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Everyone is waiting with bated breath for chapter 15 of the FCA’s safeguarding rules, due to be published in the first half of 2025. With firms being given a short timeframe to embed the requirements, it’s important to begin planning out how to practically approach the upcoming changes.
The consultation paper aims to remove ambiguity around safeguarding processes and better align them with the Client Asset Sourcebook (CASS), meaning safeguarding practices are about to get a notable facelift. The new rules, which are set to affect areas including records and reconciliations practices, monitoring, governance, and reporting, will likely create a ripple across the industry. This means homing in on transforming your processes over the next few months will be key to achieving success.
FCA scrutiny
Safeguarding within the payments and e-money sector has been high on the FCA agenda in the last couple of years. The topic featured in the 2025 priorities for payments portfolio firms letter, culminated with the safeguarding consultation.
More recently, the FCA has highlighted the need to address weaknesses in the current safeguarding approach, and the varied standard applied across the industry. In doing so, the regulator aims to ensure that consumer money is safe.
The proposed changes are set to:
- minimise shortfalls in safeguarded relevant funds
- ensure funds are returned as cost-effectively and quickly as possible to customers
- strengthen the FCA’s ability to identify and intervene if firms don’t meet their safeguarding expectations.
The payment and e-money sector has historically been more prone to firm failure, with data showing an average shortfall of 65% in funds owed to clients between Q1 2018 and Q2 2023. On average, it has taken over two years for clients to be reunited with their funds. This results in direct customer harm and distress through:
- being unable to access funds to redirect them for a better use elsewhere
- needing liquidity and having to go into debt to cover it
- being unable pay off debts on time, further increasing the debt exposure.
This is further exacerbated in instances where firms don’t have:
- adequate safeguarding practices around identifying relevant funds that need to be segregated
- reconciliations processes ensuring that books and records are accurate
- appropriate due diligence and acknowledgement of segregation from institutions where firms hold relevant funds.
Becoming CASS 15 ready
Regulatory change, especially as significant as the new safeguarding regime, can be daunting. However, there are practical steps firms can take now to aid with this transition:
Gap analysis: Perform a gap analysis between the existing policies, procedures, and controls supporting the safeguarding environment against the interim and end rules proposed in CASS 15. This will allow you to focus your efforts and create a prioritised plan of action.
Change management plan: Once the gaps are identified and mapped across the two stages of the new safeguarding rules, you can create a detailed plan specifying and prioritising the change efforts. This should be divided into smaller sub-projects with resources allocated to these considering their prioritisation.
Re-visiting original plans: Once the new rules are revealed by the FCA, it would be quicker to review against the original gap analysis and amend the plans, so that it reflects the end state.
Governance: The new rules require firms to have an individual overseeing safeguarding. You need to already be thinking of who the right person for the job is, as they’ll need to plan and oversee the transition. You’re also expected to have safeguarding committees in place, which meet frequently. These need to be staffed by individuals involved in key safeguarding processes and have good quality management information, which enables informed decision-making.
Documentation: The changes made will be material, so you’ll need to ensure documentation evidencing key decisions made and challenges over interpretation of the new safeguarding requirements is gathered and saved. You’re also expected to document how processes and controls are changing to reflect the new regulation.
Auditor: Under the new rules, you’ll need to appoint an independent qualified statutory auditor. The auditor must have the required skills, resources, and experience to perform their role. The FCA has communicated that new audit standards, mirroring the FRC CASS, will be issued. This means you’ll also need to consider how to audit-proof the documentation around your existing and new safeguarding processes, making them clear to an independent third party.
The FCA’s message to payments firms is clear: you should be expecting enhanced scrutiny from the regulator as part of its strategy. From our experience, we expect that the FCA will undertake proactive work with firms in the sector to support the implementation of its policy, which means you should be on notice that the FCA expects them to be safeguarding correctly.
How can Bovill Newgate help you prepare for CASS 15?
Our expertise in auditing firms, paired with industry and in-house experience, means we understand the regulatory changes you will face. We advise on updating policies, procedures, and processes, ensuring these align with the CASS 15 requirements.
We regularly support firms with their safeguarding and CASS arrangements through:
- building processes and controls to meet the rules and requirements, and the spirit they were written in
- conducting readiness reviews and testing by doing a deep dive into firms’ overall policy and governance arrangements
- ensuring that firms’ operational ability meets regulatory standards.
Reach out to our team for support on authorisation, readiness reviews, policy and controls creation, health checks, or audits of your safeguarding arrangements.
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