Client Money, Relevant Funds and “Safeguarded Funds”: The Definitions Firms Get Wrong
Ask three people at a payment or e-money firm what “client money” means and you will often get three different answers, and at least one of them will be wrong. That matters more than it used to. Since the FCA’s new CASS 15 chapter came into force on 7 May 2026, firms authorised under the Payment Services Regulations 2017 (PSRs) or the Electronic Money Regulations 2011 (EMRs) are operating alongside investment firms that have used the term “client money” for decades, and the two regimes use overlapping but distinct vocabulary. Getting the definitions right is not a semantic exercise. It determines which rulebook applies, what has to be segregated, and what an auditor or an insolvency practitioner will look for if something goes wrong.
Client money: a CASS 7 term, not a payments term
“Client money” is defined and governed by CASS 7 of the FCA Handbook, and it applies to firms carrying on designated investment business, such as investment managers, brokers and platforms. When such a firm receives money in connection with that business, CASS 7 imposes a statutory trust over it: the money is held on trust for the client from the moment of receipt, kept separate from the firm’s own money, and reconciled daily against the firm’s records. If the firm fails, client money is ring-fenced from the general creditors and distributed under the CASS 7 rules ahead of, and separately from, the ordinary insolvency process.
The important point for payment and e-money firms is that CASS 7 client money rules do not automatically apply to them. A firm authorised purely as a payment institution (PI) or electronic money institution (EMI), with no separate investment business permission, is not holding “client money” in the CASS 7 sense at all, even though everyone in the business will informally call it that. It is holding something else.
Relevant funds: the CASS 15 and PSRs/EMRs term
That “something else” is what the PSRs and EMRs call “relevant funds”, and it is the term CASS 15 is actually built around (the chapter’s formal title is “Payment services and electronic money: relevant funds”). Broadly, relevant funds are sums received from, or for the benefit of, a payment service user in exchange for carrying out a payment transaction, or received from an e-money holder in exchange for the issuance of electronic money. Regulation 23 of the PSRs and Regulation 20 of the EMRs impose the underlying safeguarding obligation; CASS 15 is where the FCA has now set out, in much greater operational detail than before, how firms must comply with it.
Before PS25/12, the safeguarding regime for relevant funds was widely regarded as weaker than the CASS 7 client money trust. The Court of Appeal’s decision in Re Ipagoo LLP [2022] EWCA Civ 302 exposed the gap directly: EMI customers were found not to benefit from a statutory trust in the way CASS 7 client money holders do, which left them worse protected on insolvency than they generally assumed. CASS 15 was built specifically to close that gap, bringing the safeguarding of relevant funds much closer, structurally, to the CASS 7 model, including daily reconciliation requirements, tighter rules on where and how funds can be held, and clearer accountability for the safeguarding function.
“Safeguarded funds”: a description, not a separate legal category
This is where firms most often trip up. “Safeguarded funds” is not a third, separate pot of money sitting alongside client money and relevant funds. It is simply the state that relevant funds are meant to be in once a firm has complied with its safeguarding obligation, whether by the segregation method (holding the funds in a segregated account with an approved bank, or in appropriate low-risk assets) or the insurance or guarantee method. In other words: relevant funds is what the money is; safeguarding is what you do to it; safeguarded funds is (or should be) the result. Treating “safeguarded” as a distinct legal classification, rather than an outcome the firm has to actively evidence every business day, is a common and consequential misunderstanding, particularly among firms that assume the insurance or guarantee method removes the need for the same reconciliation discipline that segregation requires. It does not.
Where firms get caught out
Three patterns come up repeatedly in our work with smaller PIs, EMIs and crypto-adjacent firms. First, scope errors: not every sum a payment or e-money firm receives is relevant funds. Money relating to services or transactions outside the regulated activity, such as certain fees, interest, or genuinely unrelated commercial receipts, must be identified and kept out of the safeguarding calculation, not left commingled “to be safe.” Second, method confusion for firms that hold both investment business permissions and payment or e-money permissions: CASS 7 client money techniques (such as the net negative add-back reconciliation method) are not simply transferable to CASS 15 relevant funds, and applying CASS 7 logic to a CASS 15 population, or vice versa, produces reconciliation breaks that are hard to unpick after the fact. Third, and most basic, is language: policies, procedures and even client-facing terms that still refer loosely to “client money” when the firm in fact holds relevant funds under the PSRs or EMRs create ambiguity that an FCA reviewer, an auditor or an administrator will notice immediately.
Why this is worth getting right now
With CASS 15 now in force and the first safeguarding audit cycle under way, firms are being asked to evidence exactly this kind of definitional precision: what money is in scope, what regime governs it, and how that is reflected in policy documents, systems and daily reconciliations. Firms that have historically borrowed CASS 7 language and logic informally, without checking whether it actually applies to their permissions, are the ones most likely to find gaps when an auditor or the FCA looks closely.If you would like a second opinion on whether your firm’s policies and reconciliation approach correctly reflect which regime applies to your funds, get in touch for a CASS or safeguarding review.