so those funds survive the firm's failure.
Safeguarding is the obligation on payment institutions and e-money institutions to protect customer funds by keeping them separate from the firm's own money. It is the mechanism that stands in for deposit protection: an EMI is not a bank, customer balances are not deposits, and there is generally no deposit guarantee scheme behind them.
How it is done
Two methods dominate. Under segregation, relevant funds are held in a designated safeguarding account at a credit institution, separated from the firm's operating money and identified as belonging to customers. Under insurance or guarantee, an equivalent protection is provided by a policy or guarantee from an insurer or bank.
In both cases the point is the same: if the firm fails, the safeguarded pool is distributed to customers ahead of the firm's general creditors.
Why buyers should care
If you distribute a financial product built on someone else's licence, your customers' money is protected — or not — by your provider's safeguarding arrangements, and your customers will hold you responsible either way.
Questions worth asking any provider:
- Which regulated entity safeguards the funds, under which method, and in which jurisdiction?
- At which credit institutions are safeguarded funds held, and how concentrated is that?
- How often is the safeguarding position reconciled, and who audits it?
- What is the practical timeline for customers to receive their money in an insolvency? Historic cases have taken many months.
- Is there a deposit guarantee scheme in play at all, or only safeguarding? These are not the same protection and should never be described to customers as if they were.
A common misunderstanding
Safeguarded funds are protected from the firm's creditors, not from every risk. They are not insured against loss at the credit institution holding them in the way deposits are, and access is not immediate on failure. Marketing that implies bank-grade deposit protection where only safeguarding exists is both misleading and, in most European jurisdictions, a regulatory problem of its own.
Ask providers about this directly
Put the question to several providers at once in a structured RFP, and compare their answers side by side instead of one call at a time.
Related reading
- Seven reasons BaaS providers reject applicantsRejection from a banking-as-a-service provider is usually a risk decision made early and rarely explained. Here are the seven reasons it happens — and what to change before you apply again.
- Paying marketplace sellers across bordersSeller payouts across corridors: what breaks, which provider categories are involved, and the questions that separate a payout provider that works from one that looks like it does.
- Launching a business account inside a SaaS platformWhat a vertical SaaS platform needs to offer its customers a branded business account: the licence question, the stack, the onboarding reality and the sequence to procure in.