As digital payments have accelerated, so too has the number of regulated firms enabling businesses to hold, send and receive money without being a traditional bank. One of the most important of these is the Electronic Money Institution, or EMI.
For CFOs, finance teams and payment specialists, understanding what an EMI is and how client funds are protected is critical. It directly affects risk management, liquidity planning, counterparty assessment and regulatory confidence.
In this guide, we explain:
An Electronic Money Institution (EMI) is a regulated firm authorised to issue electronic money and provide payment services.
In the UK, EMIs are authorised and supervised by the Financial Conduct Authority (FCA). In the EU, they are authorised by national regulators such as De Nederlandsche Bank (DNB) in the Netherlands.
Electronic money, or e-money, is a digital representation of funds that:
In practical terms, this means an EMI can:
However, EMIs are not banks. That distinction matters.
Although EMIs can look and feel similar to banks from a user perspective, the regulatory model is fundamentally different.
The key difference lies in how client funds are protected.
Banks operate on a fractional reserve model. Deposits become part of the bank’s balance sheet and are protected by capital requirements and, in the UK, the Financial Services Compensation Scheme (FSCS), typically up to £85,000 per eligible depositor.
EMIs operate under a safeguarding regime, not a deposit guarantee scheme.
Safeguarding is the regulatory mechanism that protects customer funds held by an EMI.
Under UK and EU regulations, EMIs must:
In simple terms:
This model is designed to ensure that client funds remain protected and recoverable.
This is one of the most common questions from finance leaders.
If an EMI becomes insolvent:
However, there are important nuances:
In other words, safeguarding is designed to protect funds structurally, rather than relying on an insurance-style guarantee.
For corporate clients holding balances above £85,000, safeguarding applies to the full safeguarded balance rather than a capped compensation amount, although it does not provide an insurance-style guarantee like FSCS.
Safeguarding is not just a static legal requirement. It requires continuous operational discipline.
Robust EMI providers implement:
From a CFO’s perspective, this operational maturity is often more important than the headline regulatory status.
When evaluating an EMI, finance teams should go beyond “Are they regulated?” and ask:
Daily reconciliation is a regulatory expectation under safeguarding rules and a core element of compliance.
Direct access to payment schemes such as Faster Payments can reduce operational dependencies and improve control.
The EMI framework was designed to encourage innovation and competition in payments without requiring every provider to become a full bank.
It enables:
For businesses, this has unlocked access to:
All without the friction of traditional banking infrastructure.
An EMI is often well suited to:
For treasury-heavy, balance-sheet-dependent activities, traditional banks may still play a role. In practice, many organisations operate hybrid models.
For finance leaders, understanding this distinction is essential when selecting payment partners and managing counterparty exposure.
Modulr is authorised as an Electronic Money Institution in the UK by the FCA and separately in the Netherlands by De Nederlandsche Bank, enabling it to operate in the UK and, via its Dutch licence, across the EEA. Client funds are fully safeguarded in line with regulatory requirements, held separately from Modulr’s own funds and reconciled daily. Combined with direct access to major payment schemes and a resilient, API-first infrastructure, this enables businesses to automate payments at scale with confidence in how their money is protected.