RPAA Insurance: Safeguarding Fintech Funds and Ensuring Compliance

• Payment Fintechs & E-Money Issuers: Companies like digital wallet providers, prepaid card programs, and money transfer services that maintain customer account balances (funds “at rest”) for later withdrawal or transfer. These businesses are considered PSPs under the Act and must safeguard user funds.
• Payment Processors & Platforms: Online marketplaces, crowdfunding platforms, payment facilitators, and similar services that temporarily hold funds (e.g. holding money for sellers or campaign creators before payout).
• Lending & P2P Finance Apps: “Buy Now, Pay Later” providers, peer-to-peer payment apps, and fintech lenders that hold onto consumer funds or repayments for a period of time.
• Merchant Acquirers & Neo-Banks: Fintech companies that act like financial institutions – for example, merchant acquirers that hold settlement funds before disbursement, or neo-banks and trust companies that take in client deposits outside of traditional insured bank accounts.
• Crypto Platforms (Fiat Custody): Cryptocurrency exchanges or custodians that hold fiat currency on behalf of users (if not otherwise exempt). If they qualify as PSPs, they also need to safeguard those fiat funds.

Key Features and Benefits of RPAA Insurance

• Complete Fund Coverage (No Deductible): The policy amount is set to cover 100% of the safeguarded funds. There’s no self-insured retention or deductible on an RPAA Insurance policy – it will pay out the full amount of customer funds protected, with no portion deducted. This ensures there’s zero shortfall for end users in the event of a failure.
• Broad Insolvency Protection, Prompt Payout: RPAA Insurance is designed to respond swiftly if your company becomes insolvent. Any insolvency event triggers a payout of the policy into a trust for the benefit of your customers. Importantly, the coverage applies regardless of the cause of insolvency – whether it’s due to fraud, employee misappropriation, operational negligence, or an unforeseen event, the insurer will still pay the claim. There are no delays or conditions that would hold up payment; once a court or regulator confirms the PSP’s insolvency, the funds are released promptly so customers can recover their money without delay.
• Trusted, High-Rated Insurers: These policies are backed by a panel of top-tier insurers with strong credit ratings. In fact, the first safeguarding insurance program (launched in Europe in 2019) was underwritten by more than 10 insurers, all rated “A” or higher for financial strength. With ALIGNED, you’ll access insurers of similar calibre. This gives your business and customers confidence that the coverage will be reliable if it’s ever needed.
• Regulatory Compliance & Capital Efficiency: By using an insurance policy approved under the RPAA, fintechs can meet compliance requirements without tying up all their capital in reserve. This frees up working capital that would otherwise be sitting idle in a trust account, improving your liquidity. Firms in other jurisdictions that adopted a hybrid safeguarding model (part trust, part insurance) have saved money and improved operational efficiency while staying fully compliant. In short, RPAA Insurance provides a compliant safety net that can be more flexible and cost-effective than relying on trust accounts alone.
• Enhanced Governance via Underwriting: Obtaining RPAA Insurance involves a thorough underwriting process – typically a 2–3 month due diligence review of your firm’s financials and controls. While rigorous, this process can be valuable: the insurer’s deep dive often validates and strengthens your safeguarding framework. By meeting the insurer’s high standards (often requiring a 90%+ compliance score in their review), you gain third-party assurance that your procedures for handling funds are solid. In essence, the underwriting acts as an external audit of your safeguarding, which can improve internal practices and demonstrate to regulators/investors that you operate at a high standard.

Underwriting Requirements for RPAA Insurance

• Comprehensive Due Diligence: Carriers typically conduct a detailed review (lasting ~2–3 months) before policy inception, often via a specialized Due Diligence Audit (which can involve a fee of about $5,000 plus tax). Your company must generally score 90% or higher on this review, with no major red flags, to be approved for coverage. This review examines your financial stability and compliance rigor.
• Financial Statements: You’ll need to provide your latest audited financial accounts – for the entity seeking insurance, and often consolidated statements for any parent or group companies. Strong financials give underwriters confidence in your business viability.
• Company & Management Info: Insurers ask for a detailed company overview presentation and an organization chart of your corporate structure (including any subsidiaries or affiliated entities). They want to understand how your business is organized and capitalized.
• Compliance and Controls: Expect to submit key sections of your compliance manuals – especially those covering Anti-Money Laundering (AML), Know-Your-Client (KYC), handling of Politically Exposed Persons (PEPs), and most importantly, your safeguarding procedures for client funds. If you have reports from any external compliance audits or examinations, those should be provided as well. A strong compliance track record with documented policies is essential.
• Use Case & Fund Details: Underwriters will want a clear explanation of how you intend to use the RPAA Insurance. You should prepare a brief use-case summary describing why insurance is being considered (e.g. to complement trust accounts, support business growth, etc.). Additionally, you’ll need to estimate the amount of client funds you expect to safeguard on day one of the policy – this helps set the appropriate coverage limit.
• Operational Insurance Coverage: Insurers typically require that you carry certain basic insurance policies as a prerequisite. Before binding an RPAA policy, you should have (or obtain) coverage such as Professional Indemnity (Errors & Omissions), Crime insurance (fidelity bond), Cyber Liability, and Directors & Officers (D&O) insurance. These policies address other operational risks and reinforce that your risk management is comprehensive.

