Safeguarding insurance: Unlocking value

Safeguarding is fundamental to the trust placed in payment institutions. For leadership, the question is not only whether an arrangement meets regulatory requirements, but whether it remains effective as the business evolves and becomes more complex. Safeguarding insurance may be part of the solution. Rather than viewing it as an additional layer of cost, payment institutions should assess whether it could also deliver value.

Different methods to safeguard client funds

Payment institutions in Malta can consider different permitted approaches to safeguarding relevant funds, including segregation, investments and insurance (or a comparable guarantee). The right approach depends on the institution’s business model, the applicable requirements and how the arrangement would operate in practice.

For many institutions, existing safeguard arrangements remain appropriate. For others, it may be worth evaluating whether insurance could enhance their current approach. A feasibility assessment of the use of insurance within a safeguarding approach may unlock value.

Turn safeguarding challenges into strategic value

Different payment flows, settlement arrangements, safeguarding banks’ systems, and the use of partners can make adherence to safeguarding requirements more challenging. Such variables affect how funds move throughout the payment cycle and may impact the institution’s ability to demonstrate that safeguarding obligations remain respected at all times. These pressures deserve attention and collaboration between finance, treasury, compliance and operations, rather than being treated solely as a reconciliation issue.

Having a properly structured and tailored safeguarding insurance policy in place may not only reduce the challenges described above, but also strengthen regulatory compliance, and create operational and capital-efficiency benefits, thereby unlocking tangible business value.

Building the use case for a safeguarding policy

The value of safeguarding insurance will vary between institutions and their business models. An assessment should consider which funds would be insured, which risks the policy would cover, how everything unfolds in the event of an insolvency, and whether the expected financial and operational benefits outweigh the cost of the policy. It should also examine the implications for liquidity, governance and customer contractual terms.

The policy framework must reflect the institution’s business model, actual flow of funds and intended use. A clear, credible use case allows insurers to assess the exposures and offer terms they are comfortable underwriting. The institution must then understand those terms and manage changes to its activities and fund flows so that its use of the policy remains within the agreed scope of cover. This continuing alignment is essential to both effective safeguarding and the policy’s strategic value.

A stronger safeguarding framework

Insurance does not remove an institution’s safeguarding responsibilities. Any proposed safeguarding insurance policy must be assessed against the applicable requirements and the institution’s safeguarding framework, actual flow of funds, exposures and obligations.

That assessment calls for close attention to the underlying insurer(s), policy terms, claims mechanics and the institution’s governance and controls. These are not details to be considered only after a commercial decision.

Institutions can only unlock the benefits of the safeguarding insurance product by demonstrating the highest standards of safeguarding governance, and understanding these governance requirements is essential to building a robust use case.

Next steps

Malta’s payments industry is evolving rapidly. Regulators are increasingly explicit about safeguarding governance expectations, and institutions that optimise their safeguarding approach may outpace those that do not.

The question is not whether safeguarding insurance is inherently better than the segregation method. It is whether an appropriately structured arrangement could improve the institution’s safeguarding position and create measurable strategic value.

Deloitte can support that assessment from initial feasibility and use-case development through to the evaluation of insurance options, regulatory and operational considerations, and implementation planning. If you would like to explore whether safeguarding insurance could add value to your institution, contact our team for a discussion tailored to your business.