Safeguarding in Luxembourg: LPS arts 14 and 24-10

Safeguarding in Luxembourg rests on two articles of the payment services law — Article 14 for payment institutions and Article 24-10 for e-money institutions — and on Chapter 8 of Circular CSSF 26/906, which turns them into a daily operating standard. The law sets the methods and the insolvency ring-fence. Since 2025 it also lets segregated funds sit at a central bank, at that bank’s discretion. The circular sets how the CSSF expects the controls to work: daily reconciliation, named accountability in the management body, rules on fees, currency and asset choice, and legal review of every insurance clause. This piece covers both layers and five cases from practice.

1. The law: Articles 14 and 24-10 LPS

The amended Law of 10 November 2009 on payment services (LPS) transposes PSD2 (Directive (EU) 2015/2366) and EMD2 (Directive 2009/110/EC). Its safeguarding rules follow the directives’ two methods, written separately for each type of institution.

Article 14 applies to payment institutions providing the services in points 1 to 6 of the Annex. All funds received from users, or through another payment service provider, for executing payment transactions must be protected in one of two ways:

• (a) Segregation. The funds are never mixed with those of persons other than the users for whom they are held. If still held at the end of the business day after receipt, they are deposited in a distinct account at a credit institution or at a central bank, at that bank’s discretion, or invested in low-risk, liquid and secure assets as defined by the CSSF.
• (b) Insurance or a comparable guarantee from an insurer or credit institution outside the institution’s group, for the amount that would otherwise be segregated, payable if the institution cannot meet its financial obligations.

Article 24-10 applies the same two methods to e-money institutions, for funds received in exchange for e-money issued. Funds received through a payment instrument need not be protected until they are credited to the institution’s payment account or otherwise made available to it. In any case they must be protected no later than five business days after the e-money is issued.

2. The insolvency ring-fence

Luxembourg’s text spells out in more detail than the directives what segregation means in insolvency. Segregated funds:

• do not form part of the institution’s own estate;
• are shielded, for the sole benefit of users or e-money holders, from claims by the institution’s other creditors;
• do not fall into the institution’s estate in liquidation, bankruptcy or any other insolvency proceeding.

Assets in financial-instrument and cash accounts held in the institution’s name with a depositary, and identified to the depositary as client assets, cannot be pledged as collateral for the institution’s own obligations or anyone else’s. Any such pledge is void. Those assets cannot be seized by the institution’s creditors, nor by the creditors of its clients.

3. The 2025 change: a central bank account

The law implementing the Instant Payments Regulation, Regulation (EU) 2024/886 (bill no. 8460), amended both articles. Segregated funds may now be placed at a central bank as well as at a credit institution, at the central bank’s discretion. The amendment follows the Regulation’s change to PSD2. It gives payment and e-money institutions an option they did not have. It does not give them a right: the central bank decides whether to hold the funds.

4. Circular CSSF 26/906: who owns safeguarding

Circular CSSF 26/906 on central administration, internal governance and risk management, dated 20 January 2026, addresses all payment and e-money institutions. Chapter 8 (paragraphs 201 to 217) deals with safeguarding. Its starting points:

• the institution must be able, at all times, to identify all users’ funds clearly and precisely (para. 201);
• it must plan for continuity, including what happens if a bank or insurer used for safeguarding terminates the contract (para. 201);
• a member of the management body is appointed as responsible for overseeing the internal controls on safeguarding (para. 202);
• controls must identify, at any time and without delay, funds that are not protected under Article 14 or 24-10 (para. 202);
• the internal audit function reviews safeguarding every year, including access rights, compliance at all times with the two articles, and the monitoring procedures (para. 172).

5. Daily reconciliation, access and counterparties

Paragraphs 202 to 205 set the control framework:

• Reconciliation. Funds received are reconciled with the information from the counterparties holding them — banks, insurers and others — under written procedures that define who does what, the parties involved and the escalation and validation steps.
• Daily by default. Given transaction volumes, controls and reconciliations are daily. Weekly reconciliation may be considered only on the basis of a justified, documented risk analysis validated by both the management body and the supervisory body. Reconciliations are subject to the four-eyes principle. The CSSF recommends IT-based tools; manual processes are for exceptional cases.
• Access. Access to accounting entries, off-book systems and signing powers that can move users’ funds follows need-to-know and least-privilege rules, always with four eyes, under the formal responsibility of a management body member.
• Counterparty risk. Some institutions, depending on proportionality, must run a counterparty risk framework for safeguarding banks and insurers. Regular due diligence on their quality is described as sound practice.

