Safeguarding Client Funds: PSP Obligations

Protecting customer money is one of the central obligations placed on payment institutions and EMIs. Safeguarding rules exist to ensure that, if a payment firm becomes insolvent, client funds are not treated as part of the general pool of assets available to the firm’s creditors.

The Two Main Safeguarding Methods

PSD2 generally allows firms to safeguard client funds either by depositing them in a segregated account with a credit institution, separate from the firm’s own operational funds, or by covering them with an appropriate insurance policy or comparable guarantee from an authorised insurer or credit institution.

Segregation in Practice

Where the segregated account method is used, firms must ensure client funds are clearly identifiable as such at all times, are not commingled with the firm’s own money, and are reconciled regularly against the firm’s records of what it owes to individual clients.

Timing Requirements

Funds received from clients or through a payment transaction must generally be safeguarded no later than the end of the business day following the day on which they were received, a tight timeframe that requires robust internal treasury processes to meet consistently.

Regulatory Scrutiny

Safeguarding compliance is one of the areas regulators, including the Central Bank of Cyprus, tend to scrutinise most closely during both authorisation and ongoing supervision, given the direct risk to consumers if arrangements are inadequate.

Building a Robust Safeguarding Framework

In practice, this typically requires clear treasury policies, daily reconciliation processes, a relationship with a credit institution willing to hold segregated accounts for payment firms, and independent audit or assurance over the safeguarding arrangements on an ongoing basis.

Enalian advises payment institutions, e-money institutions and fintech businesses on licensing, authorisation and ongoing regulatory compliance in Cyprus. If you are exploring a PSP or EMI licence, or need support with an existing authorisation, our team can help. Get in touch with our team to discuss your specific circumstances.

This article is provided for general informational purposes only and does not constitute legal, tax or regulatory advice. Regulatory requirements are subject to change; readers should seek specific advice on their circumstances before taking action.