PS25/12: Investing in Secure, Liquid Assets and the Insurance or Guarantee Method


Following the release of PS25/12, and our initial considerations for firms to think about:

This is the second of several releases where we will be delving into each of the key talking points to break down the policy statements and accompanying rules as well as more importantly what this means for you and what you should be doing to stay ahead of the curve and to ensure compliance by the 7 May 2026.

This article highlights the key sections of the strengthening elements of the safeguarding regime related to investing in secure, liquid assets and insurance and comparable guarantee.

Both sections create an opportunity for firms to enhance their working capital and liquidity positions. These opportunities create a risk to customer funds that need to be managed appropriately in line with good risk, governance and expectations set by the FCA within the Policy Statement.

Within CP24/20, the FCA proposed that firms would be able to continue to invest in the same range of secure, liquid assets as currently allowable but also proposed some additional requirements on firms when selecting assets.

In the Policy Statement, PS25/12, there has been no significant change to the proposed rules and the type of secure, liquid assets payment firms can invest in. With the FCA emphasizing that it maintains a low-risk tolerance and policy for this and considers the current list appropriate in striking the right balance between allowing firms to invest relevant funds whilst ensuring they remain safe, liquid and accessible in the event of redemption or insolvency.

Under both the existing and new rules, firms may continue to seek approval for an asset that does not fall under the approved list. Firms must continue to apply in writing, to the FCA, explaining how they will ensure consumers are protected and how the liquidity risks will be managed.

Furthermore, the other additional requirements and principles that were highlighted include:

  • Ensuring there is a suitable spread of investments
  • Maintaining and investing in line with an appropriate liquidity strategy and credit policy
  • Prudently managing any foreign exchange risks
  • Ensuring the policies and procedures for the above are reviewed at least annually.

Additionally, the rules state that:

  • A third party may be appointed to manage relevant assets, if the third party has permission to carry out the regulated activity of managing investments
  • Redemption of any investments must be paid into a relevant funds account and where a third party is appointed, a mandate should provide for the prompt reinvestment/payment into a relevant funds account as well as appropriate due diligence being conducted and periodically reviewed on their selection and appointment
  • Provision of information from the third party should be provided or made available at least every business day and relate to the close of business on the previous business day.

It is worth noting that even if a third party is appointed, the payment firm remains ultimately responsible for ensuring funds are invested in accordance with the relevant fund rules.

In PS25/12, the FCA has not made substantial changes to the existing rules within the Approach Document or the proposals outlined within the consultation paper, CP24/20.

To mitigate the risks, the requirements remain for the guarantor to assume a primary liability to pay a sum equal to the amount of relevant funds upon the occurrence of an insolvency event and no other condition or restriction for prompt pay out should exist. The insurance policy or comparable guarantee must pay out the full amount of any claim, regardless of how the insolvency event occurs, with the proceeds of the insurance policy being payable into a separate relevant funds account. The rules stipulate that there should be no level below which the insurance policy or comparable guarantee does not pay out, and it should provide cover for at least; as long as the institution is using the insurance policy/comparable guarantee.

The PS25/12 rules also specify that:

  • Institutions may use more than one insurance policy or an insurance policy and a guarantee. However, the terms of each insurance policy or guarantee must not enable the insurer or guarantor to refuse to pay out on the basis that relevant funds are covered by another insurer or guarantor
  • The terms must not permit or enable the provider to cancel the policy or guarantee prior to its expiry, unless such cancellation is due to a) non-payment of premium, b) provider has given the institution and the FCA at least a 90-day notice
  • Firms are required to notify the FCA at least 2 months before they intend to use the insurance or guarantee method for the first time, as well as if there are changes to the cover or if there is a change in provider
  • The notification must include certain information such as the provider, how the policy or guarantee complies with the rules, the expiry date, if there is an automatic renewal or any alternative arrangements in place, instead of renewal. In addition, it should include an assessment of whether the use of the insurance or guarantee will lead to an increase in operational and liquidity risks, how this was assessed and how any risks will be mitigated. Operational risks that should be considered include scenarios where the policy or guarantee is not renewed and there are no alternative arrangements available, including having sufficient liquid assets to safeguard with the segregation method where the policy or guarantee expires, and any adverse impacts on short-term liquidity due to restricted access to fund
  • If there is less than 3 months remaining and no replacement/renewal in place, there should be a plan in place of how the funds will continue to be protected (e.g. via the segregation method) and this should be shared with the FCA. The FCA clarified that firms are not required to renew the insurance policy or guarantee 3 months before it expires but that the 3-month window provides a lead time to prevent a “cliff edge” scenario where customer funds are not protected.

Similarly to existing rules, the new rules also mandate that for any third parties used by the payment firm, there must be due skill, care and diligence exercised when selecting, appointing and assessing third party providers. This applies to any safeguarding bank accounts providers, custodians of invested assets as well as for insurance and guarantors.

We will release further articles regarding the detailed requirements for third party selection, appointment and due diligence.

What should you be doing now?

  • If you invest the relevant funds in secure, liquid assets you should consider and (re)assess the following:
  • Do you have a clearly defined liquidity strategy, articulating the needs and objectives, risk assessment criteria, diversification rules to ensure adequate spread of investments, stress testing, any contingency plans and regular monitoring and oversight?
  • Do you have a credit risk policy and credit risk assessment criteria and process?
  • As relevant, how any foreign exchange risk is managed, e.g. any hedging strategies, currency diversification, regular monitoring etc.
  • Ensure acknowledgement letters are in place with custodians and these meet the requirement as set out in the PS25/12
  • Ensure appropriate terms are in place with any insurers/guarantees used according to the rules specified, including statements that they have no interest in or right over the relevant funds or assets
  • For third parties, ensure there are formal due diligence policies and procedures defined for the selection, appointment and periodic risk assessment. The assessment requirements should be documented in a policy and the results of the due diligence formally documented along with any supporting evidence and decisions taken
  • Ensure all policies and procedures are regularly assessed and reviewed to ensure they remain compliant and are also approved at least annually by the appropriate governing body, i.e. the Board.  


How we can support you:

  • As a ‘qualified auditor’ (defined under the Companies Act) BDO can be appointed to undertake Safeguarding audits under the Supplementary Regime. We can perform independent, annual audits in line with the FCA’s expected scope
  • Perform health checks and GAP analysis against the new requirements to ensure firms can quickly and clearly identify enhancements in the current safeguarding controls and process to ensure compliance with the Supplementary Regime
  • Support in the performance and remediation of gaps identified from annual safeguarding audits
  • Provide board or staff training on new rules and how they relate and apply to you
  • Assist with review and assessment of any policies and procedures as they relate to investing the assets and the insurance policy or comparable guarantee method.

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This is the second of our in-depth look at specific sections of the Policy Statement, further in-depth publications will be issued in the coming weeks and the impact these new rules have on your firm. For more information on the policy statement and how BDO can help you please get in touch here.