Safeguard account
What is a safeguarding account and how does it protect the user?
A safeguarding account is a special bank account where a payment institution or electronic money institution deposits only the funds received from its customers, keeping them strictly separated from the company’s own assets. Its purpose is to ensure that, in the event of insolvency of the payment service provider, users’ funds remain protected from any creditor claims.
This mechanism is not optional. Directive (EU) 2015/2366 (PSD2) requires all authorised payment institutions in the European Union to safeguard user funds. In Spain, Royal Decree‑Law 19/2018 establishes the specific framework under the supervision of the Bank of Spain.
How a safeguarding account works
The process operates on a fundamental principle: absolute separation between customer funds and the institution’s operational resources.
- Receipt of funds: When a user makes a transaction through a PSP, the amount is deposited into the safeguarding account, never into the company’s operational account.
- Custody at a credit institution: Funds must be deposited in a segregated account at an authorised bank before the end of the next business day.
- Prohibition of use: The payment institution cannot use these funds for operating expenses, salaries or investments.
- Settlement to the beneficiary: Funds are transferred to the merchant or final beneficiary without ever mixing with the company’s capital.
The regulation recognises two methods to comply with safeguarding obligations: a segregated account at a credit institution, or a insurance policy or comparable guarantee issued by an insurer or bank outside the same corporate group.
Article 21 of RDL 19/2018 grants users an absolute right of separation over funds held in the safeguarding account. In insolvency proceedings, these funds remain entirely outside the bankruptcy estate.
Regulatory impact and applicable security
The regulatory framework for safeguarding accounts is one of the strictest in the European financial system:
| Regulation | Scope | Main requirement |
|---|---|---|
| PSD2 | EU | Mandatory safeguarding for payment institutions |
| RDL 19/2018, Article 21 | Spain | Absolute right of separation in insolvency |
| RD 736/2019, Article 16 | Spain | Development of guarantee requirements |
| Directive 2009/110/EC | EU | Extension to electronic money institutions |
It is essential to understand that a safeguarding account is not covered by the Deposit Guarantee Fund (FGD). Unlike a conventional bank account, where the FGD protects up to €100,000 per holder, safeguarding protection works through asset segregation. The Bank of Spain supervises compliance and may revoke the licence of any non‑compliant institution. The sanctioning regime includes fines of up to 10% of annual net turnover or €5 million.
Operational advantages and disadvantages
Advantages:
- Full legal protection of customer funds against the payment institution’s insolvency.
- Market confidence: merchants and users operate knowing their money is shielded.
- Regulatory compliance required to obtain and maintain authorisation from the Bank of Spain.
Disadvantages:
- High operational cost. Opening and maintaining segregated accounts involves significant banking fees, especially for early‑stage fintechs.
- No yield. Safeguarded funds do not earn interest for the institution.
- Banking access difficulties. Many traditional banks in Spain refuse to open these accounts for small entities, forcing them to rely on digital banks with higher fees.
- Risk of unilateral closure. Some financial institutions have closed safeguarding accounts without notice or sharply increased fees.
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