Cyprus oversight highlights safeguards for funds held by electronic money firms

Nicosia, Cyprus. Electronic money institutions and payment institutions holding customer funds under licences from the Central Bank of Cyprus were required to submit an independent limited-assurance report by 30 September 2026. The requirement adds independent scrutiny of safeguarding compliance, a mechanism distinct from bank deposit protection.

Independent checks in Cyprus

According to published information about the exercise, the reports were to assess compliance with regulatory safeguarding requirements for the financial year ending on 31 December 2025.

The published requirements specify that an independent statutory auditor must undertake the assurance engagement. That auditor cannot also audit the institution’s financial statements or serve as its internal auditor.

The stated purpose is to establish whether institutions maintain suitable organisational arrangements and controls to reduce the risk that customer funds could be lost or mismanaged. The exercise reflects greater supervisory attention to safeguarding in Cyprus.

How safeguarding operates

EMI Law and European directives oblige Electronic Money Institutions (EMIs) to safeguard relevant money received from customers.

The European framework identifies segregation as a principal means of meeting that obligation: relevant customer money must remain separate from the institution’s own resources.

Under those rules, if an institution retains the funds beyond the specified period, it must put them into a separate account at a credit institution or, where allowed, a central bank. Alternatively, it may invest them in eligible assets meeting security, liquidity and low-risk criteria.

The framework is intended to shield safeguarded money, under national law, against claims from the institution’s other creditors, especially if it becomes insolvent. Its underlying distinction is that customer funds do not belong to the same pool as the institution’s own money and must be treated separately.

Why this differs from deposit protection

Under their respective regulatory frameworks, banks and EMIs protect customers’ money through different mechanisms. Money placed with an EMI should therefore not be described as an ordinary bank deposit.

A deposit guarantee scheme covers qualifying bank deposits within the relevant legal limit when a bank fails. Safeguarding does not offer an equivalent guarantee following an institution’s failure. Instead, the framework seeks to keep relevant customer funds separate and protected from the outset, rather than exposing them to the institution’s financial position.

A changing payments landscape

Against a backdrop of rapid changes in how businesses handle and transfer money, EMIs have taken on a larger role in European payments. Their services include digital accounts, cross-border payments, foreign exchange and other financial offerings.

As more businesses consider options beyond traditional banks, the distinction between safeguarding and deposit guarantees is important to decisions about where and how they hold and manage their money. The relevant frameworks determine what happens to funds entrusted to an EMI and how those funds are protected.