Safeguarding Reconciliation and Reporting: A Practical Guide to the New FCA Rules

Safeguarding reconciliation has always been a regulatory requirement for authorised payment institutions and electronic money institutions, but PS25/12 transforms it from a broadly interpreted obligation into a precise, daily discipline with specific reporting requirements. This guide provides practical implementation advice for firms preparing to meet the new standards.

What Has Changed Under PS25/12

Under the pre-PS25/12 regime, the FCA expected firms to reconcile safeguarded funds on a "regular" basis. Most firms interpreted this as end-of-day or next-business-day reconciliation, and there was no prescribed methodology or reporting standard. PS25/12 replaces this with explicit requirements: daily reconciliation is mandatory, the methodology must be documented and auditable, shortfalls must be resolved within defined timeframes, and results must be reported to the FCA monthly via the new REP020 return.

Daily Reconciliation: Methodology

The daily reconciliation must compare two figures:

Relevant funds liability — the total amount the firm owes to customers at the reconciliation point. For payment institutions, this is the aggregate value of payment transactions in transit where customer funds have been received but not yet settled to beneficiaries. For EMIs, this includes all outstanding e-money balances plus in-transit payment funds.

Safeguarded fund balance — the total amount held in designated safeguarding accounts at approved credit institutions, plus any amounts protected by qualifying insurance policies or comparable guarantees.

The reconciliation must identify the difference between these figures. A surplus (safeguarded balance exceeds liability) is acceptable and expected, as firms typically hold a small buffer. A shortfall (liability exceeds safeguarded balance) must be investigated and funded immediately.

Handling Shortfalls

PS25/12 introduces clear timelines for shortfall resolution. If a shortfall is identified during a reconciliation performed before the firm's specified cut-off time, the firm must fund the shortfall from its own resources on the same business day. If identified after the cut-off time, the shortfall must be funded by the opening of the next business day.

Firms must maintain a record of every shortfall identified, including the amount, the cause, the corrective action taken, and the time to resolution. Persistent shortfalls — even if quickly resolved — will be flagged by the FCA as indicators of systemic weaknesses in the firm's safeguarding arrangements.

Building an Automated Reconciliation System

For firms processing more than a few hundred transactions daily, manual reconciliation is impractical. An effective automated reconciliation system should:

• Pull real-time balance data from safeguarding bank accounts via secure API connections
• Calculate the relevant funds liability from the firm's core payment processing or e-money ledger system
• Perform the comparison automatically at a defined time each business day
• Generate exception reports for any discrepancies above a defined threshold
• Trigger automated alerts to the safeguarding officer and finance team for shortfalls
• Produce audit-ready reconciliation records with full transaction-level detail

Firms using legacy systems without API connectivity to their safeguarding banks may need to implement interim manual processes while investing in system upgrades. The FCA will expect firms to demonstrate a clear roadmap towards automated reconciliation even if full automation is not achievable by the effective date.

REP020: The New Monthly Safeguarding Return

The REP020 return is a new mandatory regulatory reporting obligation submitted monthly via the FCA's RegData platform. The return captures:

• Total value of safeguarded funds held at each safeguarding institution at month-end
• Breakdown of safeguarding methods used (segregated accounts, insurance, guarantees)
• Number of reconciliations performed during the month
• Number and value of shortfalls identified
• Time to resolution for each shortfall
• Details of any material safeguarding incidents
• Confirmation of safeguarding officer oversight activities

The first REP020 submission will be due for the month in which the 7 May 2026 effective date falls. Firms must ensure that their regulatory reporting systems can extract and format the required data elements. Firms using third-party compliance or regulatory reporting platforms should confirm that their provider has updated their systems to support REP020.

Integration with Governance Framework

Reconciliation is not just an operational process — it is a governance obligation. The safeguarding officer must receive daily reconciliation summaries and must be notified immediately of any shortfall. The board must receive a monthly safeguarding report that includes reconciliation outcomes, any shortfall trends, and an assessment of the adequacy of the safeguarding framework. This governance layer ensures that reconciliation is not treated as a back-office function but as a core risk management discipline with senior management visibility and accountability.

What Firms Should Do Now

1. Document your current reconciliation methodology and identify gaps against the PS25/12 requirements.
2. Assess whether your current systems can support daily automated reconciliation — if not, begin system development or procurement.
3. Define your reconciliation cut-off time and shortfall escalation procedures.
4. Configure your regulatory reporting systems for REP020 submission.
5. Update safeguarding policies and procedures to reflect the new requirements.
6. Train relevant staff on the new reconciliation and reporting obligations.

Regulatory Counsel advises payment institutions and EMIs on safeguarding reconciliation methodology, system requirements, REP020 reporting and governance frameworks. Contact us for a free initial consultation.