PS25/12 safeguarding regime and reconciliation: What payment firms need to know, do, and build.

The FCA’s Policy Statement PS25/12 represents a material evolution in how safeguarding is expected to operate for UK payment institutions (PIs), e money institutions (EMIs), small e-money institutions and Credit unions, issuing e-money. While described as a supplementary or interim regime, its implications – particularly for reconciliation – extend well beyond incremental compliance.

This article brings together four complementary perspectives to help firms navigate PS25/12: regulatory context, alignment with established FCA practices, operational readiness, and the role of reconciliation technology.

PS25/12 in context: why reconciliation moved center stage

The supervisory backdrop

PS25/12 emerges from a sustained period of supervisory concern. Multiple firm failures over recent years revealed that safeguarding arrangements often appeared compliant on paper yet failed when firms experienced distress. Inaccurate records, infrequent reconciliations, unclear segregation, and – most damaging of all – years long delays in returning customer funds after insolvency have undermined trust in the sector.

Against this backdrop, PS25/12 establishes a higher operational baseline for how firms are expected to protect customer funds in practice. PS25/12 introduces a structural Supplementary Regime raising the bar for governance, record-keeping, reconciliation, and regulatory reporting across the board.

The policy’s stated objectives are clearly operational:

• Minimize shortfalls in safeguarded funds.
• Return funds more quickly and cheaply if a firm fails.
• Give supervisors earlier and better warning signals.

Key safeguarding obligations under the supplementary regime

PS25/12 introduces several interconnected requirements that collectively tighten every stage of how firms manage and evidence safeguarded funds:

Governance

A named senior manager must be responsible for safeguarding, and the board must formally approve the firm’s safeguarding policy, including the definition of a ‘material discrepancy.’

Reconciliation

Internal and external reconciliations must be performed on every ‘reconciliation day’ – defined as every business day excluding weekends, UK bank holidays, and days when relevant foreign markets are closed.

Record keeping

Firms must maintain detailed books capable of distinguishing client funds at any time, with resolution packs – living documents linking to current reconciliations, contracts, and account information – retrievable within 48 hours.

Annual safeguarding audits

Qualified external auditors must produce an annual safeguarding audit report, submitted to the FCA. Firms holding less than £100,000 in relevant funds over a 53-week period are exempt.

Monthly regulatory returns

All in-scope firms must submit a new monthly return to the FCA covering reconciliations, safeguarding methods, fund amounts, shortfalls, breaches, and safeguarding account details.

Segregated safeguarding pools

Funds relating to e-money and unrelated payment services must be safeguarded separately.

To achieve this, the FCA reshaped expectations around reconciliation. Reconciliation is now treated as the primary control mechanism that reveals whether safeguarding is actually working day to day. Key features include:

• daily safeguarding reconciliations (performed on defined “reconciliation days”),
• stronger record-keeping discipline,
• immediate remediation of discrepancies,
• mandatory monthly reporting,
• annual safeguarding audits,
• and resolution packs designed for real insolvency scenarios.

The reforms are structured in two stages. The Supplementary Regime – the subject of PS25/12 – comes into force in May 2026, following the end of the nine-month transition period after its publishing in August 2025. A more sweeping CASS-style Post-Repeal Regime to follow once legislative change enables it. For now, firms must focus their energy and resources on meeting the Supplementary Regime’s concrete obligations.

Safeguarding from regulation to execution: a reconciliation‑focused readiness framework

Why reconciliation is the most consequential PS25/12 obligation

Of all the obligations introduced by PS25/12, reconciliation is arguably the most operationally demanding – and the most consequential. It is the mechanism through which a firm demonstrates, on an ongoing basis, that the funds it holds align precisely with what it owes to its customers.

Under the previous safeguarding regime, reconciliation discipline was often uneven. Frequency varied. Methodologies were loosely defined. Exceptions were tolerated for extended periods. PS25/12 removes that discretion. A firm that cannot perform robust, timely reconciliations cannot demonstrate effective safeguarding.

What the safeguarding reconciliation requirements demand in practice

Translating PS25/12 into operational readiness requires firms to assess not just whether reconciliations occur, but how they occur and what evidence they create. PS25/12 establishes a clear operational expectation for every reconciliation day.

