Brokers With Segregated Accounts

Brokers with segregated accounts keep client funds separate from company money. This is an important safety measure which helps protects trader capital in the event a brokerage goes bankrupt. This article explains how to check if a forex broker uses segregated accounts and UK regulations. Our experts have also listed the best brokers with segregated accounts: 

What Are Brokers With Segregated Accounts?

Brokers with segregated accounts hold the firm’s working capital separate from their client’s investment money.

By holding customer funds in segregated bank accounts, the firm is not able to use client money to settle asset and liability transactions in the case of business failure. They essentially provide an additional layer of security so that the firm will not misuse client funds.

Often money is held with a custodian, such as a bank or financial institution. These funds can be easily controlled, managed, and identified if a broker goes into bankruptcy or financial takeover.

UK Regulations

The segregated account has been added as a stipulation by many financial watchdogs worldwide. The Financial Conduct Authority (FCA) specifies a separate rule under its Client Assets Sourcebook. This identifies the segregation methodology for brokers to follow, plus an acknowledgement of trust and reconciliation requirements.

The FCA states that “a firm, on receiving any client money, must promptly place this money into one or more accounts opened with any of the following profiles; a central bank, a CRD credit institution, a bank authorised in a third country or a qualifying money market fund.”

AFX Markets went into administration in 2019 under the FCA’s Special Administration Regime (SAR). This was created by the UK government in 2011 to deal with issues of the failure to comply with FCA regulatory rules of customer fund holding. Clients were entitled to claim with the FSCS if they were registered customers of AFX Markets Ltd. This included access to compensation up to £85,000 per person.

Unregistered Brokers

Forex brokers with non-segregated cash accounts may not provide adequate financial safeguarding to traders. Unregulated brokers or those registered with more lenient offshore watchdogs, may not separate customer money from their own.

This is particularly common with binary options brokers, operating with limited government or third-party oversight. Some firms have terms dictating that they own their investors’ money once it had been deposited, meaning these funds could be used for day-to-day business operations.

Benefits Of Brokers With Segregated Accounts

• Peace of mind knowing that the broker-dealer or registered custodian is unable to complete fraudulent or risky operations with trader funds
• Segregated bank accounts are legally separated from the firm’s assets, meaning the forex broker cannot use the stored funds to conduct business operations
• Brokers with segregated accounts must maintain a record of all transactions performed through the account
• Online brokers are required to allow clients, the beneficiary, constant access to their money as and when required

How Do I Know If My Broker Uses Segregated Accounts?

Typically, a broker-dealer will publish this information on their regulation and safety web pages. For example, CMC Markets has details of its segregated account under its ‘Regulations’ page.

The firm states that it holds client funds in segregated bank accounts with UK institutions, such as NatWest, Barclays, and Lloyds. Their client money controls and processes are also audited annually by PricewaterhouseCoopers, with results reported to the FCA.

Tip: you can check that a broker’s FCA license is legitimate by searching for the company name or registration number on the watchdog’s official website.

Segregated Accounts Vs Separate Accounts

A separate account is an investment profile, typically opened through an online broker but managed by a financial advisor. Often there are minimum investment requirements to register for a separate account, sometimes in the region of £50,000+, plus annual management fees averaging 1-5% of the portfolio value.

A segregated account is used to store and operate client money separately from the working capital of the trading broker. They are a safety measure employed by the best UK brokers.

How To Compare Brokers That Offer Segregated Accounts

It is not uncommon to find UK brokers with segregated accounts, particularly given the rules of the FCA. The increased choice means you can be more selective when choosing a brokerage. Consider the following when comparing brokers with segregated accounts:

• Fees – Does the broker have a transparent fee structure? Are the commission charges and spreads competitive? Brokers with low fees should be favoured, though this should not come at the detriment of access to appropriate trading tools and additional features. City Index, for example, offers zero commission forex and CFD trading except for equity CFDs. UK equities will incur a 0.08% fee with a minimum commission of £10.
• Customer Support – Access to a responsive and reliable customer support team is helpful, especially when it comes to financial safeguarding. The best brokers with segregated accounts offer 24/5 or 24/7 customer support through various methods. It is important to be able to speak to a human advisor for money-holding concerns, as well as for trading queries and platform guidance.
• Regulation – Regulatory status is typically a good indicator of financial safeguarding. Brokers with oversight from top-tier authorisations such as the FCA must comply with relevant stipulations. In addition to segregated funds, access to compensation schemes and negative balance protection are important measures.
• Assets – Another consideration when comparing brokers with individual segregated accounts is the range of investment products and margin trading available. This may include stocks, forex, commodities, or cryptocurrency. Interactive Brokers, for example, provides thousands of tradeable products on more than 150 exchanges.
• Deposit & Withdrawal Methods – The best online brokers with segregated accounts accept several payment methods to deposit and withdraw from an account. This may include credit/debit cards, bank wire transfers, and e-wallet providers such as PayPal and Neteller. Also look at minimum deposits (under £200 is good) and payment timelines (the top providers process deposits instantly and withdrawals within five working days).

Bottom Line On Brokers With Segregated Accounts

Using a forex broker with a segregated asset account for client money is sensible. The peace of mind and assurance that your funds are held apart from business money in the case of failure or insolvency is important. It is a promising sign that the brokerage is legitimate and trustworthy.

Use our ranking of the best brokers with segregated accounts to start trading.

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