Safeguarding in Belgium: Arts 42 and 194 of the 2018 Law

Safeguarding in Belgium sits in Article 42 of the Law of 11 March 2018 for payment institutions and Article 194 of the same law for e-money institutions, and the National Bank of Belgium reads both through one circular, NBB_2024_01. The statute gives the familiar PSD2 and EMD2 menu: a separate client account, a qualifying money market fund, safe and liquid low-risk assets, or insurance or a guarantee. The circular adds the working rules auditors check: what the bank contract must say, a bank attestation every three years, prior authorisation for insurance and an annual management report. This piece sets out the texts and works through three cases.

1. The texts

Three instruments carry the Belgian rules:

• Law of 11 March 2018 on the status and supervision of payment and e-money institutions (loi du 11 mars 2018 / wet van 11 maart 2018), transposing PSD2 and EMD2. Article 41 restricts the use of client funds, Article 42 sets safeguarding for payment institutions and Article 194 sets it for e-money institutions.
• NBB circular NBB_2024_01 of 23 January 2024, Protection of funds for the execution of payment transactions and of funds received in exchange for e-money. It replaced circular NBB_2022_13 and took effect on 31 March 2024. It applies to Belgian payment institutions, limited payment institutions, e-money institutions and limited e-money institutions.
• NBB circular NBB_2024_12 of 16 July 2024 on the approval of auditors and the cooperation duty of commissaires agréés. It sets the scope of the auditor’s separate report on safeguarding.

“The Bank” in the law is the National Bank of Belgium (NBB). Where the statute says “to the satisfaction of the Bank”, the circular says what that means.

2. Payment institutions: Article 42

Article 41 comes first. A payment institution may hold client funds only on payment accounts used for payment transactions, and it may use those funds only to execute payment transactions.

Article 42 § 1 then covers funds received for payment services 1 to 6 of Annex I.A, whether directly from users or through another payment service provider. Two duties apply. First, the funds must be identifiable separately in the institution’s accounts at all times. Second, funds still held at the end of the business day after receipt, and not yet passed to the payee or to another provider, must be protected in one of these ways:

• 2° a) deposited in a separate pooled or individual client account with a credit institution governed by the law of a Member State, or with a Belgian branch of a third-country credit institution;
• 2° b) invested in a qualifying money market fund, within the meaning of Article 4, 8° of the Royal Decree of 19 December 2017 on MiFID transposition;
• 2° c) invested in safe, liquid, low-risk assets as defined by the NBB in line with EU law;
• 3° covered, to the NBB’s satisfaction, by insurance, a guarantee or a surety from an insurer or credit institution outside the institution’s group. The cover must be at least the amount that would otherwise have been segregated, and payable unconditionally if the institution cannot meet its financial obligations.

The NBB may allow deposits with, or cover from, a third-country credit institution or insurer that has no Belgian establishment, but only if that firm is supervised to a standard equivalent to EU prudential supervision.

Article 42 § 2 deals with mixed funds. If part of a pool will be used for future payment transactions and the rest for non-payment services, the payment part is protected. If that part varies or cannot be known in advance, a representative share may be used, provided the NBB accepts it as a reasonable estimate from historical data. Otherwise, the whole pool is protected.

3. Bankruptcy remoteness

The Belgian text is explicit on what protects the funds. The bank holding the client account, and any entity holding the invested assets, cannot set off its own claims on the institution against those funds. The institution’s creditors cannot attach the accounts or their balance by garnishment (saisie-arrêt / beslag onder derden). The same two rules apply to money payable under the insurance, guarantee or surety.

Article 42 § 3 then gives users a special privilege in any insolvency or other concours affecting the institution. The segregated or invested funds, and any money paid out under the insurance or guarantee, go first to repaying the funds received for payment transactions. Article 194 § 4 is the e-money equivalent.

4. E-money institutions: Article 194

Article 194 § 1 applies the same four methods to funds received for e-money issued and not yet paid out, through use or redemption, by the end of the next business day.

Three points differ from Article 42:

• Payment-instrument funding. Where e-money is bought with a payment instrument, such as a card, protection starts when the funds are credited to the institution’s payment account or otherwise made available to it. In any case it must be in place no later than five business days after issuance.
• Unrelated payment services. Article 194 § 3 applies Article 42 to payment services an e-money institution provides that are not linked to e-money issuance. Article 193 § 3 applies Article 41 to the same funds.
• Notice of change. Article 194 § 5 requires the institution to tell the NBB in advance of any significant change to the protection measures it uses.

Article 194 § 2 carries the representative-share rule. If part of the funds may be used for the institution’s other permitted activities, that part falls outside § 1, and a variable part may be estimated from historical data to the NBB’s satisfaction.

5. What NBB_2024_01 adds

The circular is where most practical obligations come from.

When the duty ends. Protection ends when funds reach the payee or the payee’s provider. Passing them to a provider the payout was outsourced to does not end it, unless that provider protects them under an equivalent mechanism and proves it. The NBB treats EU credit institutions, payment institutions and e-money institutions as equivalent; a third-country bank needs an independent, reasoned legal opinion.

