If your business relies on cross-border payments, FX conversions, or stored balances with a non-bank provider, you’ve probably wondered: what actually happens to our cash if the provider fails? This is exactly where segregated client accounts come in.
Used correctly, segregated client accounts keep client funds ring-fenced from a provider’s own balance sheet, reducing the impact of insolvency, fraud, or operational failures. For CFOs, finance heads, and treasury teams, they’re a core part of evaluating whether an FX or payments partner is genuinely “safe to trust” with working capital.
In this guide, we’ll unpack how segregated client accounts work in practice, how they connect to FCA safeguarding rules, and what you should be asking any specialist FX partner — including firms like Kazzius Capital — before you move significant flows across their platform.
Table of Contents
What are segregated client accounts?
At a simple level, segregated client accounts are bank accounts that hold client funds completely separate from a financial institution’s own operating balances.
Instead of pooling your balances with the provider’s rent, salaries, or marketing spend, your funds are kept in an account clearly labelled as “client” or “safeguarding” and treated differently in law and in daily operations.
Key characteristics:
- The account is opened with a regulated bank or credit institution.
- It is titled in a way that makes clear it holds client funds (e.g. “Client Account” or “Safeguarding Account”).
- The provider cannot use these funds to pay its own expenses.
- Internal records should always reconcile exactly to the balance held in the segregated account.
Regulators like the UK’s Financial Conduct Authority (FCA) require this separation under their client asset and safeguarding frameworks, specifically so that client funds are more likely to be returned if a firm fails.(FCA Handbook)
Why segregated client accounts matter for businesses
From a corporate perspective, segregated client accounts are about who is on the hook if something goes wrong.
When you keep sizeable balances or settlement flows with an FX broker, payment institution, or e-money firm, you’re taking on provider risk in addition to the FX and counterparty risk you already manage. If that provider becomes insolvent, commingles your funds with its own, or runs poor reconciliations, you may face:
- Delayed access to your own working capital.
- Shortfalls if there is not enough in the pool of safeguarded assets.
- Legal and operational headaches while insolvency practitioners sort out claims.
Regulatory regimes are tightening for exactly this reason. The FCA has signalled concerns that safeguarding hasn’t always worked as intended, and has proposed and now adopted tougher rules for payment and e-money firms, including stricter segregation, more frequent reporting, and formal trust-based arrangements to protect customer balances.(KPMG)
For businesses handling:
- Supplier payments in multiple currencies
- Overseas payroll
- Settlement flows from marketplaces or platforms
- Client deposits or escrow-like balances
…this isn’t an abstract regulatory issue. It directly affects liquidity, continuity of operations, and board-level risk.
Segregated client accounts vs ordinary business accounts
It helps to compare segregated client accounts with more familiar account types.
| Feature | Ordinary business account | Segregated client account |
|---|---|---|
| Who owns the account legally | The firm | The firm, but designated solely for client funds |
| Can be used for operating expenses? | Yes | No — restricted to client-related flows |
| How is it labelled at the bank? | Standard business/current account | Clearly marked as “client” or “safeguarding” |
| Treatment on insolvency | Forms part of the firm’s estate | Treated separately, with a pool reserved for clients |
| Reconciliation requirements | General accounting rules | Specific, often daily or frequent reconciliations required |
| Regulatory oversight (UK examples) | General prudential and conduct rules | CASS/client asset and safeguarding regimes apply (FCA Handbook) |
In short, segregated client accounts are operationally similar to standard accounts — you can still send and receive transfers — but they sit inside a much stricter control environment.
How segregated client accounts work in practice
While each provider’s setup differs, the general mechanism is consistent. Here’s the flow for a business using a specialist FX and payments partner:
- Client funds are received
- Your business funds a trade, settlement, or stored balance.
- The provider receives these funds and credits them to your internal ledger.
