Segregated account

Segregated account is a bank account in which a customer's funds are held separate from the funds of a brokerage firm. This is done to create a clear separation between the two groups of money so client funds are not used for the wrong purpose, it also helps ensure that the money can be easily identified as belonging to customers in case a firm becomes bankrupt. In many jurisdictions segregated accounts cannot be used to pay creditors during a liquidation and must be returned to the customers directly.

In most countries brokerage firms must maintain a segregated account to make sure that the clients money and the firm's money is not intermingled and clients funds are not used for operational purposes. Historically, unscrupulous stock brokers have used clients funds for their own use, which often results in the failure of the brokerage with the loss of client funds. Holding a segregated account is some measure to protect against such unscrupulous and fraudulent behaviour, however the effectiveness is limited as segregated accounts are often controlled by the brokerage firms senior management who when under pressure may be tempted to dip into such segregated funds.

See also

• Ponzi scheme
• Deposit insurance