Segregated Funds Are a Safeguard, Not a Guarantee
Posted: Tue Oct 27, 2026 3:27 am
Segregation of client funds means client money is held in accounts separate from the firm's own operating money. It is a core safeguard, yet the phrase is often treated as a complete guarantee, which it is not.
Segregated accounts still sit at a bank, and that bank can itself fail. Rules differ on whether client money must be placed with credit institutions of a minimum standard, how often reconciliations occur, and whether the funds are held under a trust arrangement that survives an insolvency. In some jurisdictions the segregation is a policy statement without strong legal backing.
A separate issue is the difference between funds held and funds protected. An investor compensation scheme, where one exists, usually has a cap per client and may exclude certain client categories or cover only specific types of claim. Segregation and compensation are two distinct layers, and a firm may offer one without the other.
Worth checking: the name of the bank holding client money, whether audited statements mention client money reconciliation, and what the compensation limit is. Unclear answers suggest the protection may be thinner than the marketing implies.
Segregated accounts still sit at a bank, and that bank can itself fail. Rules differ on whether client money must be placed with credit institutions of a minimum standard, how often reconciliations occur, and whether the funds are held under a trust arrangement that survives an insolvency. In some jurisdictions the segregation is a policy statement without strong legal backing.
A separate issue is the difference between funds held and funds protected. An investor compensation scheme, where one exists, usually has a cap per client and may exclude certain client categories or cover only specific types of claim. Segregation and compensation are two distinct layers, and a firm may offer one without the other.
Worth checking: the name of the bank holding client money, whether audited statements mention client money reconciliation, and what the compensation limit is. Unclear answers suggest the protection may be thinner than the marketing implies.