EMIs are rethinking treasury as rates rise. LVNAV money market funds offer FCA-aligned liquidity, diversification and yield beyond traditional bank deposits.
Electronic money institutions (EMIs) are maturing rapidly, but their treasury challenges are growing just as fast. Safeguarding client money, maintaining liquidity, and managing counterparty risk have become more complex amid elevated interest rates, heightened regulatory expectations, and high‑frequency payment flows. As a result, many firms are re‑evaluating whether traditional solutions – primarily bank deposits and government securities – still offer the optimal balance of safety, liquidity, and yield.
Qualifying money market funds (QMMFs) and UK‑domiciled LVNAV money market funds are increasingly being explored as viable, FCA‑aligned tools for safeguarding client money and optimising treasury performance. Interest from fintechs and EMIs has been rising, as firms seek higher yields, efficient liquidity access and robust diversification within a regulated structure.
The regulatory baseline: More options than many realise
Under FCA rules, if client money is held overnight, it must be safeguarded either:
- in a client money bank account,
- in government securities or same‑day access to government security funds,
- or, subject to approval, in other secure and liquid assets.
This last category is often under‑appreciated. The FCA permits firms to request approval for additional assets – such as LVNAV Money Market Funds – provided they demonstrate that the consumer protection objectives of safeguarding are met. This creates a significant opportunity for EMIs looking to diversify beyond bank deposits.
Why LVNAV money market funds are attracting the attention of EMIs
LVNAV Money Market Funds offer a compelling combination of investment and operational features tailored to the needs of regulated payments firms.
Investment benefits
- AAA‑rated portfolios of highly rated short‑term instruments help protect balances, including during stressed market conditions.
- Funds invest along the short‑dated yield curve (up to one year), enabling competitive returns often aligned with prevailing money market rates.
- Professional management, including regular stress testing, provides an additional layer of oversight beyond what many firms can replicate internally.
These characteristics are especially attractive at a time when many firms are actively seeking to increase yields while maintaining daily liquidity. Strong interest from EMIs specifically has been attributed to their need for safeguarding solutions that maintain same‑day liquidity while aligning with UK UCITS and FCA regulatory expectations.
Operational benefits
- Same‑day (T+0) liquidity across the entire balance.
- Redemption proceeds can only be returned to a designated client money bank account, maintaining segregation integrity.
- Independent oversight via a custodian, depositary and rating agencies provides substantial governance comfort.
- Simple investment and redemption processes reduce operational overhead -often significantly compared to managing a portfolio of government securities.
For firms operating real‑time, complex cash‑flow models, this blend of liquidity certainty and operational ease is particularly valuable.
How LVNAV MMFs compare to other safeguarding options
Bank accounts
- Offer same‑day liquidity
- But usually deliver low returns, face bank charges, and rely on a single counterparty
Government securities/government funds
- Secure, but operationally burdensome; settlement is typically T+1, requiring active management
- Returns often lower than money market rates
LVNAV Money Market Funds
- Same‑day liquidity
- Competitive returns aligned with money market rates
- Substantial market capacity
- Competitive management fees and reduced administrative effort
This comparison demonstrates why many EMIs are now engaging the FCA to explore the approval process for using LVNAV MMFs for safeguarding.
A forward‑looking market: anticipated regulatory tightening
FCA consultation is underway, which aims to improve compliance with the existing safeguarding requirements set out in the EMRs (Electronic Money Regulations) and PSRs (Payment Services Regulations).
This signals a future where:
- safeguarding practices must be more formalised,
- diversification may be increasingly expected, and
- reasury decisions will require clearer documentation and governance.
Against this backdrop, institutional‑grade liquidity products – such as LVNAV/QMMFs -are likely to become more prominent in regulatory discussions and treasury strategies.
What payments leaders should consider now
Diversify treasury models beyond bank concentration
Market volatility and bank exposure risks suggest that relying solely on bank deposits is increasingly outdated. LVNAV MMFs offer a well‑diversified, FCA‑compatible alternative.
Prepare for a more demanding safeguarding regime
The FCA is clearly signalling enhanced scrutiny. Firms that adopt structured, governed liquidity tools today will be better prepared for tomorrow’s regulatory environment.
Reframe treasury from a compliance cost to a value lever
With yields at attractive levels, EMIs can now generate economic uplift while maintaining robust client protection- something unthinkable in the near‑zero‑rate years.
Set up internal processes early
The FCA approval route for LVNAV MMFs may involve a SUP15 notification via FCA Connect. Proactive engagement will accelerate your readiness.
Conclusion
The combination of elevated interest rates, maturing fintech business models and evolving FCA expectations has created a pivotal moment for EMIs and payments firms. Qualifying and LVNAV Money Market Funds seek to deliver a compelling combination of safety, liquidity, diversification and yield, within a regulatory framework that already recognises their suitability when properly governed.
Payments leaders who embrace these tools now will not only enhance client fund protection, but also build more resilient, efficient and strategically aligned treasury functions for the decade ahead.
The value of investments and income from them may go down as well as up, and you may not get back the original amount invested. Past performance is not a reliable indicator of future results.