- Funds are immediately placed into a segregated account
- Under FCA client asset rules, firms using the “normal approach” must ensure client funds are paid directly into designated client accounts rather than touching the firm’s own operating account first.(FCA Handbook)
- The provider maintains detailed internal records
- Client balances are tracked at an individual level (by account, currency, and sometimes sub-accounts).
- Reconciliations compare internal records against bank statements, often daily and sometimes intraday.(FCA Handbook)
- Operational use is tightly controlled
- Funds can typically only be moved to settle trades, deliver payments you’ve instructed, or transfer between safeguarding accounts (e.g. across currencies or banks).
- They cannot be used to fund salaries, office rent, or speculative activity.
- In the event of failure
- Insolvency practitioners identify segregated client accounts.
- They use the records and reconciliations to calculate what each client is owed from the safeguarded pool.
- While this process can be slow, the design goal is that client funds are not thrown into the same pot as the firm’s creditors.(clientmoneyandassets.com)
Regulatory examples: FCA CASS and safeguarding rules
In the UK, the FCA’s Client Assets Sourcebook (CASS) sets out how firms must segregate and reconcile funds that belong to clients:
- Client funds must be placed into one or more client bank accounts, promptly and directly.(FCA Handbook)
- Those accounts must be clearly labelled as client accounts with the bank.
- Firms must keep accurate, up-to-date records and conduct regular reconciliations to identify any shortfalls or surpluses.(FCA Handbook)
Separately, the FCA has dedicated guidance on safeguarding for authorised payment institutions (PIs) and electronic money institutions (EMIs). These firms must either:
- Segregate client funds in dedicated accounts with a credit institution, or
- Insure or guarantee the funds through an approved third party.(FCA)
Recent policy statements and consultations (including CP24/20 and subsequent rules) reflect ongoing concern that existing practices haven’t always met these standards, and they push for more frequent checks, enhanced governance, and in some cases, trust-based legal structures.(KPMG)
Safeguarding for payment and e-money institutions
A useful way to think about this:
- Traditional banks take deposits and are usually covered by deposit protection schemes (such as the UK’s FSCS, up to certain limits).
- PIs and EMIs don’t always fall under deposit guarantee schemes in the same way; instead, they are expected to safeguard client funds through segregation and, where applicable, low-risk investments or guarantees.(FCA)
As a corporate client, you’re not expected to quote regulations, but you are expected — by your board and auditors — to understand whether your provider is treating your balances as:
- A standard unsecured claim, or
- Segregated and safeguarded client funds under a robust framework.
What segregated client accounts can — and cannot — guarantee
Segregated client accounts are a significant upgrade on commingled balances, but they are not a magic shield. It’s important for finance leaders to understand both sides.
What they can help with
- Reduced exposure to provider insolvency
- Because client funds are separated from the firm’s own estate, they should be easier to identify and distribute back to clients.(client.money)
- Improved legal clarity
- Titles on the accounts, plus contractual terms, make it clear that these balances are held for clients, not for the firm itself.
- Better operational discipline
- Regular reconciliations and audit trails reduce the chance of unnoticed shortfalls or mis-postings.(FCA Handbook)
- Stronger client and investor confidence
- Boards, auditors, and investors are increasingly sensitive to where and how funds are held, particularly after high-profile failures among non-bank financial firms.(Goodwin Law)
What they cannot promise
- No absolute guarantee of full recovery
- If a firm has not segregated accurately, has mis-recorded balances, or has breached rules over time, there can still be shortfalls. Cases like ipagoo and Supercapital have highlighted that legal characterisation and actual practice can diverge.(Clifford Chance)
- No automatic coverage by deposit schemes
- Safeguarded accounts at PIs and EMIs are typically not covered by schemes like FSCS, even though the underlying bank is. The structure is different: your claim is against the payment institution, not directly against the bank.(FCA)
- No protection against market risk
- Segregation protects against provider failure, not FX volatility. If your funds are held in EUR and the EUR weakens before you convert, that’s still an exposure you need to manage with tools like hedging and forward contracts.
