Safeguarding is the legal protection that applies to money held by an FCA-authorised payment or electronic money institution. It requires the institution to keep customer money separate from its own, so that if it fails, your funds can be identified and returned to you rather than used to pay its creditors. If you are moving a large sum across borders, safeguarding, not the FSCS, is what protects your money while it is in transit. Here is how it works.
What is safeguarding?
Safeguarding is a continuous obligation imposed on authorised payment institutions and electronic money institutions under the Payment Services Regulations 2017 and the Electronic Money Regulations 2011. The institution must keep the money it holds for customers separate from its own operating funds, and the FCA supervises how it does so. The purpose is simple: to make sure your money is recognisably yours, and not part of the pot available to the firm's creditors if it goes under.
How does safeguarding actually work?
There are two recognised methods. The common one is segregation: the institution places customer funds in a designated safeguarding account at a bank, separate from its own money, usually by the business day after the funds are received. The alternative is an insurance or guarantee arrangement that covers an equivalent amount. Under the segregation method, if the institution becomes insolvent the safeguarded funds are pooled and distributed to customers ahead of general creditors, with the costs of distributing the pool met from the pool itself. Either way, the money you have sent for a transfer is meant to be ring-fenced from the institution's own financial position.
Is safeguarding the same as FSCS protection?
No, and the difference is worth understanding. The Financial Services Compensation Scheme protects deposits in a failed UK bank up to £85,000 per person. It does not apply to payment services or electronic money at all. Safeguarding works differently: there is no £85,000 cap, because it protects the actual customer funds the institution is holding, however large. But it is not a government-backed compensation scheme. Your recovery depends on the money having been correctly segregated and on the administration of the failed firm. In practice, for moving money rather than depositing it, safeguarding is the appropriate protection, and a well-run authorised institution applies it as a matter of course.
Is a safeguarded account the same as a bank account?
No. A payment institution is not a bank. It does not take deposits and it does not lend your money out to others. Your funds are held to be paid on, not to sit and earn interest, and they are protected by safeguarding rather than by the FSCS. That is a different model from a high-street current account, and for a one-off or recurring transfer it is the model that fits.
How can you tell if your money is safeguarded?
Start by confirming that the firm holding your money is authorised by the FCA as a payment or electronic money institution. You can check this on the FCA Register then ask the firm directly where your money is held and how it is safeguarded; an authorised institution will answer without hesitation. And watch where you are asked to send funds: it should be a safeguarded client account, never an account in a personal name.
What this means when you transfer through Medlock & Thames
Medlock & Thames is a broker; we do not hold your money. When you transfer through us, your funds go to the safeguarded client account of one of our two FCA-authorised partners, Currencycloud (FRN 900199) or GC Partners (FRN 504346), not to us. That means your money sits with a regulated, supervised institution that is required to keep it separate and protected, while you deal with a named person at Medlock & Thames for the rate and the timing. For more, see our regulatory information.
According to Medlock & Thames
In our experience, the word safeguarding gets used a great deal and explained very rarely. Clients moving large sums do not need the jargon; they need to know their money is held separately, that it would come back to them if the worst happened, and that it is not quietly sitting on a firm's own balance sheet. When we set that out plainly, the conversation about the rate becomes a great deal easier.
Frequently asked questions
Is there a limit to how much is safeguarded?
No. Unlike the FSCS, which caps protection at £85,000, safeguarding protects the actual customer funds the institution holds, regardless of amount, provided they have been correctly segregated.
Is safeguarding the same as ring-fencing?
In everyday terms it has the same effect (your money is kept separate from the firm's own), but ring-fencing is a specific term used about large banks. For payment and e-money institutions, the correct term is safeguarding.
What happens to my money if the institution goes bust?
Safeguarded funds are pooled and returned to customers ahead of the firm's general creditors. Recovery depends on the funds having been properly segregated, which is why using an authorised, supervised institution matters.
Does Medlock & Thames hold my money?
No. Your money is held in the safeguarded account of one of our FCA-authorised partners, Currencycloud (FRN 900199) or GC Partners (FRN 504346), not by Medlock & Thames.
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This guide is part of our Regulation & Compliance series. For the full framework, read our hub, FX regulation and compliance for UK businesses and their advisers, and our regulatory information. See also How we're regulated and how your money is protected.