Client account. The account contract, including general and special terms, must state expressly that the account is a client account under Article 42 § 1, 2°, a) or Article 194 § 1, 2°, a). Alternatively, the bank issues a document with the same content. At least every three years, the institution obtains an attestation from the bank showing the IBAN and the balance on that date. The contract and attestations go to the NBB through periodic reporting. Giving the bank relationship manager’s contact details counts as best practice.

Investments. “Liquid” means saleable quickly with minimal price impact; the NBB accepts the high-quality liquid assets listed in Articles 10 and 11 of Delegated Regulation (EU) 2015/61 (with some exclusions). “Safe” means a separate securities account at a regulated EU entity, monitored currency risk and nothing issued by the institution’s own group. The NBB recommends a weighted average maturity of no more than two years. “Low-risk” means issuers at credit quality step 1 under Implementing Regulation (EU) 2016/1799 and limited concentration.

Insurance or guarantee. Users must be the beneficiaries. The payment obligation arises as soon as the institution cannot meet its obligations to them. The amount covered is the highest unprotected end-of-next-day balance over a three-year period. This method requires the NBB’s explicit prior authorisation. The application includes the draft agreement, the amount covered and the internal procedure for checking that amount each year.

6. Reporting and the auditor

Three reporting layers apply.

1. Periodic tables. Safeguarding figures go to the NBB in the periodic reporting set out in circulars NBB_2018_31 (payment institutions) and NBB_2019_10 (e-money institutions), both last amended on 3 December 2021. The legal basis is Article 77 or Article 197 § 2 of the law.
2. Annual management report. Under Articles 36 and 180, effective management sends the NBB and the réviseur agréé a report on whether the safeguarding measures are adequate, within three months of the financial year end. It is separate from the internal control report. For a client account, it covers access management, the calculation method, cash-flow monitoring and reconciliation, and it always confirms which limb of Article 42 or 194 is relied on. An institution holding no funds files a statement saying so.
3. Auditor’s report. NBB_2024_12 provides for a separate auditor’s report on the internal control measures for safeguarding. The auditor relies on a critical review of management’s report, applies procedures for compliance with NBB_2024_01 and gives positive confirmation that the payment-institution tables under heading 1.7, on protection of funds, are correct and complete. The same sections apply to e-money institutions.

7. Side by side

8. Worked case: a client account the contract does not name

Facts: a Belgian payment institution opened its safeguarding account with an EU bank years ago. The account title says “client funds”, but the contract and terms are the bank’s standard business-account documents.

What the rule says: NBB_2024_01 requires the contract, or a bank document with the same content, to confirm that the account is a client account under Article 42 § 1, 2°, a). The bank must also attest the IBAN and balance at least every three years.

What the practitioner does: asks the bank for a confirmation that cites Article 42 and for a dated attestation at the same time, sends both with the next periodic reporting, and records the gap and fix in the annual safeguarding report.

Outcome: the account meets the circular before the auditor tests it.

9. Worked case: an EMI moving part of its float to a guarantee

Facts: a Belgian e-money institution wants a bank guarantee to cover part of its float, to free up liquidity tied up in the client account.

What the rule says: Article 194 § 1, 3° allows cover from an unconnected insurer or credit institution, to the NBB’s satisfaction. NBB_2024_01 requires explicit prior authorisation, users as beneficiaries, and cover equal to the highest unprotected balance over three years. Article 194 § 5 requires advance notice of a significant change.

What the practitioner does: sizes the guarantee from three years of balances, checks the guarantor is outside the group, files the application and keeps segregation in place until the NBB authorises the change.

Outcome: no gap in protection during the switch, and a sizing method the auditor can re-perform.

10. Worked case: payouts through another provider

Facts: a payment institution sends payouts to payees through a non-EU partner, which holds the funds for up to two days before crediting payees’ accounts.

What the rule says: under NBB_2024_01, the duty continues while an outsourced provider holds the funds, unless that provider is shown to protect them under an equivalent mechanism. For a third-country bank, that takes a reasoned legal opinion and proof of effective protection.

What the practitioner does: keeps the in-transit amounts in the safeguarding calculation until that evidence is on file, and describes the treatment in the annual report.

Outcome: the safeguarding figure reflects funds in transit, with no shortfall at the cut-off.

FAQ

What to do, today

• Treasury: check that every client-account contract, or a bank letter, names the account as a client account under Article 42 or 194, and diary the next three-year attestation.
• Finance: write down how the books are reconciled to the client accounts, how often and who signs off, because the annual report must describe and assess that process.
• Compliance: map payouts routed through other providers and decide, case by case, whether the duty has really ended.
• EMIs: log every significant change to your safeguarding measures and notify the NBB before it takes effect.

Related: Safeguarding compared across the EU · OneGate NBB reporting for PIs and ELMIs · Safeguarding reporting and attestations