By Stelios Constantinou
As more businesses turn to alternatives to traditional banking, understanding how their funds are protected is becoming increasingly important
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.
An ongoing responsibility
The significance of the new assurance process goes beyond the submission of another regulatory report. Safeguarding depends on processes that have to work continuously: adequate policies and procedures, proper reconciliations, strong internal controls, clearly defined responsibilities, escalation procedures and oversight at board level.
For Moneygate, this is also central to the relationship of trust between a financial institution and its clients. As Stelios Constantinou, Chief Financial Officer of Moneygate, explains: “Businesses rightly want to know what happens to their money once it reaches their financial provider. Safeguarding provides a clear regulatory framework for how relevant client funds are treated and protected, but its effectiveness ultimately depends on strong governance, robust controls and disciplined implementation.”
He adds that increased scrutiny should be viewed positively for the wider sector. “Independent assurance and stronger supervisory expectations raise the standard for everyone. For clients, greater transparency around safeguarding can help them better understand the institutions they work with and make informed decisions. For the sector, it reinforces the importance of demonstrating that the controls behind our services are as strong as the technology and customer experience in front of them.”
This distinction is particularly relevant as more businesses explore alternatives to traditional banking. The appeal of newer financial providers often lies in technology, faster processes, international capabilities and a service model designed around the needs of modern businesses.
But innovation and regulation are not opposing concepts. Being an alternative to traditional banking does not mean being an alternative to regulation, accountability or financial discipline. It means providing businesses with a different model for accessing and managing financial services.
For Moneygate, that means combining technology and efficient transactions with human expertise, governance and regulatory compliance.
As the financial services landscape continues to evolve, businesses will increasingly have a wider range of options for managing and moving their money. The question should therefore not simply be whether one type of financial provider is “safer” than another.
Businesses should be asking more specific questions: “Who regulates my provider? How are my funds treated? What safeguarding arrangements are in place? What controls support them? And do I understand the protections that apply to my money?”
For EMIs, safeguarding is central to answering those questions.
And as businesses increasingly look beyond traditional banking for the financial infrastructure they need, understanding what safeguarding actually means is an important part of making an informed choice.
To learn more about how Moneygate supports modern businesses, explore its solutions or speak directly with its team.
Stelios Constantinou is the Chief Financial Officer of Moneygate