<img height="1" width="1" style="display:none;" alt="" src="https://px.ads.linkedin.com/collect/?pid=6061692&amp;fmt=gif">

Safeguarding Explanation

Last updated: 11 May 2023

A message from Modulr: How we keep customer funds safe 

At Modulr, we work hard to ensure that all our customer communications are clear and we’re  committed to playing our part in increasing standards across the industry. So, we welcome the chance to offer further clarity around the differences in protections between our services and traditional  banking, and answer some frequently asked questions. 

Who is Modulr? 

Modulr is the embedded payments platform for digital businesses that need a faster, easier and more  reliable way to move money. We provide the digital infrastructure that enables our customers and  partners to embed payment and account functionality directly into their platforms, workflows and  customer experiences. 

Is Modulr a bank? 

Modulr is not a bank, we’re an E-money Institution (EMI).  

An EMI is an organisation that has been authorised by the regulator to issue e-money accounts and  provide related payment services. In the UK, we're authorised and regulated by the Financial Conduct  Authority (FCA) and in the EU we're regulated by De Nederlandsche Bank. 

Our payment accounts come with sort codes or Euro IBANs, access to payment schemes and  everything you would expect, but all in a faster, easier and more reliable way. 

How is Modulr different from a bank? 

One of the main differences between Modulr, an EMI, and a bank is that banks lend money, whereas  EMIs are prohibited from lending money. Specifically, banks receive deposits from customers that they  use to lend money out and make a profit on the difference . By contrast, an EMI such as Modulr holds  100% of client funds at all times, does not lend any customer funds or offer interest on balances.  

Our payment services however are regulated by the same payments regulations that apply to banks.

How does Modulr protect customer funds? 

Modulr is required by law to use a process called Safeguarding to protect customer money. This means  we ensure that 100% of the funds we receive in exchange for e-money are safeguarded on receipt,  meaning that these are segregated from all other funds that we hold and they cannot be used for any  other purposes. This is completely separate from the additional funds that Modulr holds to meet its  corporate obligations and run its business. 100% of the funds we safeguard must be held in specially  designated client accounts at credit institutions (banks) or the Bank of England (see ‘Where is my  money safeguarded?’ below). 

Furthermore, as an EMI, we must also hold an additional 2% of the total value of safeguarded client  funds in our own funds, which are held separately to those client funds. The purpose of the additional  2% funds is to ensure that, in the case of any problems with our business, there are enough funds to  support an orderly business wind-down and the process of returning of client funds . Combining this  ‘2%’ requirement with the safeguarding means that customer funds are 100% available to a customer,  and there is a protection mechanism to help ensure an orderly wind down if ever required. 

So, while the Financial Services Compensation Scheme (FSCS) is not applicable to e-money, the  regulatory requirements outlined above can be relied upon instead and protects the balance of  customer funds, as opposed to only compensating up to a limit as is the case with the FSCS 

What is the FSCS and is it applicable to Modulr? 

The FSCS offers consumers protection of their bank deposits up to £85,000 maximum, or £170,000 for  a joint account, in the event of a bank failure. The FSCS scheme only applies to banks, and therefore  is not relevant to an EMI such as Modulr. However, as mentioned, Safeguarding means that 100% of  customer money at Modulr, regardless of the amount, is segregated from all other funds that we hold  and cannot be used for any other purpose. 

What would happen in the unlikely event of Modulr’s insolvency? 

In addition to the safeguarding and further ‘2%’ requirements we’re also required to prepare orderly  wind down planning. These plans include the early identification of a potential insolvency event and  the return of your funds before an insolvency process if possible. We have to provide these plans to  the FCA and they are subject to external audit review. This further reduces the unlikely event of your  funds having to be returned during our insolvency. In the unlikely event that Modulr becomes 

insolvent, your funds are separate from the funds of Modulr and therefore the creditors of Modulr  (other third parties that are owed money from Modulr) are not able to make a claim or have effect  on your funds. 

An independent insolvency professional (referred to as an ‘insolvency practitioner’) will be appointed  to return your funds to you. However, where an insolvency practitioner is unable to take their costs  of sending the funds to you from elsewhere (for example, the general pot of Modulr funds remaining  or from the additional 2% own funds described above) they are entitled to take their costs from your  funds. In this unlikely circumstance, while you’ll likely receive most of your funds you may not receive  the total value if costs are deducted. The process of returning your funds by an insolvency practitioner  is likely to take longer than if you were making a claim in the FSCS. 

Where is money safeguarded? 

Modulr must deposit 100% of the value if all the e-money it has issued to customers at a credit  institution (banks) or the Bank of England. Modulr uses a range of clearing banks for different services  but, with our direct access to Faster Payments and Bacs, Modulr is one of a few non-bank Payment  Service Providers to hold funds associated with GBP domestic flows directly at the Bank of England.  Our safeguarding processes are subject to independent yearly external audit, providing further  confidence that we adhere to the regulations required for safeguarding. 

Who regulates Modulr in the UK? 

Modulr FS Ltd (FRN: 900573) is licensed as an authorised E-Money Institution (EMI) and regulated by  the Financial Conduct Authority (FCA). This enables Modulr to issue e-money to its customers, hold  customer funds in safeguarded accounts and provide related payment services to customers. Modulr  Finance Limited (FRN: 900699) is registered with the Financial Conduct Authority as an EMD Agent of  Modulr FS Limited. 

Payment services in the UK are subject to the Payment Services Regulations (PSRs). The PSRs apply to  all payment services, meaning in relation to payment services, there is no difference in how Modulr  and other payment service providers and banks are regulated. 

Who regulates Modulr in the EU? 

Modulr Finance B.V. is licensed and regulated by De Nederlandsche Bank (Relatienummer R182870)  as an Electronic Money Institution.

Modulr Introduced Client Terms

Introduced Client Terms