When 65% of customer funds vanish during payment firm failures, the brain’s pattern recognition system screams “fix this”, and that’s exactly what the FCA just did.
The FCA’s latest safeguarding rules aren’t just regulatory housekeeping. They’re a fundamental rewiring of how payment and e-money firms protect customer money, triggered by a string of spectacular failures that left customers high and dry.
From 7 May 2026, if you’re running a payment firm, your world changes. Daily reconciliations become mandatory. Monthly reports land on regulators’ desks. Annual audits scrutinise every safeguarding decision you make.
But here’s what most firms are missing: this isn’t just about compliance. It’s about competitive repositioning in a market that’s about to reward operational excellence and punish wishful thinking.
The Failure Data That Changed Everything
The FCA didn’t pull these rules from thin air. Their analysis of payment firm failures between Q1 2018 and Q2 2023 revealed something alarming: when firms collapsed, customers recovered an average of just 35% of their funds.
Think about that for a moment. If your payment firm held £1 million in customer money and things went sideways, customers would typically lose £650,000. That’s not a market correction, that’s systematic failure of consumer protection.
The human cost behind these statistics drove regulatory action. Anthropologically, humans are wired to demand fairness and justice when they’re harmed. The FCA’s response reflects this deep psychological need to restore balance.
According to the official policy statement PS25/12, the new framework tackles these failures through what they call the “Supplementary Regime”, a stepping stone toward full CASS-style requirements if legislation permits.
What the New Rules Actually Mean
Daily Reconciliation Requirements
Gone are the weekly or monthly reconciliation cycles. From May 2026, you’ll need daily internal and external reconciliations of all safeguarded funds. This means your systems must track every pound, every day, with full accountability.
The cognitive load here is significant. Daily reconciliation requires operational discipline that many smaller firms simply haven’t needed before. You’re essentially moving from periodic health checks to continuous monitoring.
Monthly Regulatory Reporting
The FCA wants monthly visibility into your safeguarding position. This isn’t just data submission, it’s about creating real-time transparency that allows early intervention before problems become failures.
For firms used to annual or quarterly reporting cycles, this represents a fundamental shift in regulatory relationship. You’re moving from periodic disclosure to ongoing supervision.
Annual Independent Audits
Unless you’re consistently under £100,000 in safeguarded funds over any rolling 53-week period, you’ll need annual audits specifically focused on safeguarding arrangements. This isn’t your standard financial audit, it’s forensic examination of your customer protection mechanisms.
The Strategic Implications Nobody’s Talking About
Bank Relationship Dynamics Shift
Your safeguarding bank relationships are about to become more complex and more critical. Banks will demand deeper visibility into your reconciliation processes and data quality. Expect tougher onboarding requirements and more frequent reviews of existing relationships.
Some banks might exit the safeguarding space entirely rather than deal with increased scrutiny. Others will see opportunity and build specialist capabilities. Your choice of banking partner becomes a strategic decision, not just a cost comparison.
Customer Acquisition Gets Easier (For Some)
Enterprise customers have been burned by payment firm failures. They’ve watched suppliers collapse and funds disappear. The new safeguarding regime gives procurement teams concrete criteria for supplier evaluation.
Firms that embrace full compliance will find doors opening in enterprise sales cycles. Those who minimise compliance will hit ceiling effects as larger customers demand audit evidence and reconciliation reports.
The SPI Strategic Fork
Small Payment Institutions face a particularly interesting choice. The regulations allow you to opt into full requirements even if you’re not technically required to comply. This creates a signalling mechanism in the market.
Opting in says “we’re serious about growth and operational excellence.” Staying minimal says “we’re focused on cost efficiency for smaller clients.” Both are valid strategies, but you need to choose deliberately.