Firms must complete:

• an internal reconciliation, comparing their own internal records of relevant funds against each other; and
• an external reconciliation, cross checking those records against balances and statements held with safeguarding banks, custodians, or other relevant third parties.

Any discrepancy must be identified and investigated promptly. Where a shortfall is identified, firms are required either to top up the safeguarding account using their own resources or to notify the FCA without delay.

Reconciliation as an early warning system to prevent safeguarding failures

The FCA has been explicit in its supervisory messaging: reconciliation is the primary early warning indicator of safeguarding failure.

Exception handling becomes critically important. Breaks and shortfalls must be detected promptly, assessed against defined materiality thresholds, investigated via maker checker workflows, escalated where required, and remediated immediately.

Weak or delayed reconciliations and the tolerance for material discrepancies forego early detection. PS25/12 treats reconciliation as a frontline control to allow timely corrective action before customer harm occurs.

The operational reality for many payment firms

Reconciliation outputs must underpin mandatory reporting. Monthly safeguarding returns, annual safeguarding audits, senior management oversight, and resolution packs should all draw from the same reconciled source of truth and within strict deadlines. Reconciliation data cannot reside in personal inboxes, shared drives, or informal working files. It must be:

• structured,
• centrally accessible,
• historically reproducible,
• and auditable by third parties.

Tooling matters. However, a large proportion of firms continue to rely on manual processes, spreadsheets, or fragmented systems. As transaction volumes increase and business models grow more complex, these approaches become increasingly fragile.

At the same time, the cost of remediation increases, both operationally and reputationally.

What “readiness” really means under PS25/12 safeguarding mandates

Reconciliation readiness under PS25/12 is therefore not a question of whether reconciliations occur at all. It is a question of whether they are:

• performed with sufficient frequency and discipline,
• supported by systems capable of handling scale and complexity,
• governed with clear ownership and escalation,
• and evidenced in a way that stands up to scrutiny.

Reconciliation solution for FCA compliance: what ReconArt brings to PS25/12 readiness

ReconArt is a financial reconciliation solution designed for exactly the kind of high-frequency, high-volume, high-stakes reconciliation environment that PS25/12 demands. For e-money institutions and payment firms looking to meet the 7 May 2026 deadline and sustain compliance beyond it, ReconArt offers a comprehensive and scalable solution.

At its core, ReconArt automates the matching of transactions across multiple data sources: internal ledgers, safeguarding bank accounts, card scheme settlements, and third-party custodian statements – applying configurable matching rules that reflect each firm’s specific product and settlement structures.

As a result of robust matching and reconciliation capabilities, what would take a reconciliation team hours of manual effort each day is reduced to minutes with ReconArt:

Daily reconciliation cadence

ReconArt supports the ‘reconciliation day’ frequency mandated by PS25/12, with automated ingestion of data from external and internal systems.

Audit-ready records

Every reconciliation run is logged with a full audit trail – who ran it, when, what data was used, what matched, and what required manual resolution. This documentation is essential both for the annual safeguarding audit and for the resolution pack.

Exception management

Discrepancies and unmatched items are flagged immediately and categorized, with workflows to assign, investigate, and resolve them. Firms can define thresholds for materiality and escalation, directly supporting the governance requirements under PS25/12.

Regulatory reporting support

The structured, clean data produced by ReconArt’s reconciliation process feeds directly into the monthly FCA return, reducing the burden of report preparation and the risk of errors in the submission.

Resolution pack readiness

ReconArt’s data repository means that historical reconciliation records, matched to the required period, can be retrieved and packaged within the 48-hour window required by the regulation.

Closing thought: reconciliation as regulatory infrastructure and the road to CASS

Firms that treat reconciliation as a strategic capability – supported by the right technology, embedded in governance, and aligned with the FCA’s clear trajectory toward CASS style rigor – will not just comply with PS25/12. They will be prepared for what comes next.

ReconArt functions as a CASS adjacent control layer: a platform that enables firms to meet PS25/12’s reconciliation expectations today while laying foundations for a future trust-based regime.