Understanding these boundaries helps you set the right expectations with your board, risk committee, and external stakeholders.
Key benefits of segregated client accounts for your business
From a corporate treasury perspective, segregated client accounts translate into concrete, measurable advantages.
1. Better protection for operational balances
If you’re running sizeable balances to manage payroll, supplier runs, or collections in multiple currencies, segregation limits the chance that a provider failure turns into a liquidity crisis. Instead of competing with all other creditors, you have a clearer path to ring-fenced funds.
2. Stronger governance and auditability
Segregated accounts sit alongside:
- Detailed client-level records
- Regular reconciliations
- Clear board oversight of safeguarding arrangements
This makes it significantly easier to satisfy internal audit, external auditors, and regulators in any jurisdiction where you file group accounts.
3. Cleaner separation between operating and client funds
If you hold funds on behalf of your own customers — for example as a marketplace, SaaS platform, or payroll provider — segregated client accounts help you demonstrate that your clients’ balances are not financing your operating spend.
That, in turn, helps you:
- Win enterprise deals where procurement and treasury teams scrutinise safeguarding.
- Present a cleaner risk profile to investors and lenders.
- Maintain trust with your own customer base.
4. Smoother cross-border payment operations
When a specialist provider couples segregated client accounts with multi-currency infrastructure, you gain:
- Named collection accounts, so customers can pay you “like a local” in key markets.
- Dedicated settlement flows, which are easier to track and reconcile.
- Clear separation between “funds in transit” and internal operating cash.
If your business is considering named local accounts, mass payouts, or embedded FX, this combination of segregation plus operational tooling can materially streamline your finance stack.
5. Better alignment with tightening regulation
Regulators are stepping up scrutiny of safeguarding after several payment firm failures and high-profile shortfalls. Reuters recently reported on the FCA’s move to tighten rules for payment firms from May 2026, requiring clearer separation of customer funds, more reporting, and daily checks for larger firms.(Reuters)
By insisting on robust segregated client account structures today, you’re future-proofing your relationships with providers and reducing the risk of awkward remediation projects later.
How segregated client accounts fit into a wider safeguarding framework
Segregation is crucial — but it’s only one layer in a broader safeguarding framework. A mature provider combines segregated client accounts with:
- Stringent bank selection
- Using reputable, well-capitalised banks or credit institutions in appropriate jurisdictions.(lb.lt)
- Granular records and reconciliations
- Daily (or more frequent) checks between internal ledgers and bank statements.
- Clear procedures to investigate and fix mismatches fast.(FCA Handbook)
- Independent audit and reviews
- Annual safeguarding audits where required.
- Internal audits that stress-test the controls, not just box-tick against policy.(KPMG)
- Clear, fair customer communications
- Honest disclosures about what protections apply and which do not (for example, whether FSCS or equivalent schemes cover balances).(Sidley Austin)
For larger corporates, this framework should feed directly into your third-party risk management and vendor-due-diligence programmes.
Due diligence checklist: Questions to ask any FX or payments provider
When assessing an FX broker, payment institution, or global payments platform, use segregated client accounts as a core line of questioning, not an afterthought. Here’s a practical checklist for your next RFP or review.
1. Structure and legal basis
- Are client funds held in segregated client accounts at regulated banks?
- How are those accounts titled at the bank?
- Under which regulatory regimes and licences does the safeguarding obligation sit?
2. Bank counterparties and jurisdictions
- With which banks are segregated client accounts held?
- In which countries and currencies?
- What criteria do you use to select and monitor these banks?
3. Reconciliation and controls
- How often do you reconcile internal ledgers with the balances in segregated accounts?
- Are reconciliations automated, and what happens when breaks are identified?
- How quickly are shortfalls addressed, and from what sources?
