Understanding the Security of Your Funds When Working with an Electronic Money Institution

In today’s rapidly evolving financial landscape, more businesses are turning to Electronic Money Institutions (EMIs) for flexible, cross-border payment and banking solutions. But for many CFOs, treasurers, and business owners, a critical question remains:

"How secure are my company’s funds when held with a non-bank financial institution?"

It’s a fair and important question, and one we’re happy to address directly.

How EMIs Safeguard Client Funds

Unlike banks, EMIs do not lend out customer deposits or use them for investment purposes. Instead, they are strictly regulated to hold relevant client funds in segregated accounts, fully ringfenced from the institution’s own operating capital.

Here’s what that means for you:

• Funds are held in dedicated client accounts with Tier 1 banks or approved credit institutions

• They cannot be accessed by the EMI for business operations or liabilities

• In the unlikely event of insolvency, these funds remain protected and are returned to clients after deducting fees owed to the insolvency practitioner.

This regulatory structure is known as safeguarding, and it’s a core requirement under the UK’s Electronic Money Regulations and PSD2 in the EU.

What Are “Relevant Funds” and Why It Matters

It’s important to understand that not all funds handled by an EMI are subject to safeguarding. Regulation only requires safeguarding of what are defined as “relevant funds.”

Relevant funds include:

• Funds received from a client in exchange for issuing e-money, or

• Funds received for the purpose of executing a payment transaction

These funds must be segregated from the EMI’s own money and held in safeguarded accounts with approved credit institutions.

Non-relevant funds include:

• Fees paid for services (e.g., FX markup, transaction costs)

• Funds retained for purposes outside of e-money or payment execution (e.g., funds placed as collateral)

• Funds that have already been sent out for payment — once a payment instruction is fulfilled and funds are released, they are no longer considered relevant and thus are no longer subject to safeguarding

EMI’s take great care to ensure that relevant and non-relevant funds are clearly distinguished, so safeguarding is applied exactly as required under PSD2 and other applicable regulations. This ensures maximum transparency, compliance, and protection for your business.

Deposit Guarantee Schemes vs Safeguarding: What’s the Difference?

When it comes to fund protection, traditional banks and Electronic Money Institutions (EMIs) follow different models.

The Key Difference

Deposit guarantee schemes offer compensation up to a set limit if a bank fails. These schemes vary by country — such as:

• FSCS in the UK (£85,000)

• DGSD in the EU (€100,000)

• FDIC in the US ($250,000)

• CDIC in Canada (C$100,000)

In contrast, EMIs operate under a safeguarding regime. Rather than offering compensation, safeguarding ensures that your funds are never at risk in the first place, because they are:

• Held separately from the EMI’s own funds

• Not used for investment or credit purposes

• Returned to you even in the event of institutional failure

For businesses managing large balances or global payment flows, safeguarding offers unlimited protection of relevant funds, with greater transparency and control.

Understanding the Real Risks and How They’re Managed

While safeguarding offers strong protection for client funds, it’s equally important to understand the likelihood of an EMI entering insolvency in the first place.

The Low-Risk Operating Model of EMIs

EMIs operate on what’s known as a matched principal basis. That means they only enter the market or execute transactions upon direct client instruction, and do not engage in speculative trading or proprietary risk-taking.

This inherently conservative model significantly reduces the risk of default or insolvency compared to more complex financial institutions.

Where Risk Can Arise: Margin Credit Facilities

In specific scenarios, however, solvency risk can emerge — particularly when EMIs offer margin credit facilities to clients trading FX forwards or options.

The key issue arises when:

• Clients are not required to post initial or variation margin, but

• The EMI’s bank does require these payments, based on the mark-to-market value of the trades

This creates a cashflow gap. In volatile markets, an EMI could be forced to post significant margin to its bank — without being able to immediately recover those funds from clients. If this exposure is not carefully managed, it can lead to liquidity strain and, in extreme cases, insolvency.

How Bondford Approaches Risk

At Bondford Markets Ltd, we operate as an Introducing Broker, working under the regulatory umbrella of several fully authorised and licensed financial institutions.

We are (unless we directly introduce the client) responsible for all front-office activities, including sales, dealing, and client relationship management. This means we act as your primary point of contact and provide the interface through which you access tailored financial solutions.

The underlying regulated services — such as e-money issuance, payment processing, FX execution, and safeguarding of funds — are provided by our authorised EMI and payment institution partners, with whom you enter into a direct contractual relationship. Bondford Markets Ltd does not provide these regulated services and is not a counterparty to any transaction. As such, your counterparty risk lies not with Bondford, but with the regulated EMI or PSP with whom you contract directly.

Our selection process for EMI and PSP partners is rigorous and selective. We work exclusively with institutions that maintain robust risk controls and conservative credit policies — particularly around credit extension and margin facilities.

We do not engage in speculative FX activity, and we ensure that our partners follow the same disciplined approach. This structure ensures that your funds are never placed at unnecessary risk, and that you benefit from both operational flexibility and institutional-grade protection.

Regulatory Oversight & Trust in the Safeguarding Model

Bondford’s EMI partners are fully regulated, subject to regular audits, and required to reconcile safeguarding accounts on a daily basis. Funds are held with Tier 1 banks and are kept entirely separate from operational cash flows.

Our partners comply with the safeguarding and capital adequacy requirements outlined under EMD2/PSD2, ensuring your funds are protected according to the latest regulatory standards across the UK and EU.

Your Funds, Fully Protected

Unlike bank deposit guarantee schemes that cap protection at relatively modest limits, EMI safeguarding provides full coverage for relevant funds — with no upper limit. Your money is held securely, kept separate from institutional risk, and returned to you even in the event of failure.

If you have questions about safeguarding, EMI regulation, or how Bondford protects your business, we're here to help.

Security and transparency aren’t just part of our platform — they’re part of our promise.