Segregated Account
A segregated account holds customer money apart from the firm’s own money, so the two are never mixed and the customer balance is identifiable as customer balance in both the firm’s and the bank’s records.
Also called: segregation of funds
The problem segregation solves is old and simple. If customer money and company money sit in the same account, the company can spend customer money without anyone noticing, and after the fact nobody can prove which dollars were whose. Keeping the two in different accounts puts the boundary on a bank statement rather than in an internal spreadsheet.
What segregation settles
It answers one question: is this money the firm’s, or the customers’? Everything about the customer side is left exactly as it was. A pooled account can be cleanly separated from the firm’s own funds and still be a single undifferentiated balance, with the breakdown living entirely in the firm’s ledger.
A segregated account also does not, on its own, decide what happens if the firm fails. Whether customers rank ahead of other creditors, and on what basis, depends on the account terms, the trust or statutory arrangement the money is held under, and the insolvency law of the relevant jurisdiction. Segregation makes customer money identifiable, which is a precondition for most protective outcomes without being a substitute for them.
In practice
Segregation separates the firm’s money from its customers’ money, and that is the whole of what it does. It does not establish which customer owns which part of the customer side; only the ledger can do that, and only if it is kept accurately.
Example
A payment firm runs two accounts at the same bank. The operating account holds fee income, salaries and working capital. The customer account holds only funds collected for onward payment. Nothing moves between them except a documented fee sweep once a payment has settled. An auditor can see the boundary from the two statements alone, without opening the ledger.
Commonly confused with
| Term | How it differs |
|---|---|
| Safeguarding Account | Segregation is a technique any firm can adopt; a UK safeguarding account is a regulatory requirement that includes segregation plus conditions on eligibility and designation. |
| Named Account | Segregation separates the firm from its customers; naming separates one customer from another. |
See also
- Safeguarding AccountA safeguarding account is the account at an eligible institution in which a UK payment or e-money firm places the customer funds it must safeguard, held and designated the way the applicable rules require rather than the way a bank chooses to label its product.
- Named AccountA named account is a bank account opened in the end customer’s own name rather than in the operator’s name with the customer recorded internally. The customer is the account holder of record, so money arriving there is identified with them at the bank.
- Client MoneyIn the United Kingdom, client money is a defined regulatory term: money a firm holds for customers under one of the FCA’s client asset regimes, covering investment business, insurance distribution, debt management and claims management. It must be segregated, identifiable, and — in investment business — held on trust for the customers it belongs to.
- Pooled AccountA pooled account holds several customers’ money together in one bank account, with ownership of the individual balances tracked off the bank’s books in the firm’s own records. The bank knows the account holder and knows nothing of the customers inside.
- LedgerA ledger is the internal record of who owns what inside an account or system. The bank statement shows a single balance; the ledger says which customers, merchants or wallets that balance belongs to, and in what amounts.