Segregated Client Funds: How Your Deposit Is (or Isn't) Protected
What segregation means, how UK CASS and Australian trust rules work, and why segregation alone is not a guarantee.
When you deposit money with a broker, it should not become the broker's money. Under segregation rules, client funds are held in separate bank accounts designated as client or trust accounts, so that if the broker becomes insolvent its creditors cannot claim them.
How strong regimes do it
- UK (CASS): daily reconciliations, acknowledgement letters from banks, a CASS oversight officer and annual audits of client-money arrangements.
- Australia: client money held in trust accounts; since 2022 brokers can no longer use retail client money to meet their own hedging margin.
- Japan: mandatory trust with a trust bank (kubun kanri shintaku) so clients can be repaid directly by the trustee.
- EU: MiFID II safeguarding rules, with national variations.
Where segregation fails
Segregation is only as good as the controls around it. MF Global (2011) and Peregrine Financial Group (2012) both collapsed with client money missing despite rules requiring it to be segregated. In weaker jurisdictions segregation may be a contractual promise with little independent audit. Pooled client accounts can also mean shortfalls are shared among all clients.
What to look for
- A statement naming the banks that hold client funds
- Audited financial statements, ideally from a well-known auditor
- A regulator with explicit client-money rules and audit requirements
- For large balances, a compensation scheme as a backstop