Implementation Roadmap for Different Firm Sizes
For Nano Firms (1-5 employees)
Your advantage is agility, but your challenge is resource constraints. Focus on:
- Automated reconciliation tools that don’t require dedicated staff
- Cloud-based systems of record that scale with transaction volume
- Relationships with specialist audit firms who understand micro-business constraints
- Clear documentation processes that don’t overwhelm daily operations
For Micro Firms (6-10 employees)
You have slightly more operational capacity but still need efficiency. Consider:
- Dedicated safeguarding responsibilities within existing roles
- Monthly reconciliation reviews that catch issues before they compound
- Standardised reporting templates that reduce preparation time
- Relationship building with potential audit partners now, not in 2026
For Small Firms (11-50 employees)
You have the resources to turn compliance into competitive advantage:
- Dedicated safeguarding and compliance personnel
- Integration between safeguarding systems and customer communications
- Proactive customer education about fund protection
- Use of compliance capabilities in sales and marketing
The Technology Investment Decision
Many firms will need new systems or significant upgrades to handle daily reconciliation requirements. This creates both cost pressure and opportunity for differentiation.
The temptation is to build internally or choose the cheapest solution. But neuroscience research shows that humans consistently underestimate the complexity of operational processes they don’t currently perform. Daily reconciliation is more complex than it appears.
Consider specialist safeguarding technology platforms that integrate with your existing infrastructure. The initial cost premium often pays for itself through reduced operational risk and faster audit processes.
Preparing for Audit Success
Annual audits will examine not just your current position, but your processes, controls, and documentation quality. Auditors will look for:
- Complete audit trails from transaction to safeguarding account
- Exception handling procedures and evidence of their use
- Segregation of duties in safeguarding operations
- Business continuity plans for safeguarding functions
- Regular management review and oversight evidence
Start building your audit evidence pack now. Document your current processes, identify gaps, and create remediation plans. When audit season arrives in 2027, you want to be demonstrating excellence, not scrambling for basic compliance.
Customer Communication Strategy
The new safeguarding requirements create a marketing opportunity that most firms will miss. Customers care about fund safety, they just don’t usually have ways to evaluate it.
Consider proactive communication about your safeguarding approach, audit results, and fund protection measures. This transparency builds trust and differentiates you from competitors who treat safeguarding as a necessary evil rather than a customer benefit.
Update your website, sales materials, and customer onboarding processes to highlight your safeguarding capabilities. When prospects are evaluating payment providers, make fund safety a key decision criterion that favours you.
Wind-Down Planning Nobody Wants to Think About
The new rules require robust wind-down plans that ensure faster customer fund returns if things go wrong. This planning process often reveals operational weaknesses that need fixing regardless.
Stress test scenarios like:
- Primary safeguarding bank becomes unavailable
- Key personnel unavailable during wind-down
- Technology systems offline during fund return process
- Shortfall discovery requiring immediate capital injection
These exercises aren’t just compliance requirements, they’re business continuity planning that strengthens your operation.
The Competitive Landscape Shift
By 2027, the UK payments market will have two distinct tiers: firms that turned safeguarding into competitive advantage, and firms that treated it as grudging compliance.
The winners will be those who recognised that customer trust, operational excellence, and regulatory compliance create mutually reinforcing value. They’ll win enterprise accounts, attract better banking relationships, and build more resilient businesses.
The losers will be firms that minimised investment, cut corners on implementation, and failed to communicate their capabilities. They’ll find themselves competing primarily on price in a shrinking market segment.
Your Next 90 Days
Don’t wait for 2026 to start preparing. Begin with a safeguarding assessment that maps your current state against new requirements. Identify the biggest gaps and start addressing them systematically.
Engage with potential audit partners now while you have time to build relationships and understand their expectations. The best firms will be booked up as 2026 approaches.
Most importantly, reframe this regulatory change as a business opportunity rather than a compliance burden. The firms that get this mindset shift right will emerge stronger, more trusted, and better positioned for growth.
The FCA’s safeguarding shake-up isn’t just changing rules, it’s changing the competitive dynamics of UK payments. Your response will determine whether you’re a winner or a casualty of that change.
