Safeguarded client funds are the money that the rules described under safeguarding are designed to protect. The safeguarding entry explains the methods and obligations in detail; this page explains what the phrase refers to.
Payment institutions and e-money issuers in the UK and the European Union are not banks, so their customers' balances are not covered by deposit insurance. Instead, the law requires the firm to protect "relevant funds" received from customers. The usual method is segregation: the money is kept apart from the firm's own cash and placed in a designated safeguarding account at a bank, or invested in approved secure, low-risk assets. The alternative is an insurance policy or a comparable guarantee covering the same amount. If the firm becomes insolvent, the safeguarded pool is meant to be returned to customers ahead of other creditors.
The term is close to client money, which is used for investment firms under the UK FCA's client assets rules, and to segregation of funds, a wider term used across finance. Failures of payment firms have shown that problems usually come from poor records rather than missing rules, which is why accurate reconciliation and a segregated client ledger are central to compliance.