Safeguarding account — the two PSD2 methods
“Safeguarding account” is shorthand — the Directive never uses the phrase, and the thing it describes is one of two alternative methods. Article 10 of Directive (EU) 2015/2366 requires a payment institution providing the payment services in points (1) to (6) of Annex I to safeguard all funds received from payment service users, or through another payment service provider, for the execution of payment transactions. It then offers segregation or insurance, and firms choose one.
1. Method (a): segregation, and the deadline inside it
The segregation method has three limbs, and the middle one is a clock most product teams have never seen:
- funds must not be commingled at any time with the funds of any natural or legal person other than the payment service users on whose behalf they are held;
- where the funds are still held by the institution and not yet delivered to the payee or transferred to another payment service provider by the end of the business day following the day on which they were received, they must be deposited in a separate account at a credit institution, or invested in secure, liquid low-risk assets as defined by the competent authorities of the home Member State;
- the funds must be insulated in accordance with national law in the interest of the payment service users against the claims of the institution’s other creditors, in particular on insolvency.
Note that “secure, liquid low-risk assets” is defined by the home Member State’s competent authority, not by the Directive. An institution passporting across the EU therefore has one asset definition to comply with, set at home — which is one of the few genuinely simplifying features of the regime.
2. Method (b): insurance or comparable guarantee
The alternative is that the funds are covered by an insurance policy or some other comparable guarantee from an insurance company or a credit institution which does not belong to the same group as the payment institution, for an amount equivalent to that which would have been segregated in the absence of the cover, and payable where the institution is unable to meet its financial obligations.
| Method (a) — segregation | Method (b) — insurance | |
|---|---|---|
| Mechanism | Separate account at a credit institution, or secure liquid low-risk assets | Policy or comparable guarantee |
| Provider | A credit institution | An insurance company or credit institution outside the group |
| Amount | The funds themselves | Equivalent to what would have been segregated |
| Trigger | Insulation on insolvency under national law | Payable where the institution cannot meet its obligations |
3. Mixed-use funds and the representative portion
Article 10(2) deals with the case where part of the funds will be used for future payment transactions and the rest for non-payment services. The payment-transaction portion is also subject to the safeguarding requirement. Where that portion is variable or not known in advance, Member States must allow institutions to apply the paragraph on the basis of a representative portion assumed to be used for payment services — provided it can be reasonably estimated from historical data to the satisfaction of the competent authorities.
The last clause is the operative one. A representative portion is a supervised estimate, so the methodology, the historical data behind it and its periodic re-validation are all part of the safeguarding file rather than an internal finance assumption.
For e-money institutions the same architecture arrives by cross-reference: Article 3(1) of Directive 2009/110/EC applies a list of PSD2 provisions to EMIs mutatis mutandis, and Article 3(2) requires EMIs to inform competent authorities in advance of any material change in safeguarding measures.
FAQ
Can we use both methods at once?
Article 10(1) presents them as alternatives — “in either of the following ways”. Firms that split by product or flow should expect to justify the split and evidence full coverage under one method or the other for every euro received.
When do funds have to be in the safeguarding account?
By the end of the business day following the day of receipt, where they have not by then been delivered to the payee or transferred to another payment service provider.
Can the insurance come from our parent bank?
No. The insurance company or credit institution providing the policy or comparable guarantee must not belong to the same group as the payment institution.
Related: Safeguarding compared across the EU · Own funds and initial capital · What is a payment account
