Your money with an EMI: What safeguarding actually means
As more businesses turn to alternatives to traditional banking, understanding how their funds are protected is becoming increasingly important
By Stelios Constantinou - CFO
The way businesses manage and move money is changing rapidly. Electronic Money Institutions (EMIs) have become an increasingly important part of Europe’s payments landscape, offering businesses digital accounts, international payments, foreign exchange and other financial services.
But their growing role also raises an important question for businesses considering an alternative to traditional banking: “what happens to the money held with an EMI and how is it protected?”
The answer lies in a regulatory principle known as “safeguarding”. Safeguarding is sometimes confused with the deposit protection offered by banks. The two, however, are different mechanisms. Understanding that distinction is important for any business choosing where and how to manage its money.
What does safeguarding mean?
EMI Law and European directives require Electronic Money Institutions to safeguard relevant funds received from their customers.
One of the principal methods provided for under the European framework is segregation. Under this approach, relevant client funds must be kept separate from the institution’s own funds. Where the funds remain with the institution beyond the prescribed timeframe, they must be placed in a separate account with a credit institution or central bank, where permitted, or invested in qualifying secure, liquid and low-risk assets.
Importantly, the framework is designed so that safeguarded funds are insulated, in accordance with national law, from claims by other creditors of the institution, particularly in the event of insolvency. In simple terms, the underlying principle is clear: client money and the institution’s own money are not the same thing and should not be treated as such.
Safeguarding is not deposit insurance
Money held with an EMI should not be presented as a conventional bank deposit. Banks and Electronic Money Institutions operate under different regulatory frameworks and use different mechanisms for protecting customer funds.
A deposit guarantee scheme protects eligible bank deposits up to the applicable statutory limit if a bank fails. Safeguarding works differently. Rather than providing the same form of guarantee after an institution fails, its purpose is to ensure that relevant client funds are appropriately separated and protected from the institution’s own financial position in the first place.
Greater scrutiny in Cyprus
Safeguarding has also received increased supervisory attention in Cyprus. Electronic Money Institutions and Payment Institutions licensed by the Central Bank of Cyprus and holding client funds were required by 30 September 2026 to submit an independent limited-assurance report on the compliance with the regulatory requirements for safeguarding of client funds for the year ended 31 December 2025. The requirement introduces an additional layer of independent scrutiny. According to the published information on the exercise, the assurance must be carried out by an independent statutory auditor who is neither the institution’s financial statements auditor nor its internal auditor. The aim of this engagement is to ensure that institutions have appropriate organisational arrangements and controls in place to minimise the risk of loss or mismanagement of client funds.
This development comes within a wider strengthening of the supervisory framework. The Central Bank of Cyprus has introduced new requirements concerning the internal organisation and governance of EMIs and has identified safeguarding of client funds as a supervisory priority.