How ALIGNED Insurance Can Help Your Fintech Comply

• Assess Your Needs: First, we evaluate your business model and determine whether you fall under the RPAA’s fund-holding requirements. If you do, we help quantify the typical amount of end-user funds you hold and identify any gaps in your current safeguarding approach. This risk assessment informs whether a trust account, insurance, or a hybrid method would serve you best.
• Provide Trust Account Guidance: If a traditional trust account is part of your strategy, we’ll advise you on setting it up correctly. This includes ensuring you have a proper trust agreement in place, choosing an approved financial institution for the account, and implementing the required record-keeping (segregated ledgers, reconciliation processes, etc.). Our goal is to help you meet all the Retail Payments Act requirements with confidence, whether through trust, insurance, or both.
• Explore Insurance Alternatives: We’ll candidly discuss whether an RPAA Insurance policy makes sense for your organization. This involves a cost-benefit analysis – comparing the insurance premiums and underwriting effort against the advantages (e.g. capital freed, operational flexibility gained). If a hybrid approach is viable, we’ll help determine the optimal split (for example, safeguarding a base amount in trust and insuring the excess). You’ll get expert, unbiased advice on what approach best fits your risk profile and growth plans.
• Leverage Our Market Access: ALIGNED has strong relationships with the leading insurers in the fintech and financial services arena. We know which insurance companies are offering RPAA-compliant policies and what their underwriting expectations are. Using our network, we will secure quotes from reputable underwriters on your behalf. Because we understand this product’s nuances, we’ll present your company in the best light – highlighting your strengths and addressing potential concerns upfront – to negotiate favorable terms. (Our brokerage has direct partnerships with over 70 top insurance companie in Canada, which means we bring multiple options to the table)
• Streamline the Submission: The documentation requirements for RPAA Insurance can be extensive (as outlined above), but ALIGNED will help you every step of the way. We’ll assemble a thorough submission package for underwriters, ensuring all required documents – financials, compliance manuals, audits, structure charts, etc. – are included and well-organized. Our experts will even review your materials and suggest improvements before they go to the insurer. By crafting a compelling submission, we increase your chances of approval and potentially secure better pricing.
• Ensure Competitive Coverage: As your advocate, we don’t just aim for compliance – we aim for value. We will negotiate policy terms and premiums on your behalf, making sure you get a cost-effective deal that still provides robust protection. This includes checking that the policy language aligns with RPAA rules (e.g. proper insolvency trigger, 30-day cancellation notice, coverage equal to funds held) and that you’re comfortable with any conditions. We’re there to answer your questions about the fine print so there are no surprises.
• Ongoing Support: Compliance is not a one-and-done task, and neither is our service. ALIGNED will continue to support you after the policy is in place. We assist with any reporting obligations (for example, if regulators or banks need proof of your insurance), and we’ll manage your renewals each year, adjusting coverage as your business grows. If your safeguarding needs change – say you acquire a company or launch a new product – we’ll help adapt your approach, whether that means increasing the insured amount or revisiting the trust/insurance mix. Think of us as an extension of your risk and compliance team, always on hand to ensure you remain protected and aligned with regulations.

Your Advocate in Fintech Risk, RPAA Regulations & Compliance

Ready to safeguard your customers’ funds and ensure RPAA compliance? Click Here to Get A Quote or Contact ALIGNED Insurance today to discuss an RPAA Insurance solution tailored to your organization. We’ll provide expert advice and connect you with the best coverage options available. Protecting your clients’ trust and funds is not just about obeying the law – it’s about building confidence in your brand. Let ALIGNED help you secure that foundation. Visit https://www.alignedinsurance.com/ or call 1-866-287-0448 to get aligned with the right protection for your fintech business today.