Safeguarding Client Funds Under PSD2: Key Requirements for EMIs

PSD2 sets out the framework for this arrangement, while additional provisions apply to e-money firms under the Electronic Money Directive. Together, these rules establish how an EMI should hold, monitor and account for money belonging to its users.

PSD2 sets out the framework for this arrangement, while additional provisions apply to e-money firms under the Electronic Money Directive. Together, these rules establish how an EMI should hold, monitor and account for money belonging to its users.

The practical side deserves particular attention. An EMI needs reliable account arrangements, accurate records and regular checks capable of identifying discrepancies at an early stage. These controls should remain effective during ordinary activity as well as periods of increased transaction volumes or significant disruption.

Core mandates of the Payment Services Directive 2 (PSD2) regarding safeguarding client funds

PSD2 outlines regulations that deal with money received by firms through payment transactions. EMIs also need to conform to the Electronic Money Directive in case the relevant provisions are not included in PSD2.

These considerations are also relevant during an application if one wants to get AEMI license for sale. The applicant needs to demonstrate that appropriate arrangements are already planned for handling money belonging to users and that the proposed procedures can operate effectively once the business begins providing its services.

The main idea is straightforward: money which belongs to users should remain distinguishable from the firm's own resources and should not be used to meet its ordinary expenses or unrelated obligations.

An EMI should have arrangements covering:

• identifying amounts received from users;
• calculating the sums that need to be placed under the applicable protection arrangement;
• maintaining suitable accounts or another permitted mechanism;
• comparing accounting records with external statements;
• investigating discrepancies promptly;
• controlling access to accounts containing user money;
• retaining evidence of checks and corrective measures.

The actual way of implementation hinges on the specific activity of the firm and the regulation that is applied by the authority of the particular country. However, an EMI is expected to be able to show the mechanism of its arrangements and who is liable for each function.

Segregation methods: separating operational accounts from protected safeguarding accounts

A widely used approach is to maintain distinct accounts for different purposes. One account may be used for salaries, technology costs, professional fees and other expenses incurred by the EMI. Another is designated for amounts belonging to users.

The distinction should exist in the firm's accounting records as well as in its account structure. A person reviewing the records should be able to establish which amounts relate to users without having to reconstruct the figures from numerous unrelated transactions.

A well-designed arrangement should also define who can access these accounts and under what circumstances transfers can be made.

The firm's procedures should address questions such as:

• Who can initiate a transfer?
• Who must approve it?
• How are incoming amounts identified?
• When is the required balance calculated?
• Who performs the reconciliation?
• How are discrepancies escalated?

Access should be limited to authorised personnel. For larger transfers, a dual-approval process may provide an additional layer of control. User permissions should also be reviewed whenever responsibilities change.

Clear account structures make everyday administration easier and reduce the chance that money belonging to users will be confused with the firm's own resources.

Eligible credit institutions and insurance policy options for safeguarding funds

The PSD2 law allows several ways to handle the money users give to the EMI. This could include, for example, depositing the money in an eligible credit institution through the provision of a payment account for that purpose exclusively.

Before entering into an agreement with third parties to hold the customers' funds, the EMI should evaluate the suitability of such entities. Among other aspects, this involves checking their reputation, financial situation, account terms, and ability to deliver accurate statements.

Another possibility may involve an insurance policy or comparable guarantee, where permitted by the applicable framework. This option needs careful assessment because the practical value of a policy depends on its terms.

Before relying on an insurance-based arrangement, an EMI should consider:

• the insurer's financial standing;
• the amount covered;
• exclusions and limitations;
• the policy period;
• events that may trigger a claim;
• procedures for making a claim;
• the time needed for payment;
• whether the arrangement meets the applicable rules.

Price should not be the only consideration. A lower-cost arrangement may be of little value if important exclusions prevent recovery when the EMI encounters serious difficulties.

Regular reconciliation processes and internal audit verification requirements

Having money in the appropriate account does not, by itself, demonstrate that the correct amount is being held. An EMI also needs to compare its records with the amounts actually available under the chosen arrangement.

This process, generally referred to as reconciliation, allows discrepancies to be identified before they become more difficult to resolve.

A suitable procedure should establish:

• Calculation point – when the relevant balances are determined.
• Data sources – which accounting systems and statements are used.
• Responsible personnel – who performs the comparison.
• Exception handling – what happens when the figures do not agree.
• Record keeping – what evidence is retained after the check.

Audit verification adds another layer of oversight. An independent review can examine calculations, account statements, transaction records, access permissions and the treatment of earlier discrepancies.

This type of testing is useful because written procedures do not necessarily show how a process works in practice.

Regulatory liabilities and protection mechanisms in case of institutional insolvency

When money belonging to the customers is identified and the proper arrangement has been made, that money should not be treated just the same way as the company's own property.

This difference matters a lot to the insolvency professionals who decide what belongs to the customers and what is the part of the company.

Weak records make that task a lot more difficult. If the money has been mixed together, or the EMI cannot prove which sums belong to the customers, figuring out the return amounts may involve more time and resources.

Also, the lack of knowledge of applicable rules may result in supervisory action and other consequences. The precise outcome depends on the circumstances and the national framework applying to the EMI.

For this reason, arrangements should be considered from an insolvency perspective as well as during normal operations. The firm should know how user money would be identified and dealt with if ordinary activity were to stop.

Best practices for EMIs to ensure continuous compliance with safeguarding rules

A successful approach must be embedded in the daily routine of accounting and treasury operations. Those staff members who work on these activities should understand what to check, when the verification is necessary, and how to deal with inconsistencies.

Transparent accounting setup, regular reconciliations, and restricted access facilitate strong handling of user money. Access rights must be re-examined when roles change, while any issues must be looked into and written down in documents clearly and promptly.

Occasionally, independent tests are done to identify weak spots that regular checks can miss. In addition, EMIs can evaluate their arrangements with credit institutions, insurance companies, or guarantee providers and make sure the procedures remain workable during system failures, staff absences, or other unforeseen circumstances.

Relevant statements, calculations, reconciliation outcomes, and investigation reports should be kept in an organized manner to assist future assessments.

Regulatory outlook. As of 2026, PSD2 and EMD2 remain relevant to the current safeguarding framework. However, the EU is progressing towards the new PSD3 and Payment Services Regulation (PSR) framework. EMIs and payment institutions should therefore monitor the final adoption and transitional arrangements, as the new regime is intended to replace the existing PSD2/EMD2 architecture.