Safeguarding insurance - FCA guidance

PSD Bond is a safeguarding insurance policy pioneered by Protean Risk which is being used by an increasing number of APIs and EMIs, including some of the largest and most well known brands. It was launched mid-2019 and is the first and currently only insurance contract that meets the requirements of the revised Payment Services Directive (PSD2) and the second Electronic Money Directive.

PSD Bond meets FCA standards

The FCA recently issued a guidance note to firms using or considering using insurance as a safeguarding method. This guidance note sets out some important features that any safeguarding insurance policy must contain. We can confirm that the PSD Bond insurance policy operates in a way that meets the standards required.

For almost two years Protean Risk worked with payment service providers, regulators, insurance underwriters and law firms to develop PSD Bond. This included not only technical requirements of the directives, but also the practical operation of the insurance policy. Whist the use of insurance as a method of safeguarding is permitted, regulators must be satisfied that the insurance policy always provides maximum protection of customer funds.

PSD Bond is available to firms domiciled and authorised in the UK, Lithuania and Ireland.

Why use the insurance method?

Insurance offers a number of benefits, not least:

• Alleviates regulatory risk by smoothing some of the more challenging aspects of segregation;
• Simplifies compliance by solving some of the grey areas and awkward use cases such as foreign exchange and fund comingling;
• Improves capital efficiency.