As businesses increasingly transition their financial operations from traditional high-street banks to agile fintech platforms and neobanks, questions regarding the security of funds naturally arise. Unlike traditional banks, which lend out customer deposits and are covered by schemes like the FSCS (in the UK), electronic money institutions (EMIs) and payment institutions operate under a fundamentally different regulatory framework designed to protect client money.

The cornerstone of this protection is the principle of "safeguarding" through segregated accounts.

What is Safeguarding?

Safeguarding is a strict regulatory requirement imposed on licensed payment and e-money institutions. It mandates that client funds must be kept entirely separate from the institution's own operational funds.

When a business deposits money into a regulated fintech platform, those funds cannot be used by the platform to pay its staff, invest in the market, or issue loans to other customers. The funds exist solely for the execution of the client's payment instructions.

How Segregated Accounts Work

To achieve this separation, fintech platforms utilise segregated safeguarding accounts held at tier-one, regulated credit institutions (traditional central or commercial banks).

  1. Isolation of Funds: Client money is pooled into these designated safeguarding accounts, which are legally ring-fenced.
  2. Protection in Insolvency: In the highly unlikely event that the fintech platform were to become insolvent or cease operations, the funds in the segregated accounts are protected from the platform's creditors. Because the money is legally recognised as belonging to the clients, it must be returned to them.
  3. Regular Auditing: Regulators require institutions to perform daily reconciliations to ensure that the exact amount of client money owed is present in the safeguarding accounts. Furthermore, independent external auditors regularly review these safeguarding processes to ensure strict compliance.

Why This Matters for Corporate Treasurers

For corporate treasurers managing significant working capital, understanding the distinction between a bank deposit (which represents an unsecured claim against the bank) and safeguarded funds (which are ring-fenced and unlendable) is critical for risk assessment.

While safeguarded funds are not typically covered by government deposit insurance schemes (because the fintech is not a bank and is not taking the same lending risks), the strict segregation rules are designed to ensure that 100% of client funds are available and protected at all times. When evaluating modern financial platforms, verifying their safeguarding practices and the tier-one institutions they partner with should be a primary component of any corporate due diligence process.