Opening a Safeguarding account for fintechs

European Authorised Payment Institutions (PIs) and Electronic Money Institutions (EMIs) must comply with certain safeguarding requirements according to PDS2 Directive (Directive 2015/2336/EU) and the EMI Directive (Directive 2009/110/EC). The PI and EMI regulations impose certain safeguarding requirements to protect funds received from customers and in return provide payment services or issue e-money.

What's a safeguarding account

A safeguarding account – is a special account set up with a Bank in which PIs and EMIs hold customers' money. The main function of a safeguarding account is to separate client money from operational funds and to block the access to this money by third parties.

A safeguarding account is the mandatory requirement to obtain your payment license

Having a safeguarding account is one of the obligations in order to obtain your payment license in Europe and you cannot get your license before you have the safeguarding account. There are hundreds of Banks in the EU, but not many of them are ready to cooperate with fintechs. It can take more than half a year for the bank to make a decision about opening the account. Banks consider opening a safeguarding account too risky and can refuse at any time and without any explanations. All this makes the process of opening the safeguarding account very challenging.

Regulators have specific deadlines for making a decision about PSP licensing. For example, the UK`s FCA have 1-year deadline after an application submission – during this period they should either issue the license or refuse. In other words, in case the bank refuses to open the account 2 months before this deadline – you will not have enough time to open the safeguarding account in another bank. It means that you will lose at least 1 year of your time and all the money invested to prepare the application. No account – no license! What's more: some regulators require a statement letter from the bank, which is a mandatory too. And banks can refuse to sign such a statement. No proper form letter – no license too!

What to do? Choose only banks, which have positive records in opening safeguarding accounts and ask Advapay for assistance.