4. Audit and oversight
- Do you undergo independent safeguarding audits? How frequently?
- Can you share a high-level summary of the latest findings?
- How does the board or executive team oversee safeguarding and client asset protection?
5. Insolvency scenario planning
- In the unlikely event of failure, what is the expected process for returning client funds?
- Have you run wind-down planning or resolution simulations?
- How are client communications handled in such a scenario?
6. Transparency for your stakeholders
- Can you provide clear, written explanations suitable for our board and auditors?
- Are your terms and disclosures consistent with regulatory expectations on fairness and clarity (for example, FCA communications rules)?(Sidley Austin)
These questions help you separate providers who treat safeguarding as a core duty from those who treat it as a marketing bullet.
How a specialist FX partner like Kazzius Capital supports client fund protection
Traditional banks often provide strong protection but offer limited flexibility on FX pricing, speed, and global payment workflows. Specialist FX and payments partners fill that gap — but only if their safeguarding model is robust.
A specialist partner focused on institutional-grade safeguarding and genuine human support should be able to demonstrate, at minimum:
- Use of segregated client accounts for all client funds within scope.
- Clear documentation around how those accounts are structured and controlled.
- A governance setup that treats safeguarding as a board-level priority, not just an ops task.
With a provider like Kazzius Capital, the goal is to bring together:
- Efficient global FX and payment routing, including competitive rates and fast settlement.
- Structured risk management using tools like forward contracts and hedging strategies, so you’re not at the mercy of currency swings.
- A safeguarding-first mindset that recognises you’re trusting them with critical operational balances, not just one-off spot trades.
If you’re reviewing your current setup or planning a migration away from a traditional bank, this is the moment to demand both competitive FX and clear evidence of segregated client account structures.
👉 To explore how a specialist partner can combine competitive FX pricing, smart risk management, and robust safeguarding, start here:
Explore Kazzius Capital’s FX and payment solutions
Next steps: strengthen your FX risk and payments setup
Segregated client accounts are just one piece of a stronger global payments and FX strategy — but they’re a foundational one. Here’s how to turn this article into concrete action:
1. Map where your funds are held today
- List all FX brokers, payment providers, EMIs, and non-bank platforms holding balances on your behalf.
- For each, record: currencies, typical balances, and average days on account.
2. Request written safeguarding explanations
- Ask each provider for a clear, non-technical description of how your funds are safeguarded.
- Share these with your internal risk, treasury, and legal teams for review.
3. Prioritise providers with strong segregation and hedging tools
The most effective partners are those who can simultaneously:
- Hold your funds in segregated client accounts with robust controls.
- Offer hedging and forward contracts to stabilise your FX rates over time.
- Support multi-currency and mass payment workflows so you’re not constantly moving balances between fragmented systems.
If you’re considering structured hedging or forward contracts to reduce currency volatility alongside better safeguarding, you can explore these topics further here:
- Hedging solutions for corporate FX risk
- Forward contracts to fix future FX rates
- Mass payments for global payroll and supplier runs
4. Align your safeguarding approach with your growth plans
As your cross-border volumes grow, the absolute amounts sitting with providers increase too. This is exactly when boards, investors, and auditors start asking tougher questions about where those balances are held and how quickly they can be recovered in a crisis.
Building relationships now with providers who combine segregated client accounts, FX expertise, and responsive, human support will pay off as your scale and complexity increase.
Talk to an expert
If you’d like a practical discussion — not a generic sales pitch — about how segregated client accounts and smarter FX workflows could support your specific business model:
👉 Speak to a Kazzius Capital specialist to review your current providers, FX exposures, and safeguarding arrangements.
You can also stay on top of market moves, regulatory changes, and FX risk strategies here:
👉 Read the latest FX market and safeguarding insights
Done well, segregated client accounts help transform your global payments setup from a constant source of concern into a controlled, auditable part of your financial infrastructure — one that your board, your auditors, and your team can rely on.