UK tightens payment firm rules to protect customer funds by 2026

The UK’s Financial Conduct Authority (FCA) will introduce stricter safeguarding rules for payment and e-money firms from May 2026. The changes follow repeated concerns over customer losses when firms collapse, with past insolvencies leaving consumers exposed to significant shortfalls in their funds. Between the first quarter of 2018 and mid-2023, failed payment firms left customers facing an average shortfall of 65% of their funds. The FCA’s new measures aim to prevent such losses by forcing firms to separate customer money from their own operational accounts. Daily reconciliation checks, monthly reports, and annual audits will become mandatory under the updated regime.

Firms must also improve their wind-down planning to return customer funds faster in the event of insolvency. The regulator has included proportionality adjustments, such as removing audit requirements for smaller firms holding less than £100,000 in customer funds. A nine-month implementation period will give businesses time to adapt. Industry experts have welcomed the reforms. Deep Patel, Partner and UK Payments Lead at Capco, called the rules a 'welcome move' that aligns with broader efforts to strengthen consumer protection. However, analysts warn that higher compliance costs could push smaller firms and new entrants towards consolidation. Matthew Long, Director of Payments and Digital Assets at the FCA, stressed the importance of these protections. He noted that people increasingly rely on payment firms to manage their financial lives, making stronger safeguards essential when those firms fail.

The FCA believes the new standards will boost trust in the sector and encourage healthier competition. Firms will have until early 2026 to comply, with stricter separation of funds and faster recovery processes for customers in the event of a collapse.