Banking, record keeping and accounting

Payment systems and banking protections for businesses

How the Financial Services (Banking Reform) Act 2013 protects your business through the Payment Systems Regulator, FSCS deposit insurance, and ring-fencing rules. Covers what happens if your bank fails.

UK-wide
Guide summary

The government has rules to protect your business banking. This guide explains how the Payment Systems Regulator (PSR), FSCS deposit cover, and other rules help make sure your payments are safe and your money is protected if your bank fails.

  • PSR ensures fair and efficient payment systems
  • PSR requires banks to refund APP fraud from October 2024
  • FSCS protects deposits up to £120,000 per bank from Dec 2025
  • Temporary high balance protection of £1,400,000 for 6 months
  • Ring-fencing keeps your business banking safe from investment risks
  • If your bank fails, FSCS aims to pay out in 7 days
  • Check your bank's APP fraud protection for business accounts
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UK-wide

Related guides in Tax & Finance

The Financial Services (Banking Reform) Act 2013 introduced major protections for businesses that use UK banks and payment systems. Whether you're receiving payments from customers, paying suppliers, or holding business deposits, these reforms affect how your money is protected.

This guide explains the three key protections created by the 2013 reforms and what to do if problems arise with your bank or payment provider.

Why these protections exist

Following the 2008 financial crisis, the UK government introduced reforms to prevent bank failures from devastating businesses and consumers. The Banking Reform Act 2013 addressed three critical gaps:

  • Payment system oversight: No regulator was responsible for ensuring payment systems worked reliably and fairly
  • Deposit protection: Compensation limits needed updating and payout processes were too slow
  • Structural separation: Retail deposits were exposed to risks from investment banking activities

These reforms now provide a safety net for your business banking and payments.

The Payment Systems Regulator

The PSR is the UK's dedicated economic regulator for payment systems. It ensures the systems your business relies on for receiving and making payments operate fairly, efficiently, and in your interests.

Why PSR oversight matters for your business

The payment systems regulated by the PSR handle virtually all UK business transactions:

  • Faster Payments: When customers pay you via online banking or you pay suppliers, these transfers typically use Faster Payments (real-time, 24/7)
  • BACS: Your Direct Debits (rent, utilities, subscriptions) and Direct Credits (payroll, regular supplier payments) run through BACS
  • CHAPS: High-value transactions like property purchases or large commercial payments use CHAPS for same-day guaranteed settlement
  • Card payments: Visa and Mastercard transactions from your customers are regulated for interchange fees and access

If any of these systems fails or treats businesses unfairly, the PSR has powers to intervene, issue directions, and impose financial penalties.

APP fraud reimbursement

From October 2024, the PSR requires mandatory reimbursement for Authorised Push Payment (APP) fraud victims. If your business is tricked into sending money to fraudsters (for example, through invoice redirection fraud), you may be entitled to reimbursement from your bank, up to a limit of £85,000 per claim.

Note: Reimbursement rules have exclusions for gross negligence and certain business-to-business transactions. Check with your bank about their specific APP fraud protection for business accounts.

FSCS deposit protection

The Financial Services Compensation Scheme protects your business deposits if your bank fails. Understanding the limits helps you manage where you hold business cash.

How deposit protection works for businesses

Small businesses are protected: Unlike large corporations, small businesses qualify as eligible depositors under FSCS rules. The £120,000 limit applies per authorised firm, not per account.

Important considerations for business deposits:

  • Check banking group structure: Different bank brands may share the same authorisation. For example, if you have accounts with two brands owned by the same banking group, your total protection is still £120,000 across both, not £240,000
  • Spreading deposits: If your business holds more than £120,000 in cash, consider spreading it across banks with different authorisations to maximise protection
  • Temporary high balances: The £1,400,000 temporary protection applies to businesses receiving large sums (insurance payouts, property sale proceeds, compensation) for 6 months

Ring-fencing protection

Ring-fencing is a structural reform that separates retail and small business banking from riskier investment banking activities in the UK's largest banks.

What ring-fencing means for your business

If you bank with Barclays, HSBC, Lloyds, NatWest, or Santander UK, your business deposits are held in a ring-fenced body (RFB) that is legally and operationally separate from any investment banking operations.

Practical implications:

  • Your account is with the RFB: For example, NatWest business accounts are with NatWest Bank Plc (the ring-fenced body), not NatWest Group Plc (the holding company)
  • Continuity if problems arise: If the investment banking side of the group encounters difficulties, the ring-fenced retail bank can continue operating independently
  • No change to your services: You continue using the same branches, apps, and services - the separation is structural, not visible to customers

Banks not affected: Challenger banks, building societies, and smaller banks with less than £25 billion in core deposits are not subject to ring-fencing requirements. Your deposits with these institutions are still protected by FSCS, but there is no structural separation.

Reporting payment system problems

If you experience problems with payment systems or believe you're being treated unfairly, you have several options for escalation.

  1. 1

    Complain to your bank first

    Your bank must handle complaints about payment services within 8 weeks. Use their formal complaints process and keep records of all communications.

  2. 2

    Escalate to the Financial Ombudsman Service

    If your bank doesn't resolve your complaint, eligible small businesses can escalate to the Financial Ombudsman. You must have annual turnover under £6.5 million, fewer than 50 employees, or an annual balance sheet under £5 million.

  3. 3

    Report systemic issues to the PSR

    If you believe a payment system or provider is acting anti-competitively or failing to meet service standards, report to the PSR. They investigate market-wide issues, not individual complaints.

  4. 4

    Contact the FCA for regulated firm complaints

    If your issue relates to how your bank is regulated (e.g., Consumer Duty failures, inadequate service), you can report concerns to the FCA, though they don't resolve individual disputes.

What to do if your bank fails

Bank failures are rare in the UK, but the 2013 reforms ensure that if it happens, your business is protected and can continue operating with minimal disruption.

  1. 1

    FSCS pays out within 7 days

    If your bank fails, FSCS aims to pay out protected deposits within 7 working days. You don't need to make a claim - banks must maintain records that allow automatic payouts.

  2. 2

    Check your protection status

    Use the FSCS protection checker to verify which of your accounts are protected and whether any banks share the same authorisation limit.

  3. 3

    Keep business continuity funds separate

    Consider keeping working capital you need immediately (payroll, rent, supplier payments) in a different bank from longer-term reserves, so you're not dependent on a single institution.

  4. 4

    Review your insurance

    Business interruption insurance may cover losses beyond FSCS limits if your bank fails and you cannot trade. Check your policy coverage.

Choosing a well-regulated bank

All UK-authorised banks are supervised by the PRA (prudential matters) and FCA (conduct matters), but you can take steps to understand how your bank is regulated:

  • Check authorisation status: Use the FCA Financial Services Register to verify your bank is authorised to accept deposits
  • Understand the structure: Know whether your bank is a ring-fenced body (for large banks) or a standalone authorised institution
  • Review FSCS membership: Confirm your deposits are protected and understand the limits
  • Consider diversification: If your business holds substantial cash, spreading across multiple authorised institutions reduces concentration risk