UK PIs and EMIs face safeguarding challenges as EU MMFs fall out of scope under the OFR; firms must reassess strategies amid FCA’s PS25/12.
Safeguarding is the bedrock obligation for UK payment institutions (PIs) and e‑money institutions (EMIs). The FCA’s approach document and subsequent policy statements set out that firms must segregate customer money and either (i) hold it in a designated safeguarding account with an authorised credit institution (or the Bank of England), (ii) invest it in secure, liquid assets held with an authorised custodian, or (iii) protect it via insurance or a comparable guarantee. The aim is simple but strict: if the firm fails, safeguarded money must be promptly available for return to customers.
Over the past few years, a combination of difficulty in obtaining safeguarding bank accounts and a higher-rate environment has prompted many firms to rely more heavily on secure liquid assets—most commonly money market funds (MMFs). That practice aligned with the FCA’s long‑standing permission to invest relevant funds in assets “approved by us as being secure and liquid,” including units in UCITS that invest solely in eligible low‑risk assets. In practice, the Money Market Funds that most UK firms could access at scale have traditionally been domiciled in Ireland and Luxembourg.
Brexit changed the marketing route for overseas funds. The Overseas Funds Regime (OFR) now creates a permanent pathway for certain EEA UCITS to be recognised for UK retail marketing. However, money market funds are explicitly out of scope of the Government’s equivalence determination—meaning EU‑domiciled MMFs cannot use the OFR route into the UK retail market. For now, EU MMFs recognised under the Temporary Marketing Permissions Regime (TMPR) can continue to be promoted until end‑2026, and the Government has stated it is designing a separate access route for overseas MMFs (and may extend TMPR for MMFs to avoid a cliff‑edge). This creates a strategic and compliance headache for UK payments and e‑money firms that have been relying on EU MMFs for safeguarding.
In parallel, the FCA has finalised major enhancements to the safeguarding regime (PS25/12), including daily reconciliations, new reporting, and independent safeguarding audits for larger firms, and a more “CASS‑style” discipline over time. Supervisory messages since 2020 emphasise that poor safeguarding practices are a priority for intervention. While there is no public case squarely about “use of EU MMFs post‑OFR,” recent Final Notices show that where safeguarding controls fall short, enforcement is real and swift. The risk profile for firms that continue to lean on out‑of‑scope assets without a credible plan is therefore materially higher.
The path forward is emerging: the UK is updating its domestic MMF regime (CP23/28), and the market is beginning to develop UK‑domiciled MMFs that can provide similar liquidity profiles without the OFR constraint. Firms should re‑assess arrangements now: tighten governance, revisit bank options, and map feasible UK‑domiciled MMF (or other secure‑asset) alternatives that meet the FCA’s rules on eligibility, diversification, and custody.