6. Segregation accounts and assets

Paragraphs 206 to 214 cover method (a):

• segregation accounts are opened in the institution’s name solely for users’ benefit, and the contracts state the bank’s name and address, the nature of the account and who owns the funds. Invested assets go into a separate custody account on the same terms (para. 206);
• no contract clause may undermine the LPS. If the bank offers no specific segregation contract, the institution must obtain explicit written and signed confirmations (para. 207);
• any manual or significant movement of safeguarded funds needs four eyes and prior validation by at least one management body member (para. 208);
• with agents, distributors or branches, the institution keeps full responsibility and must monitor that funds are safeguarded on time (para. 209);
• the no-commingling rule covers funds from other activities and fees and commissions linked to payment and e-money services (para. 210);
• institutions should review conflicts of interest from concentrating segregation accounts in group banks or buying assets issued or distributed by their own group (para. 211).

7. Insurance and guarantees

For method (b), paragraphs 215 to 217 require that the covered amount is reviewed regularly, with the management body ensuring it is always sufficient. The policy must define the beneficiaries, the trigger events and the payment deadlines. Proceeds must be payable into a dedicated, separate account in the institution’s name for users’ benefit, documented in the policy file. A legal expert examines every clause. The management body considers that review and makes sure any clause that could reduce or cancel the cover is removed.

8. Worked case: fees left in the segregation account

Facts: an e-money institution deducts its fees from customer wallets, but the cash stays in the segregation account until a monthly sweep.

What the rule says: paragraph 210 extends the no-commingling rule to fees and commissions. Once earned, they are the institution’s money, and leaving them with customer funds is commingling.

What the practitioner does: moves the fee sweep into the daily reconciliation cycle, so earned fees leave the account once the day’s reconciliation is approved, with four-eyes sign-off.

Outcome: the segregation account holds only users’ funds at each daily cut-off.

9. Worked case: a bank with no segregation contract

Facts: a new payment institution opens its safeguarding account at a bank that uses its standard account terms only.

What the rule says: paragraph 207 requires explicit written and signed confirmations that the protection meets the LPS, and the institution must be able to show that each account complies.

What the practitioner does: asks the bank for a signed letter confirming that the account is held for users, will not be set off against the institution’s debts, and will not be used as collateral. Counsel checks the standard terms for conflicting clauses. The file goes to the annual internal audit review.

Outcome: a documented basis for the ring-fence, available before the CSSF asks for it.

10. Worked case: USD wallets safeguarded in euro

Facts: an e-money institution issues USD balances but safeguards everything in a EUR account.

What the rule says: paragraph 214 recommends safeguarding in the currency of the users’ funds. Otherwise, FX protection mechanisms are required.

What the practitioner does: opens a USD segregation account, or puts in place a documented FX protection mechanism with a buffer limit and daily monitoring.

Outcome: a currency move no longer leaves the USD holders short.

11. Worked case: a small PI that wants weekly reconciliation

Facts: a payment institution with low volumes wants to reconcile weekly.

What the rule says: daily is the default. Weekly is possible only on a justified, documented risk analysis validated by both the management body and the supervisory body.

What the practitioner does: writes the analysis — volumes, value at risk between reconciliations, the controls that cover the gap — has both bodies approve it, and sets a volume trigger that brings back daily reconciliation.

Outcome: a frequency the CSSF can see was decided on purpose, with a trigger to review it.

12. Worked case: a money market fund proposal

Facts: treasury proposes to invest safeguarded funds in a money market fund that holds bank deposits and commercial paper.

What the rule says: paragraph 212 points to UCITS investing exclusively in the listed public-sector and supranational debt securities.

What the practitioner does: rejects the fund, and limits the eligible list to government-type debt and UCITS that hold only such debt, with the rating floor written into the guiding principles.

Outcome: the investment policy matches the circular rather than the yield target.

FAQ

What to do, today

• Management body: confirm which member is formally appointed for safeguarding oversight, and minute it.
• Finance: move fee sweeps into the daily reconciliation, and check every currency has a matching safeguarding account or FX protection.
• Legal: hold a signed segregation contract or written confirmations for every account, and a legal review of every insurance clause.
• Treasury: align the eligible-asset list with paragraph 212 and the guiding principles approved by the supervisory body.

Related: Circular CSSF 26/906 · Safeguarding compared across the EU · Safeguarding in Spain